Cash – Kicking The Habit
Cash – Kicking The Habit
There was an interesting article in The Economist recently about strikes on the London Underground (Tube). Such strikes are commonly believed to have a short term net cost to the economy. However the article quoted a study by Oxford and Cambridge universities showing that the strikes resulted in a net long term addition to the economy. This is because the strikes caused commuters to break their usual commute habit and find other routes for getting to work. The study found that many commuters actually stuck to the new route once the strike was over and that it was a more efficient / optimal journey. The net long term benefits to the economy from these newly discovered optimal routes were found to outweigh the short term costs from the actual strike.
Economists know that people don’t always optimize their actions for economic benefit. Many of our day-to-day actions, like our commute to work are a result of habit rather than economic efficiency.
This got me thinking about the use of cash. Is the continuing use of cash in our economies also a function of habit rather than economic efficiency?
Use of cash – habit or economic efficiency?
Governments and businesses would like us to stop using cash altogether. The reasons are numerous, including lower costs for security, handling and administration for businesses and increased transparency, tax administration and less risk of a run on the banking system for governments. For the most part consumers, except those who want to keep (some of) their transactions private, would not mind as long as alternatives were easily available and easy to use.
Some countries have recognized this link to habit in the use of cash and are trying to force consumers into kicking the habit. Denmark for example will stop printing/minting any more cash after the end of 2016. The Danish ministry of finance has also put forward a proposal to make it legal for some category of retailers, e.g. gas stations, clothing stores, restaurants etc, to no longer have a requirement to accept cash.
Sweden which the Guardian has called the most cashless society in the world has 4 out of 5 payments made electronically.
As shown in the infographic from CNN and Mastercard below, the increasing popularity of contactless and mobile payments around the world is also helping to kick our habit to use cash.
What do you think, are electronic payments better for the economy? Is the continuing use of cash a result of habit or the absence of a viable, easy to use ubiquitous alternative to cash?
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