Why the Shift to a Cashless Society Warrants Public Fear

In 2012, six Swedish banking institutions developed the mobile payment application “Swish”, which catalysed one of the most rapid monetary transformations in modern economic history: Sweden’s near-cashless revolution. The term “cashless society” denotes an economic system where transactions are conducted entirely through digital means rather than with physical money (Duignan). Whether such a transition warrants fear has become a highly contested debate. Fear refers to a rational apprehension surrounding the realities of a fully digital economy. A cashless society is often interpreted as a manifestation of extensive control, systemic inequalities, and digital exclusion — outcomes that undeniably justify public fear. A portion of these adverse consequences can be mitigated, and therefore the extent to which we should fear a cashless society is partially tethered to the strength of the regulatory frameworks established to oversee it. Ultimately, however, digital exclusion remains an inescapable reality, establishing a permanent baseline that definitively validates

public trepidation.

To commence the analysis, a cashless society warrants an imminent transformation in which centralized monetary authority bypasses physical currency constraints to exercise control over private capital. In the contemporary financial system, central banks are constrained by the Effective Lower Bound; pushing interest rates significantly below zero triggers cash substitution, where commercial banks and retail depositors hoard physical cash rather than incur negative yields. By contrast, a cashless society disrupts this dynamic as it removes the option to hold physical currency. Consequently, central banks gain power to suppress nominal interest rates deep into negative territory without risking capital flight, particularly during protracted recessions or periods of cyclical unemployment (Assenmacher and Krogstrup).

Theoretically, negative interest rates stimulate spending by decreasing borrowing costs and forcing commercial banks to lend aggressively, increasing aggregate demand. In a cashless society, since commercial banks are unable to hoard cash, they may become economically compelled to pass negative interest rates onto depositors to protect their own net interest margins (Buiter). Hence, growth created by negative interest rates is partially achieved through compromising private savings, transforming these rates into an unavoidable tax on liquidity. This elicits justifiable fear among

consumers and retirees who rely on fixed-income yields to protect purchasing power and fund lifestyles.

Critics may argue that rational economic agents will seek alternative ways to protect their wealth, perhaps through investment in non-fiat assets held outside the digital payment infrastructure. In turn, as money flows out of the formal banking system, commercial banks lose their deposit bases, reducing their ability to issue credit and stimulate economic growth. Despite its contradictory nature, negative interest rates remain viable within a cashless society for several reasons: central banks possess regulatory power, desperate policy incentives exist, and Central Bank Digital Currencies (CBDCs) can mitigate associated challenges.

CBDCs enable central banks to assert authority within a cashless society. As of 2026, 146 countries, representing over 98% of global GDP, are actively developing or piloting digital money (Atlantic Council). However, expanded control introduces inherent risks. First, as noted above, the imposition of negative interest rates gives rise to drawbacks. That said, the adoption of CBDCs – a currency issued by the central bank – overcomes this limitation by functioning as a state-governed digital

ecosystem; under these circumstances, the central bank can penalize or restrict withdrawals, potentially confining both commercial banks and depositors.

Beyond supporting negative interest rates, ubiquitous integration of CBDC threatens to fundamentally disrupt the commercial banking sector through disintermediation, particularly during times of economic distress. Because private commercial banks carry real solvency risks, rational consumers would likely shift deposits into CBDCs, which carry zero default risk. In turn, commercial banks would experience a reduction in core deposit bases. Deprived of core retail deposits, commercial banks must turn to volatile wholesale interbank markets and central bank standing liquidity facilities (Infante et al.). This shift in liability escalates the banking sector's marginal cost of funds. Ultimately, compressed net interest margins force banks to pass costs onto the wider economy through higher borrowing costs, stricter lending standards, and contracted loan availability (Infante et al.). Granted, this threat is not inherent to the currency itself, but rather a variable of policy design; by implementing strict holding limits and tiered remuneration, strong governance can protect banking liquidity.

Ultimately, fear is warranted in proportion to the magnitude of control a cashless system enables. The negative consequences stated above can be mitigated by well calibrated constraints, but are also highly contingent upon the adoption of CBDCs, as central banks are unable to enforce such oversight otherwise. Currently, public compliance remains low; however, if adoption increases in the future — whether driven by convenience, mandates, or other factors — robust policy frameworks are vital.

A cashless economy does not merely pose risks of extensive control over how money is issued; it dictates how money is observed, creating inequalities within credit markets. A cashless economy eliminates transactional anonymity, generating a continuous stream of data that feeds surveillance infrastructure to expand alternative credit scoring — a system relying on data points including financial behaviour, housing and utility management, and commerce to assess creditworthiness without human oversight (World Bank Group). While such systems could expand credit access to the financially “invisible”, they are trained with data embedded with historical inequalities, allowing them to perpetuate socio-economic disparities by automating bias (World Bank Group). Alarmingly, contemporary society has yet to overcome this challenge; even when protected traits like race, religion, or gender – are explicitly excluded, machine learning models exploit subtle statistical correlations within digital footprints, allowing indirect proxy discrimination to persist, negating the purpose of regulations aimed at preventing such discrimination from occurring (SD et al.).

Compounding this issue, shifting towards algorithmic credit markets risks creating “black box” systems where decisions are difficult to contest or explain to regulators and consumers due to system opacity, ultimately weakening fair lending compliance (Lui et al.). Without guarantee that algorithms are able to overcome proxy discrimination, relying on technology may prove inferior to the current system, as it risks transforming digital footprints into modern mechanisms of automated economic

exclusion.

