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Cash-Reduction Initiatives Help Drive Electronic Payments Adoption

By Mike Faden

Despite predictions of a future "cashless economy," cash remains an important payment method across the globe. But government and industry initiatives in many countries aim to reduce the use of cash in general, or of certain currency denominations. Reasons include promoting financial inclusion, preventing illegal uses, cutting cost, and boosting electronic payments to encourage economic growth.1 Tactics include eliminating high-value banknotes, discouraging use of coins, bans on high-value cash transactions, introducing charges for cash withdrawals at banks, and encouraging electronic payments.2

The Cost of Cash


It is expensive to maintain and use a national supply of cash, experts say. A 2013 Tufts University study estimated that the cost of cash in to the U.S. government, businesses and households totals $200 billion annually, including factors such as the cost of manufacturing banknotes and coins, tax evasion, maintaining ATM networks, and the time consumers spend obtaining and managing cash.


The cost to businesses comprised $55 billion of that total; it included theft and cash-handling errors, cash handling time, and security costs.3 The same authors estimated in a 2016 Harvard Business Review article that costs are even higher in many countries, including much of Europe and Asia.4


To reduce currency production costs, several countries have switched some denominations from banknotes to longer-lasting coins.5 A bill reintroduced in the U.S. Congress in March 2017 aims to suspend production of the penny, which costs more than one cent to produce, while switching from dollar bills to dollar coins and using cheaper metal to make nickels. The authors say the bill could save the nation a total of $16 billion.6 U.K. Government ministers also reportedly considered scrapping the country's lowest-value coins in 2015.7 The Bank of Korea says it aims to make South Korea a "coinless society" by 2020, according to The Korea Herald.8


The European Payments Council (EPC), an association of banks and other financial institutions that manages major pan-European electronic payment schemes, says that the cost of cash transactions is not fully passed on to users, but rather is largely cross-subsidized by bank revenues. Because cash remains the most popular instrument in most countries, the EPC is seeking to reduce cost by promoting best practices and operational efficiencies in distributing and processing euro currency across Europe, an initiative it calls the Single Euro Cash Area.9


Removing High-Value Banknotes Spurs Electronic Payments


Several countries have permanently or temporarily eliminated high-value banknotes, in many cases citing the fact that they are often used for illegal transactions.10 In India's 2016 "demonetization" initiative, for example, the country's highest-denomination banknotes ceased to be legal tender, although they were subsequently replaced with new banknotes. The demonetization, together with other government actions, spurred a huge take-up of electronic payments, which experts said could herald a longer-term shift to a less cash-intensive future.


Some experts have also proposed eliminating the U.S. $100 bill, as well as high-denomination banknotes in other countries.11 The U.S. discontinued issuance of even higher-value bills—up to $10,000—in 1969.12 In 2016, the European Central Bank said it would stop issuing 500-euro banknotes around the end of 2018, "taking into account concerns that this banknote could facilitate illicit activities."13 Banknotes already in circulation will remain legal tender, the ECB said. In many EU countries, cash cannot be legally used for payments above a certain value. The value varies by country.14,15


Incentives for Electronic Payments


Some countries have introduced financial incentives for moving away from cash. Nigeria and Ghana are examples. The Central Bank of Nigeria kicked off a "cash-less Nigeria" policy in 2012 that introduced cash-handling charges for large cash withdrawals from banks.16 The policy aimed to reduce the amount of physical cash in circulation and encourage more electronic transactions to achieve a range of goals, including greater financial inclusion and economic growth. The volume and value of electronic transactions increased substantially in subsequent years.17


Ghana, which initiated an effort to drive adoption of electronic payments in 2003,18 recently mandated that customers should receive interest on e-wallet balances.19


Nordic Countries Cut Cash Use


Nordic countries are in the vanguard of the shift toward more electronic payments and less use of cash. In Sweden, cash is not accepted in many stores and by some public transit authorities, one expert noted.20 Eighty percent of all transactions are made by card.21 In a study by Sweden's Royal Institute of Technology, most Swedish retailers predicted that Sweden will become cashless by 2030.22,23 Some of Norway's largest banks no longer handle cash in their branches, and one has suggested that the country should stop using cash altogether.24


