Professor Jay Zagorsky is an economist at Boston University’s Questrom School of Business, where he has taught more than 11,000 students and earned multiple awards for his teaching excellence. Prior to his role at Boston University, he spent over two decades as a researcher at Ohio State University, focusing on the causes and consequences of poverty and wealth.
He has published numerous scientific articles across various disciplines and authored four books. In addition to his academic work, he writes accessible, reader-friendly articles for news outlets, attracting millions of readers each month. Widely recognised for his expertise, he is one of Boston University’s most frequently quoted professors and is a regular guest on television, radio, and print media. Zagorsky’s forthcoming book “The Power of Cash: Why Using Paper Money is Good for You and Society,” is expected to hit the stands in a couple of months.
In an exclusive interview with International Finance, Professor Jay Zagorsky, discusses his book, the importance of paper money, the dark side of digital payments, threats posed by a cashless society, and much more.
What inspired you to write “The Power of Cash: Why Using Paper Money is Good for You and Society”?
Fifteen years ago I rarely used paper money. Instead, I charged everything on a rewards credit card to maximise the number of airline miles I could earn. My wife and I even made it three-quarters of the way around the world on “free tickets.”
Today I try to use paper money as much as possible. I switched because after researching this topic for many years I came to appreciate that what looks like a small decision, how people pay for purchases, actually has huge ramifications for individuals, businesses and countries.
For example, those “free” airline tickets I got actually were not free. Instead, credit card companies provide these free tickets to richer or financially sophisticated customers by charging poorer or financially unsophisticated customers.
Robin Hood was a mythic character who took from the rich and gave to the poor. Airlines rewards credit cards are a Reverse Robin Hood, where they take from the poor and give to the rich.
What helped change my opinion of cash was working with researchers at the Boston Federal Reserve, which is part of the US Central Bank. They wanted guidance in creating a new survey that tracked how people paid their bills and their purchases. The survey showed US consumers were moving steadily away from paper money and toward cashless payments. I have spent several years trying to understand the ramifications of this switch.
Why do you believe it is important to preserve the use of paper money in today’s digital age?
Keeping paper money around ensures businesses have a backup when electronic payments fail. For example, this past summer the world saw a number of widespread disruptions of electronic payments. In July a software security company called CrowdStrike released a faulty update, which crashed most computers running Microsoft Windows. The press focused on the multi-day disruption that this software caused in airline travel, but large numbers of major banks and financial companies were also taken offline for long periods. Another example is that the month before the CrowdStrike incident about one-third of all McDonald’s restaurants were temporarily shut in Japan because of problems with cashless payments.
Businesses cannot assume cashless payment systems will work all the time. Even when the cashless payment vendor claims their software is available 24 hours a day – seven days a week, there is no guarantee a business can access the software or conduct transactions. Keeping cash around ensures payments can always happen. To effectively use cash as a backup, employees must access and practice handling it.
You mention that the shift to digital payments could weaken national defence. Could you expand on how reliance on digital systems makes us more vulnerable to cyberattacks and natural disasters?
Keeping paper money in use is a key component of national defence. Shifting to a cashless society undermines a country’s security.
The cashless society depends on three legs: electricity, communications and computers. All three must work all the time for digital transactions to occur. When you have a cashless society, enemies can shut down an economy by disabling any one of those three legs, with attacks on the power network, breaking telephone cables, or cyberattacks on the computer system.
Cash, however, works even when all three legs are disabled. People with paper money do not need electricity, communications or computers to complete purchases. The current push to make the world’s transactions more cashless makes countries less resilient instead of more.
October’s announcement that Dubai launched a new “Cashless Strategy” where the city wants 90% of all transactions to be cashless by 2026 does not sound right as adversaries seek easy ways to disrupt a government.
You argue that the shift away from cash has overlooked several negative consequences. Could you elaborate on how electronic payments negatively impact privacy?
Privacy is important. Many people do not want every aspect of their lives revealed. Electronic payments provide a permanent record of purchases for any company or government to analyse. One of my favourite studies was published in Science in 2020. A group of researchers primarily from MIT took three months’ worth of anonymous credit card records for 1.1 million people. They were able to determine the identities of 90% of the individuals. The study showed that even if a bank or financial service provider doesn’t give out the names and addresses of their clients, just looking at all your purchases can pinpoint who you are!
For example, cigarette purchases are legal around the world. However, the city where I live passed a law making it illegal for anyone born on or after 2000 to buy tobacco products. The ban covers not only residents, but also visitors. While the city has no current plans to do this, they could use credit and debit card records to find and fine cigarette buyers who were not old enough long after purchases were made.
