Consumers now have a myriad of payment instruments from which they can choose. Due to the rapid evolution of surrogates for bank notes and coins, electronic money, also known as e-money, has gained real eminence and is anticipated to displace traditional physical currencies. This has aroused the attention of a multitude of stakeholders concerned, economists, authorities, policy makers, financial institutions and the public, in the advent of a “Cashless society”.

A large body of existing literature has exclusively investigated the underlying threats to monetary policy, that an economy without cash could foster. We argue that these studies are incomplete as they fail to (1) include the implications to other key parties and (2) provide extensive insight into the benefits of adopting an all-electronic payments environment. The consequent implications of monetary policy within a cashless society, although significant, is not the only concern and the impacts to other major parties has not been a primary focus on existing literature concerning this field.

This chapter is organised as follows: the first section focuses on the active area of academic research covering the implications of a cashless society from a private perspective, while the second focuses on that of the less pursued implications from a public perspective.

Section I

Threats to central bank sovereignty 

Monetary policy is a fundamental tool that central banks use to influence interest rates and in turn control inflation. The central bank is responsible for the monopolistic issuance of national currency; the demise of cash therefore raises concerns that central banks will relinquish its autonomy on monetary policy and moreover, the financial landscape. The magnitude of the consequences of this, is why such homage has been paid to this area of research, provoking considerable debate amongst economists.

The Bank for International Settlements (1996) were amongst the first institutions to critically examine the main policy issues that could arise as a result of the development of e-money for central banks. The report suggests that the effects of e-money on the execution of monetary policy is dependent upon whether the lack of cash in circulation will impact the demand for bank reserves or the capacity of the central bank to supply those reserves. In similar vein, Thomas (2000) proposed a supporting view that the adoption of e-money indeed has the potential to impact the demand for bank reserves. His researched concluded with the remarks that widespread use of e-money challenges the central bank’s ability to control interest rates, by disturbing the relationship between economic activity and the demand for reserves.

Later study by Woodford (2000) contests the claim that advances in electronic payment systems may require changes in the way in which monetary policy is implemented in developed economies. His research claims that in countries like Canada and Australia, the method of interest-rate control that is currently used (the “channel” system), is robust and durable enough to withstand the toughest technical changes that are projected to ensue.  Freedman’s (2000) findings corroborate with this. His research concludes that cash does not play an important role in monetary policy operation, hence its disappearance would generally have no detrimental consequence. Raskin and Yermack (2016) takes this analysis further and maintains that digital money has the potential to develop central banks’ clearing and settlement processes, and possibly launch their own sovereign digital currency.

The Bank for International Settlements’ (1996) article explained that the effect on Monetary Policy is dependent upon the rate of e-money adoption. If e-money were to be largely embraced, the loss of seigniorage could pose a major concern to central banks which, resultantly cou