The future of cash in commerce and society: A glimpse into the next half century

The future of cash is a topic of much discussion, with many predicting a cashless future. As commerce and society evolves, the role of physical cash has undergone radical transformation. Most suggest that we are heading towards a ‘cashless’ future but I still hold hope that cash will stay around for the foreseeable future and prefer to say that the ‘future is less-cash and not cashless’. Cash is a trade related invention that has never been substituted entirely thus far. As a concept, it has gained universal currency and no other instrument spans the range of use-cases that cash affords. Having said that, the next half-century holds significant implications for cash, particularly in rapidly changing economies.

Developed nations are already seeing a shift towards a cashless society; especially in the consumer world. Sweden, for example, has been on the frontlines of this change, with cash transactions constituting a mere 1% of the country’s total economic activity by the early 2020s. Given this trajectory, it is reasonable to predict that many developed nations will approach a near-total elimination of cash from everyday transactions within the next 50 years; some earlier than others

As technology evolves, consumers will demand faster, safer, and more convenient payment methods. Innovations like biometric payments, voice-activated transactions, and brain-computer interfaces may emerge as mainstream payment mechanisms, redefining the meaning of ‘contactless payments’ entirely.

While Bitcoin was the first to usher in the era of cryptocurrencies for many of us, the next 50 years might see the much wider integration of stablecoins in everyday transactions, supported by governmental and institutional backing. We are already seeing them being used quite widely to enable cross border payments so it’s only a question of time before we start to see them being widely used more widely.

Unlike CBDCs, Programmable Fiat,an evolution of traditional fiat currency, leveraging blockchain or similar distributed ledger technologies for intelligent contracts and programmable transfers doesn’t get as much ‘air-time’ as CBDCs. Programmable fiat could probably have the biggest impact on the elimination of other forms of exchange, not just cash. The other impact it could have is on the value of sovereignty of currency in some instances. Programmable fiat can become a legitimate or at least a widely spread mechanism of exchange in countries beyond the one from which the fiat was issued.

Government-backed Digital Currencies (CBDCs) could also become the norm as central banks, world over, explore these further. These currencies will be tethered to national economies and regulatory frameworks, allowing nations to gain more control over their financial ecosystems while adapting to digital trends. There are typically, two types of CBDCs which get discussed – wholesale and Retail. In my opinion, there is a much stronger case for wholesale CBDC to get scale adoption.

Increased privacy concerns regarding new payment formats are also expected, as cashless transactions often come at the cost of privacy. As a result, more private and secure digital transaction methods are being explored, with government regulations being passed on this topic. However, identity thefts and data breaches are expected to reach epidemic levels.

Financial inclusion remains a significant challenge in emerging economies, with many lacking access to essential banking services. Mobile banking and digital wallets offer an answer, but limited for-profit organizations will still manage the evolution of the financial services sector. Cash plays a massive part in bringing underprivileged or isolated communities into the mainstream, and development agencies will consider creating newer designs, form factors, and user experiences for cash-based financial inclusion. Countries with solid public infrastructure will fare better. On the other hand, within the hybrid economies cash will remain an important form factor. Factors like infrastructure challenges, low internet penetration, and distrust in digital systems ensure that cash retains its relevance. Also, cash is symbolic in many cultures, as gifts during festivals, ceremonies, or personal milestones are often given in cash, symbolizing blessings and good wishes – this will prove to be yet another reason, why cash will be around that one suspects.

Also, lets not forget cash offers a tangible backup in case of systemic failures, such as technological glitches or cyberattacks. In emergencies, having physical currency will continue to be crucial, and it will become a social responsibility for governments to maintain access to cash. Anonymity is another advantage of cash transactions, as it leaves no/ limited digital footprint, appealing to a section of the population concerned about their privacy.

Taking a longer term view, there is little doubt that cash will becomes less common, but I suspect at the same time its historical and aesthetic value will increase. Cash museums will display older currencies and tell tales of economic transitions, geopolitical events, and cultural shifts. These establishments will become experiential centes, simulating historic marketplaces through augmented and virtual reality.

Cash as an artistic medium can be a poignant statement on commerce, society, and change. Educational institutions will introduce modules teaching students about the history of trade, commerce, and the role of cash, which will be crucial in a world where many might never handle physical currency daily.

Cash tourism may emerge as some countries or cities hold onto cash longer than others, with tourists visiting these places for the unique experience of a 'cash-based' economy.

As the economy transitions to digital models, specific segments will romanticize and cling to the tangibility of cash. Collectors will hoard older currency and currencies from nations transitioning to digital models, while the underground economy, which relies on untraceability, will ensure that cash remains in circulation.

The concept of 'smart cash' is compelling, as it imagines a world where physical currency is an amalgamation of tangible assets and digital technology. This could include notes embedded with microchips, which can carry digital information, authenticate genuine notes from counterfeits, or interact with digital payment systems. Coins could have NFC capabilities, smoothing micro-transactions.

The technological renaissance of physical currency might see innovations like paper currency with self-cleaning properties or coins made from new alloys that change color based on authenticity. The drive to keep cash relevant could lead to significant technological advancements in the physical currency realm – notes and coins.

As I shared earlier in the article, cash still has and will continue to hold emotional significance beyond its transactional value, as letters with banknotes, coins passed down generations, or currency from a memorable trip abroad are tied to memories and sentiments. In a world dominated by digital surveillance and data analysis, using cash could become a statement, as groups concerned about individual freedoms and privacy might turn to cash transactions as a form of protest against perceived overreach by governments or corporations.

Also, if AI does take over the world and/or cross-border cyber-attacks become more sophisticated and common, there might be periods of ‘digital blackouts’. During such time, nations will have no other options but to revert to cash – not out of choice but out of necessity

In conclusion, it's crucial to understand that the future, while influenced by technological advancements and economic trends, is also shaped by human emotions, cultural nuances, and unforeseen global events. While cash might seem like a relic in a hyper-digital future, it's essential to remember that its roots are intertwined with the very evolution of trade, trust, and human interactions. Whatever the form or frequency of its existence, cash will always echo the stories of societies, their aspirations, and their progress. Just as societies evolved from barter systems to coinage to paper currency, the next 50 years will be a testament to humanity's ability to innovate, remember, and continuously redefine the tangible and intangible markers of value.

The story of cash, in its various incarnations, is far from over.

Arjun Vir Singh is Partner and Global Co-Head Fintech, Financial Services Arthur D Little & Advisory Council Member, Fintech Tuesdays

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