In your book, you discuss how eliminating cash can lead to increased spending. Could you explain why people tend to spend more when they use digital payment methods instead of cash?
When you use a cashless payment linked to a credit card you can spend up to your credit limit. When a person uses a cashless payment method linked to their bank account or debit card, they can spend only the amount available in their account. When people spend cash, they are limited to whatever paper money they have immediately on hand. This limited budget is one reason why using cash makes people spend less. In my book “The Power of Cash: Why Using Paper Money is Good for You and Society,” I discuss several other important reasons as well.
How does the move away from cash disproportionately affect lower-income individuals, and what solutions do you suggest to address this issue?
On my walk to work each day I pass several poor people asking for charity. In a cashless world, it is difficult to give these people money since many have issues that prevent them from opening bank accounts, handling mobile phones or doing any of the technical tasks like remembering complex passwords that are needed to fully function in a cashless society. It is simple to hand them cash, if you have some in your pocket.
The solution to supporting lower-income individuals is a very simple three-part process. First, maintain cash as a means of payment, for example by passing laws that make it illegal for businesses that deal with the general public to be cashless. Second, ensure continued access to cash, for example by preventing banks from shrinking their ATM networks. Last, and this is where my book comes in, explain to businesses and people the advantages of continuing to use cash.
What do you see as the most pressing threat posed by a cashless society, and how do you think we can mitigate these risks without reversing the technological progress we’ve made?
Sudden loss of access to your funds makes it impossible to buy food, use transportation and purchase needed items. Having your funds in electronic records makes you very vulnerable to losing access, while holding some cash protects you.
World Bank data show large numbers of people in the Middle East and Africa do not have either a bank account or an account on their mobile phone. Leaders in the financial technology industry claim the solution is simple. Just have more mobile banking apps. However, each year I see a number of countries that have temporarily shut down or blocked access to their mobile phone networks.
Imagine you have all your wealth stored in a mobile phone app. Now imagine the government shuts off the cell network to fight an insurrection or catch terrorists. You are suddenly cut off from all your funds. With paper money, individuals always have access to their wealth.
In the book, you suggest that eliminating paper money could lead to increased crime. How does the transition to digital transactions enable global criminal activity?
Digital payments increase crime since criminals can target us from anywhere in the world. Many people are worried that carrying cash makes them vulnerable to criminals. I agree that carrying cash makes you a potential target. However, to steal your cash the criminal has to be physically nearby. With electronic money, criminals no longer have to be close. This means the number of criminals who can target an individual or business is much greater. Credit card fraud has ballooned worldwide, stealing vast amounts of money from people who never see the thieves.
You criticise the portrayal of a cashless society as a utopia. How do you think technologists have misunderstood the implications of a completely digital economy?
The cashless society is a utopia for international criminal gangs who now can scan, con and extort money from anyone in the world. The cashless society is ideal for credit card companies, banks, and financial technology firms, as they can earn a commission of between 2% and 5% on every financial transaction. Additionally, the cashless society benefits large technology companies that prefer remote transactions over face-to-face interactions.
Unfortunately, while the cashless future looks bright for technologists I see the problems in people’s everyday lives. Recently, I went for a walk and witnessed an incident at a parking lot in the neighbourhood shopping area. The lot used to accept coins in the parking metres but recently switched to cashless transactions. Two women were trying to pay for parking using the electronic kiosk and having a very frustrating time. They finally gave up and drove away. The utopia promised by the company that installed cashless parking systems didn’t work and the local businesses in that shopping area lost two customers who were ready to put coins into a metre.
What would the restoration of paper money and traditional banking infrastructure cost the economy, and how could this affect taxpayers?
Almost all countries, except for Sweden and China, still have large amounts of paper money in circulation. Every country including Sweden and China still has a large number of traditional banks. We do not need to restore paper money. Instead, we need to encourage people to use it and businesses to accept it.
Given the global trend toward digital payments, do you think there’s a realistic path forward that balances the benefits of technology with the need to preserve cash, or is a fully cashless society inevitable?
Last year the US financial companies spent US$1 billion advertising credit cards. The amount spent advertising the advantages of cash was zero. When people are told through relentless advertising that the cashless economy is great they will believe it.
Seventy-five years ago tobacco companies around the world relentlessly advertised cigarette smoking. Today, many countries ban cigarette advertising and many packs of cigarettes have dire warnings. My goal through writing “The Power of Cash: Why Using Paper Money is Good for You and Society” and speaking to news publications is to make people stop and think about what we are giving up by getting rid of paper money. My guess is if you spend a few minutes thinking about the downsides of a cashless economy you will join me in carrying cash again and spending it in shops, restaurants and other places you frequently visit.