Could people imagine a world without cash 100 years ago? Today in some countries such a concept is almost a reality. No one is surprised by the fact that a person can keep one million dollars on a debit card.
The evolution of money made its value rather nominal, which is now based more on people’s trust than on the unique properties of currencies.
How did society come to this, and what will happen next?
Five important stages in the history of money
1. A transition from barter to monetary relations. In ancient times, people received the necessary goods through a simple process of exchange. Over time, a need arose to set a criterion that would serve as a universal measure of the value of all goods. As a result, money was introduced.
2. The era of coins. After numerous experiments, humanity opted for the metallic money system. Gold was the most prominent among all the metals known in the age of Antiquity. Gold was destined to become a symbol of wealth and prosperity. Gold coins served as a means of payment for more than 2000 years.
3. The emergence of paper money. In the 8th century, the first banknotes were issued in China. The issue of paper money in Europe began much later – Sweden was the pioneer of paper money in 1661. Banknotes were backed by stocks of precious metals owned by the state. Since the 19th century, the largest countries in the world have introduced the gold standard* system, choosing gold as the basis of national currencies.
4. The abandonment of the gold standard. Over its history, the gold standard has undergone many changes and was finally abandoned in 1971. This happened when the global reserve currency* — the US dollar — was no longer backed by gold. Since then, the value of banknotes has been supported only by assurances of governments and financial institutions.
5. The heyday of non-cash payments and digital currency. In the second half of the 20th century, plastic cards issued by banks, online payments and electronic currencies took hold. Having moved to the banking servers and web spaces, money has become intangible.
The new financial era
Today, we see that money loses its physical embodiment, morphing into an electronic format.
In developed countries, there is a growing tendency to abandon cash under the pretext of combating money laundering and the shadow economy. Here are just some examples of countries that have succeeded in transitioning into a cashless society:
Sweden. “We don’t accept cash” – such signs can be seen all over the place, especially in Swedish cafes and restaurants. More than half of the country's banks do not work with cash. A sign with a corresponding warning was shown to the robber who broke into the Stockholm branch of SEB bank holding a bag for cash. The number of cash payments in Sweden is only 1% of the total financial turnover.
Denmark. Danish citizens are accustomed to cashless payments; even hot dogs from street vendors are cash-free. The Danish authorities annually reduce the amount of cash in circulation, planning to abandon the cash system by 2030.
France. Since 2014, the country has enacted laws to limit cash transactions. 97% of French people use services of banks, this fact alone accelerates the introduction of innovations in the field of electronic payments, given that nearly 92% of payments in the country are solely non-cash.
Reasons for concern
Many experts are concerned about the ongoing processes. They believe that the financial system will be exposed to technical failures and hacker attacks.
“We don’t think that a fully-functioning cashless society is possible. If, for example, electricity is cut off, cash will remain the only means of payment,” says the Governor of the Central Bank of the Republic of Austria Ewald Nowotny.
Eternal values facilitate the progress
Undoubtedly, non-cash payments and electronic currencies are convenient, fast and efficient. However, it should be noted that the reliability of personal finances increases if they are backed by real physical values. In this case, the risks associated with the abandonment of cash are reduced to a minimum.
In a cashless society, gold will become a reliable insurance against possible threats.
The yellow metal perfectly functions as:
A reserve asset. In case of losing access to a bank account, gold becomes an ideal means of payment or exchange, given that gold is globally recognized and in demand all over the world.
A tool for preservation and accumulation. Gold is not subject to inflation and can’t be affected by economic cataclysms. The precious metal will preserve and accumulate the value of the invested money, since the price of gold tends to increase in the long run.
Throughout history, gold saved individuals and even entire nations. In the cashless world of the 21st century, the importance of gold as the foundation of Financial Security rapidly increases.
*The gold standard — a monetary system in which each economic unit of account (national currency) is based on a fixed quantity of gold. For example, the US twenty-dollar bill ($20) was equivalent to one ounce of gold in 1928.
*A reserve currency (aka anchor currency) — a universal currency that is held in significant quantities by central banks as part of their foreign exchange reserves.