Cash Is Dead, Long Live Cash


Some experts point out that cash remains stubbornly resilient, despite the efforts to shift to electronic payments; an article in Finance & Development, which is published by the International Monetary Fund, estimated that globally, perhaps 85 percent of payments are still cash-based.25 In the U.S., the value of currency in circulation has continued to increase steadily, with $100 bills accounting for the biggest share.26 In the Eurozone, the number of banknotes increased by 133 percent between 2002 and 2016, while the value rose by 380 percent, the EPC notes.27


"The cashless society, as appealing as it may sound, is probably just as elusive as the much-vaunted paperless office," according to Yves Mersch, a member of the ECB's executive board.28 The shift from cash to electronic payments depends on a number of factors, such as economies of scale and network effects, according to Finance & Development. In countries such as Sweden, a tradition of cooperation between banks helped drive adoption of real-time payments, but creating such cooperation can be more difficult in larger countries with a greater number of major players, such as the U.S., the article said.29



Government and industry initiatives across the world are seeking to reduce the use of cash and drive greater adoption of electronic payment services. Goals include cutting cost, preventing illegal activities, and increasing financial inclusion. However, at least in most countries, cash has so far remained a popular payment method.

Mike Faden - The Author

The Author

Mike Faden

Mike Faden has covered business and technology issues for more than 30 years as a writer, consultant and analyst for media brands, market-research firms, startups and established corporations. Mike also is a principal at Content Marketing Partners.


1. World Payments Report 2017, Capgemini and BNP Paribas;
2. Ibid.
3. “The cost of cash in the United States,” The Institute for Business in the Global Context, Fletcher School, Tufts University;
4. “The Countries That Would Profit Most from a Cashless World,” Harvard Business Review;
5. Benefits and Considerations for Replacing the $1 Note with a $1 Coin, U.S. Government Accountability Office;
6. “Senators John McCain & Mike Enzi reintroduce the COINS Act to save billions in taxpayer dollars,” U.S. Senator John McCain;
7. “George Osborne came within weeks of scrapping the penny,” The Guardian;
8. “Korea going coinless by 2020,” The Korea Herald;
9. “How to Improve the Cost-Efficiency of Cash in Europe: the EPC Publishes the Single Euro Cash Area Framework,” European Payments Council;
10. “Several governments are destroying their own bank notes. Here’s why,” PBS News Hour;
11. “Making it Harder for the Bad Guys: The Case for Eliminating High Denomination Notes,” Harvard Kennedy School;
12. “The Plot to Kill the $100 Bill,” Wall Street Journal;
13. “ECB ends production and issuance of €500 banknote,” European Central Bank;
14. Limit for cash payments in EU, Europe Consumer Centre France;
15. “New '€3,000 cash limit' law passed by the President,” Algarve Daily News;
16. “Cash-less Nigeria,” Central Bank of Nigeria;
17. “More Nigerians are embracing electronic payments,” Quartz Africa;
18. “Efforts to increase the use of electronic payments in Ghana's banking sector,” Oxford Business Group;
19. “How Ghana Set Its Rules on Interest Payment on e-Money Accounts,” CGAP blog;
20. “FALQs: Cashless Sweden,” U.S. Library of Congress blog;
21. “Sweden – The First Cashless Society?” Official Site of Sweden;
22. “Sweden predicted to be a cashless society by 2030,” The Local;
23. “FALQs: Cashless Sweden,” U.S. Library of Congress blog;
24. “Norway's Biggest Bank Calls For Country To Stop Using Cash,” International Business Times;
25. “Cash Is Dead, Long Live Cash,” International Monetary Fund;
26. “Currency in Circulation: Value,” U.S. Federal Reserve;
27. “How to Improve the Cost-Efficiency of Cash in Europe: the EPC Publishes the Single Euro Cash Area Framework,” European Payments Council;
28. “Cash Is Dead, Long Live Cash,” International Monetary Fund;
29. Ibid

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