I am pleased to host this guest post by Hojoon Kim on the progress of electronic money–something that could some day make monetary policy easier. It is the second guest post this semester from students in my Monetary and Financial Theory class. You can see links to all of the other student guest posts here. Here is Hojoon:

What do the following apps have in common?

• Venmo
• Square Cash
• PayPal
• Google Wallet

These mobile apps not only allow users to make transactions without credit cards or cash but they allow people to easily transfer their money from bank account to their friends’ bank accounts. Even if you forget your wallets at home, it is no longer a big problem because you always can pay with Google Wallet or you can borrow money from your friend and pay them immediately through Venmo. It is early in the day to think so that the world is moving in the direction of a cashless society. However, some people already believe that the society without credit card or cash will become a reality. Adrew Kortina, co-founder of Venmo, claims that people won’t be swiping credit cards in 2017. He said, “We are betting people will be using their phones for most payments in the future, instead of plastic cards or desktop computers“. Due to its ease of use or usability, numerous numbers of people are currently using these mobile apps in their daily life and Venmo processes $10 each month, which makes people to think that cash and credit card will likely to disappear. The graph below shows that the mobile transaction volume of Venmo will exceed its Starbucks in the near future.

Therefore, it is reasonable for technology experts to predict that the use of mobile payment apps will prevail over the use of cash or credit cards. According to The Pew Research Center Internet & American Life Project, 65 percent of technology experts believe that making transaction or payments via smartphone will be the dominant by 2020. Hal Varian, chief economist at Google said, “The 2020 date might be a bit optimistic, but I’m sure that this will happen. What is in your wallet now? Identification, payment, and personal items. All this will easily fit in your mobile device and will inevitably do so.”

Although many technology experts expect that cash will disappear by 2020, I personally do not think that cash will ever disappear at least in my life. I admit that mobile payment apps are innovative technologies in a sense that it does not require for people to bring cash or credit cards. Thus, it is more convenient and more secure than the traditional methods of payment such as cash and credit cards. However, here are the reasons why I think that people will keep using cash.

1. Cash is always good for small merchants

When you see merchants selling small stuff on the street, it is easy to notice that most of merchants only accept cash. The reason is very simple if we think of a fee that occurs from transactions of credit card payment or mobile payment apps. Most merchants on the street or at small stores do not sell expensive goods or products, suggesting that it would be costly for them to accept payment cards or mobile payments. Therefore, people will have to use cash when buying goods from small merchants.

2. As long as black market exists, it is unlikely that cash will disappear.

I think this is the most fundamental reason why people will keep using cash. Most crime organizations or crime syndicates heavily rely on untraceability and anonymity of money, especially when they are engaged in drug dealing, terrorism and selling illegal weapons. Once their transactions are traced, it is really easier for police or governments to track them, which is something that criminals do not want. I cannot definitely say that cash will stay forever in our society due to an advancement of technology and increasing demand for mobile payments. However, it would be hard to see the world without cash as long as crime exists in our society.

3.  There are always corrupted government officials who always want to take a secret payments. 

Not only the United States, but also other countries have been spending considerable amount of money and efforts to end bribery and corruption. However, it is not been so successful when we consider the countries with the lowest reported bribery rate all have a bribery rate of at least 1 %. Now, let’s assume that you want to bribe government officials and you have three options to give them money; cash, credit card and mobile payments. What would you choose? Of course, you would want to pay with cash unless you want to go to prison. This is another reasons why cash will never disappear unless government corruption no longer exist.