Cash has been in the news lately. But just as the U.S. Treasury Department announced plans for more inclusive representations of note-worthy (pun intended) Americans on the $5, $10 and $20 bills, there were rumblings that some other denominations of currency should perhaps disappear altogether.
The cash versus cashless debate is complicated. There are issues of transaction security, criminal elements, tax evasion, free flow of capital, access to goods and services and the ability to fully participate in the global economy. On one side of the coin (we really can’t help it with the puns), cashless transactions seem like an inevitable future, while, on the other, cash is helping to build promising emerging niche industries.
Here in the U.S., cashless transactions are king. According to a recent report by CreditCards.com, 58 percent of U.S. adults still prefer to use cash for purchases under $5, while 22 percent use debit cards and 11 percent use credit cards. Which age group is most likely to use a credit card for these small transactions? That would be millennials, ages 18–29, with 64 percent saying they prefer to use cards even for transactions under $5. And the age group to use cards the least? Also not surprisingly, those ages 65 and older, with only 11 percent using cards for these small purchases.
But it’s not just credit cards that are helping to spell the demise of cash; mobile phones have also accelerated the move away from hard currency. As far back as 2014, Forbes was reporting on the move toward mobile payments, citing studies from Visa that showed Americans were twice as likely to carry a phone as cash; those between 18 and 34 are four times more likely. The idea of switching to mobile payments is old news at this point.
So, who continues to use cash? There are industries that are still cash-based, among them: the medical marijuana trade. Now legal in 23 states, with recreational use also legal in Alaska, Colorado, Oregon and Washington, marijuana is very much still a cash-based business. While some may see it as a result of its illegal past (please note: recreational marijuana use is still illegal on the federal level), there are some other issues that factor into the equation.
As American Banker outlined in a recent article, marijuana is a booming niche retail industry. In Colorado alone, pot is expected to pour an estimated $120 million in tax revenue into state coffers this year. Nationwide, the numbers get even more compelling with the medical and recreational marijuana industries expected to net $2 billion to $3 billion in revenue per year. With such impressive revenues, why aren’t banks and credit card companies more eager to get involved with the marijuana industry? Two words: risk mitigation.
According to American Banker, banks see these businesses as likely to put them under added scrutiny by the federal government and at great risk for potential money laundering schemes. Ironically, a recent lawsuit between Denver-based Allgreens, a medical marijuana dispensary, and the IRS was settled and a $25,000 levy removed after the IRS accused Allgreens of circumventing employee taxes.
The outlet dug deeper into the case to reveal that Allgreens’ mistake came when it tried to pay its payroll taxes to the IRS in cash, which is actually illegal. Businesses are actually required to deposit payroll taxes using the Electronic Federal Tax Payment System. Meeting that obligation, however, requires a bank account. Because Allgreens is a cash-based business and does not have a bank account, it attempted to pay their tax bill in cash. Here’s where the irony sets in: In order to compel the company’s compliance and pay its tax bill through electronic means, the IRS instructed Allgreens to find a third party who it could funnel the funds through in order to pay the IRS. As Allgreens’ lawyer pointed out, that’s basically the definition of money laundering.
Why does the IRS make it so difficult for businesses to deal in all-cash? Historically, large cash transactions have carried the stigma of illegal activity. According to The Wall Street Journal, some European countries have gone so far as to make cash transactions over a certain amount against the law. In Italy, it is illegal to pay cash for anything worth more than €1,000 ($1,132), France has recently reduced its limit on cash transactions from €3,000 to €1,000. Similar restrictions exist in Germany and Britain, with fines running as high as thousands of euros.
Meanwhile, in other parts of the world, cash is still king. India, Japan and Brazil are just some of the economies that are still vastly fueled by cash transactions. These cash-based economies have distinct advantages in that money can flow more freely from consumers to businesses without surcharges and interest rates impacting spending.
However, it seems that change is coming in the form of cashless transactions, even in these parts of the world. As The Economic Times reported in March 2015, paperless transactions (that includes payments made online, via debit and credit cards and mobile devices) surpassed paper-based transactions for the first time ever in that country.
It may take longer than some in the payments industry are predicting, but it appears that, eventually, cash will largely become more of a novelty than a must-have form of payment.
Before that comes to pass, though, there will still be plenty of time to put new faces on currency.