{ "id": "R45716", "type": "CRS Report", "typeId": "REPORTS", "number": "R45716", "active": true, "source": "EveryCRSReport.com", "versions": [ { "source": "EveryCRSReport.com", "id": 598150, "date": "2019-05-10", "retrieved": "2019-12-20T19:15:04.567891", "title": "The Potential Decline of Cash Usage and Related Implications", "summary": "Electronic forms of payment have become increasingly available, convenient, and cost efficient due to technological advances in digitization and data processing. Anecdotal reporting and certain analyses suggest that businesses and consumers are increasingly eschewing cash payments in favor of electronic payment methods. Such trends have led analysts and policymakers to examine the possibility that the use and acceptance of cash will significantly decline in coming years and to consider the effects of such an evolution.\nCash is still a common and widely accepted payment system in the United States. Cash\u2019s advantages include its simplicity and robustness as a payment system that requires no ancillary technologies. In addition, it provides privacy in transactions and protection from cyber threats or financial institution failures. However, using cash involves costs to businesses and consumers who pay fees to obtain, manage, and protect cash and exposes its users to loss through misplacement, theft, or accidental destruction of physical currency. Cash also concurrently generates government revenues through \u201cprofits\u201d earned by producing it and by acting as interest-free liabilities to the Federal Reserve (in contrast to reserve balances on which the Federal Reserve pays interest), while reducing government revenues by facilitating some tax avoidance.\nThe relative advantages and costs of various payment methods will largely determine whether and to what degree electronic payment systems will displace cash. Traditional noncash payment systems (such as credit and debit cards and interbank clearing systems) involving intermediaries such as banks and central banks address some of the shortcomings of cash payments. These systems can execute payments over physical distance, allow businesses and consumers to avoid some of the costs and risks of using cash, and are run by generally trusted and closely regulated intermediaries. However, the maintenance and operation of legacy noncash systems involve their own costs, and the intermediaries charge fees to recoup those costs and earn profits. The time it takes to finalize certain transactions\u2014including crediting customer accounts for check or electronic deposits\u2014can lead to consumers incurring additional costs. In addition, these systems involve cybersecurity risks and generally require customers to divulge their private personal information to gain system access, which raises privacy concerns.\nTo date, the migration away from cash has largely been in favor of traditional noncash payment systems; however, some observers predict new alternative systems will play a larger role in the future. Such alternative systems aim to address some of the inefficiencies and risks of traditional noncash systems, but face obstacles to achieving that aim and involve costs of their own. Private systems using distributed ledger technology, such as cryptocurrencies, may not serve the main functions of money well and face challenges to widespread acceptance and technological scalability. These systems also raise concerns among certain observers related to whether these systems could facilitate crime, provide inadequate protections to consumers, and may adversely affect governments\u2019 ability to implement or transmit monetary policy. The potential for increased payment efficiency from these systems is promising enough that certain central banks have investigated the possibility of issuing government-backed, electronic-only currencies\u2014called central bank digital currencies (CBDCs)\u2014in such a way that the benefits of certain alternative payment systems could be realized with appropriately mitigated risk. How CBDCs would be created and function are still matters of speculation at this time, and the possibility of their introduction raises questions about the appropriate role of a central bank in the financial system and the economy.\nIf the relative benefits and costs of cash and the various other payment methods evolve in such a way that cash is significantly displaced as a commonly accepted form of payment, that evolution could have a number of effects, both positive and negative, on the economy and society. Proponents of reducing cash usage (or even eliminating it all together and becoming a cashless society) argue that doing so will generate important benefits, including potentially improved efficiency of the payment system, a reduction of crime, and less constrained monetary policy. Proponents of maintaining cash as a payment option argue that significant reductions in cash usage and acceptance would further marginalize people with limited access to the financial system, increase the financial system\u2019s vulnerability to cyberattack, and reduce personal privacy. Based on their assessment of the magnitude of these benefits and costs and the likelihood that market forces will displace cash as a payment system, policymakers may choose to encourage or discourage this trend.", "type": "CRS Report", "typeId": "REPORTS", "active": true, "formats": [ { "format": "HTML", "encoding": "utf-8", "url": "https://www.crs.gov/Reports/R45716", "sha1": "0afde91237ef1ce276e1bd7b1b7d8f9cb1efa567", "filename": "files/20190510_R45716_0afde91237ef1ce276e1bd7b1b7d8f9cb1efa567.html", "images": { "/products/Getimages/?directory=R/html/R45716_files&id=/0.png": "files/20190510_R45716_images_c2d42cb06c16ab70fabaaf412e0d5dd2204d72ac.png", "/products/Getimages/?directory=R/html/R45716_files&id=/1.png": "files/20190510_R45716_images_784a9f59793ae662deb405fa94975224e524f5b3.png", "/products/Getimages/?directory=R/html/R45716_files&id=/2.png": "files/20190510_R45716_images_6078a9f9bb096e0521be450305dd23935f2cc0a2.png" } }, { "format": "PDF", "encoding": null, "url": "https://www.crs.gov/Reports/pdf/R45716", "sha1": "d66efb324ef91e0fc3a9883bf148ac36dd8226fa", "filename": "files/20190510_R45716_d66efb324ef91e0fc3a9883bf148ac36dd8226fa.pdf", "images": {} } ], "topics": [ { "source": "IBCList", "id": 4775, "name": "Consumer Finance Protection" } ] } ], "topics": [ "Economic Policy" ] }