Moving on, when discussing the consequences of a cashless society, the disadvantages imposed on small merchants ought not to be overlooked. Digital payment platforms operate as 2-sided markets that must simultaneously attract and retain both merchants and consumers. Following the theoretical framework for two-sided markets developed by Rochet and Tirole, digital payment platforms exploit

these cross-network externalities through asymmetric pricing, understanding that platform value to one stakeholder is highly contingent on the participation of the other (Rochet and Tirole). Specifically, they strategically subsidise consumers, increasing consumer adoption and transaction volume, which subsequently renders the platform more valuable for merchants, creating an incentive for them to pay processing fees to access the captive consumer base.

This reliance on such systems engenders economic inequality by imposing disadvantageous terms on small and medium-sized enterprises (SMEs). First, card processing fees represent a major operational expense: in 2025, U.S. merchants paid a total of 198.25 billion in processing fees, with interchange fees comprising 75-85% — a sizable transfer of economic surplus from merchants to issuers (“Issues |

Merchants Payments Coalition”). This burden is profound for SMEs operating under exceptionally thin profit margins (~10-15%) as they are less resilient to additional costs (Munro). Consequently, they bear a disproportionately large burden relative to large retailers. Beyond this structural disadvantage, SMEs encounter further inequities in the manner in which these fees are structured and transmitted through the payments value chain.

This can be illustrated using the Nash bargaining framework, wherein the distribution of the bargaining surplus depends on the relative leverage of the negotiating parties (Nash). Large retailers possess immense transaction volumes; thus, the threat to refuse a specific card brand or switch networks carries substantial weight. As such, large retailers’ threat point — the economic payoff if negotiations break down — is high, enabling them to secure favourable interchange rates and contractual terms. Conversely, because no single payment network suffers a substantial loss from

losing a low-volume account, small merchants possess a threat point approaching zero. Hence, SMEs capture none of the bargaining surplus and must accept opaque, unfavourable contracts.

Under these contracts, SMEs’ vulnerability is amplified by three market features which limit merchant mobility: highly fragmented pricing methods; contracts of indefinite duration that lack a competitive renewal trigger; and heavy termination fees for cancelling point-of-sale contracts . Collectively, these mechanisms hinder SMEs ability to exercise market choice, and ultimately lock them into detrimental

terms that larger competitors possess the scale to avoid (PSR, 2021). This multifaceted inequality provides grounds for legitimate concern regarding a fully cashless economy, with the extent of this concern depending on an economy’s ability to protect its SMEs from asymmetric pricing. On one hand, nations like India and Brazil utilise state-backed, low cost networks – UPI, Pix – which eliminate merchant fees and strip private payment companies of market power, reducing the burden of digitalization on SMEs (Arkalji and Mukherjee). Similarly, the European Union protects its SMEs by legislatively capping interchange fees, preventing private payment networks from leveraging their market dominance to extract excessive fees (“Special Report 01/2025: Digital Payments in the EU”). Conversely, many reputable nations, including the U.S. remain underprepared for a cashless transition due to government inaction. For instance, while bipartisan lawmakers have reintroduced the Credit

Card Competition Act to break up the Visa-Mastercard duopoly by forcing alternative routing networks, the bill has yet to pass. As a result, U.S. merchants remain vulnerable in an increasingly cashless landscape.

Finally, although the consequences stated above are not inevitable, exclusion is. Historically, physical cash has functioned as the baseline infrastructure of the sovereign monetary system, providing a tangible, universally accessible medium of exchange that allows for economic agency. Yet, within a fully cashless paradigm, essential economic infrastructure shifts into an exclusively digital utility. Consequently, participation in commerce becomes contingent on digital literacy, smartphone access,

and banking relationships, effectively excluding those who do not possess these technological or institutional resources. Consider Sweden – the Nordic nation leading the race towards a cashless society. Since 2010, the proportion of citizens utilising cash for in-store purchases has dropped by 35%, the number of ATMs decreased by 27%, and annual cash withdrawals have plunged nearly 50% since 2018 (Sveriges Riksbank). This rapid decommissioning has forced an estimated 10% of the adult population into varying degrees of economic exclusion, leaving marginalised groups unable to engage with the economy (Sveriges Riksbank).

This empirical exclusion threatens state legitimacy under John Locke’s social contract theory. For Locke, the state’s legitimacy is a fiduciary trust conditioned on the protection of its citizens’ natural rights, including the right to self-preservation and subsistence (Locke, 1689/1980, ch. 5 & ch. 13). As the core medium of exchange becomes increasingly digital, the state fundamentally violates foundational political theory by utilising a payment system that excludes a portion of its citizens, thereby limiting their ability to secure basic subsistence. If the government cannot guarantee access to the basic mechanism of commerce to all its citizens, it no longer fulfills its justifying duty.

The fear of digital exclusion is justified by the nature of Sweden's response; Sweden enacted legislation to ensure widespread access to basic cash withdrawal points and mandate that retailers selling essential goods accept physical currency (The Local). This corrective set of policies reveals that digital exclusion cannot be completely eliminated, exposing the fallacy of technological determinism and affirming that a universal medium of exchange remains an indispensable prerequisite for individual liberty. From this case study, it is appropriate to conclude a cashless society rightfully

elicits fear, as the case of Sweden demonstrates that market-led digitalisation is not sufficient to facilitate universal accessibility.

Holistically, while economic and structural risks remain contingent on governance rather than predetermined, apprehension toward a cashless society is rightly justified by its unprecedented capacity for control and inequality. Nevertheless, while strong governance can mitigate absolute authority and inherent vulnerabilities, digital exclusion remains a permanent threat to individual liberty.