It is no secret
Japan is trying to become a cashless society
For the past year, I have heard the word "cashless society" in countless discussions and
debates
A country that is striving to become a cashless society will try to
decrease the amount paid in banknotes and encourage transactions that are done
electronically
There are many ways to pay cashless
There are debit cards that pay straight from the bank account,
credit cards that allows you to borrow money and hold a balance,
prepaid cards that you can charge with money and then pay
and lastly mobile paying, which is also the transaction method that has become
more and more popular in Japan during the last year
For many years Japan has been a society where cash is the king
According to a study that was conducted
by the Ministry of Economy in 2016, only 20% of the transactions in Japan were cashless
This is distinguishably low compared to other developed countries
It's not that Japanese don't have credit cards available
In fact JCB published a study that in 2017, 84% of the citizens held a credit card
and one person held on average 3.2 cards
There are many speculations as why Japanese prefer to use cash
Some of which are:
Because Japan is safer than other countries, so holding cash poses less risk
Or because Japan is an aged society with more older people who might prefer cash
Or maybe because the interest rates are so low, that there is little merit to depositing cash to ones
bank account
Whatever the reason, it is evident that Japan is lagging
behind other countries, when it comes to the cashless movement
To catch up with other countries and truly make Japan a cashless society
The Ministry of Economics organized a campaign starting from October 2019 which
continues until June 2020, where consumers can
receive two or five percent discount, should they pay cashless
The discount is in effect paid by the government
as well as the installation of the POS devices
needed to facilitate these transactions
It doesn't matter whether the consumer pays with credit, debit, prepaid card or mobile
As long as the transaction is cashless, the total is reduced by two percent in franchise stores
and five percent in other stores
Gaining popularity from this cashless campaign, many mobile payment applications have entered the market
There is LinePay, RakutenPay, MerPay, OrigamiPay, PixivPay, YuchoPay
and the most original called
PayPay
These applications work using the popular QR-code technology,
where merely scanning the code is sufficient to receive or send a payment
Should these applications not suffice, one can also opt for the Google or ApplePay
That work via NFC (Near Field Communication)
The technology for cashless payments has existed for many decades
So why the sudden rush?
The Ministry of Economy claims the reason for going cashless is the increased convenience for consumers
as it makes paying easier, while automating the record-keeping for purchases to help
control spending budgets
In addition to this, they claim that going cashless will increase productivity
as the effort that went into handling cash can be eliminated
Cashless payment options can also allegedly allow companies to increase demand from foreigners
as foreigners are more accustomed to cashless transactions
And lastly the Ministry of Economy claims that the
data that is generated from consumer purchases can be leveraged to use in
precise marketing instruments
These can all be valid reasons for going cashless
But there are some potential downsides, that I feel are not being mentioned
Which we should be aware of
Recording, storing and sharing financial transaction data is a power that is ripe
for abuse
Consider all the things you purchased for the last year
Now imagine that someone could know when and where you made those purchases
And you can understand how accurately they could profile you, and the various
malicious ways this information could be used
We can already see how this kind of system has played out in China
Where if you are blacklisted in the social credit application
you can lose the ability to buy train or plane tickets
We might like to think, that our governments are more ethical and would never trample on
individual liberties like this
But can we make the same assertion for years into the future
Once a system like the social credit in China has been established
the switch to a digital dictatorship is always only a push of a button away
Even if the situation never degrades to this point, it is much more likely
That our financial data will be feasted on by corporations
That can utilize this information to target us with advertisements
*You gotta tell me exactly how to stop these targeted ads*
*It's driving me crazy*
Yes, it is possible to use this data ethically
But in the end, which do you think the corporations value more
Our well-being or their bottom lines
Another potential negative downside to cashless society
is the added economical burden
Let me explain what I mean by this
When we buy something in the store and pay with cash
there generally isn't additional fees
If an apple costs two dollars you pay two dollars
of course with the added value added tax
However, when paying with a credit card , it is not uncommon that a middleman
usually called MasterCard or Visa takes a cut
Sometimes the merchant holds this burden onto themselves
but sometimes they can pass it on to the consumer
It is quite naive to think, that if we transitioned to a fully cashless society
the middlemen facilitating these transactions, whether card companies or mobile app providers,
would offer their services for free
But at this point when paying with cash is no longer an option
We would have very little discourse, and could end up paying a small fee every
time we make a purchase
Another potential economic burden, that gets little attention
is the implementation of negative deposit rates
Simply put, the traditional economic wisdom has been,
That when we face a recession, the central bank cuts the rates roughly 5%
to ease lending and stimulate economic activity
Before the great financial crisis of 2008 and 2009
Just the idea that interest rates could be negative was absurd
Who would lend money, if the amount they got back in the future, would be smaller than what they lent
Today countries in Europe and Japan have made it a new normal to have negative interest rates
Having negative interest rates makes it more difficult for banks to generate revenue
through Treasury bonds and other lending activity
As I have mentioned in my previous videos, the interest rates for depositors today are
close to zero, but at least they are not on the minus side
It has been forecasted, that at some point the banks might have to implement negative interest rates on
depositors accounts
Which would mean, that you have to pay the bank for keeping your money there
There are already multiple studies and working papers
by the IMF and others on, how to implement these negative rates
and most seem to utilize the concept of digital money
If you can't withdraw your money in cash, what can you do
when the back flips the interest rates to minus
These were some potential ways that the cashless system could be abused
I don't think that there is nothing inherently wrong with going cashless
Technology in itself is not good or bad, it is only a tool for achieving a goal
that we ourselves set
This is why I think the technology we are going to use for our financial transactions
Should be democratized and decentralized in a way that no central party can start abusing
this immense power
Cryptocurrencies and decentralized finance hold a lot of hope in these aspects
But have still to clear some technological and educational hurdles in order to be implemented
Maybe I will go into more detail about this in the future videos
That is all for today's video
I hope you learned something about the Japan's cashless society situation
If I forgot to mention something, please tell me in the comment section
I always appreciate this kind of communication
See you in the next video!