Is The Future Cashless? An elaboration on the readiness state of Hungary to accommodate a cashless society and the inherent country-specific costs and benefits associated with the projection of a cashless society

Absztrakt (kivonat)

“Money makes the world go around” – more specifically physical forms of money, namely coins and banknotes. They have become the lifeblood of not only payment systems, but also entire societies and civilizations through conscious development of the physical and non-physical attributes of cash. However, some recent and in most cases unexpected economic events have uncovered some of the inherent shortcomings of cash, which may repel it to the pages of history. Among the most significant and constraining disadvantages of coins and banknotes, we have to mention their passive role in supporting unlawful activities, their high transaction costs, their ability to transmit diseases, their occasionally inconvenient nature, and last, but not least, their constraint on negative interest rates. While the latter is only one of the many arguments supporting the abolishment of cash payments, the discovery of the extent of the damages it can indirectly cause, combined with the recent technological breakthroughs, has led to many economists questioning the reasonableness of conventional, cash-based payment methods. This was also the motivation for the preparation of this study. While the abolishment of cash payments may seem like a question of legislations, the consequences of such an action would reach far beyond legal frameworks: it would require not only buyers, sellers, consumers and central bankers, but also politicians to fundamentally change the way they act and complete transactions. Whether a country is prepared for such a disruptive transformation or not should be assessed from the sides of all major stakeholders, which has led to the development of a multi-layer comparative analysis framework, which has provided the basis for the evaluation. The framework has been advanced in such a way that it could incorporate three of the most important pillars of a cashless society: socio-cultural readiness, preparedness of payments systems and the country-specific incentives of forming a cashless society, all of which will be based on secondary data from reputable, globally acknowledged sources. The country selected to be in the spotlight was Hungary for multiple reasons besides “nationalism”: the country has been in a transitionary phase from planned to market-economy, which has opened the floodgates for foreign direct investors. While they have undoubtedly contributed to the development of the economy, it can be considered ambiguous whether the country’s social, legislative and political frameworks were ready for the changes or not. This has certainly contributed to residents not fully trusting financial institutions, which has proven to be one of the largest obstacles to the establishment of a fully cashless society: according to the results of the study, the majority of Hungarian people fear the unknown and are hesitant when accepting and implementing novel ideas. This lack of social acceptance towards changes would unquestionably hinder the efficiency of a society-wide cashless payment system. The country is unable to hide its past when it comes to political practices too: Hungary’s level of corruption is among the highest of all analysed countries, which suggests a low level of approval towards cashless solutions. The negative correlation between the level of corruption and the frequency of cashless solutions usage was confirmed by a hypothesis test, which has revealed a strong connection between the two values. The analysis of the readiness state of payments systems has uncovered that the size of the gap Hungary has to close down in case it wishes to compete with more advanced economies in truly alarming: the economy is lagging significantly behind the pioneering country of Sweden both in terms of point of sales terminal penetration and financial inclusion. Arguably even more concerning is the fact that the country seems to be unable to keep pace with the developments achieved by less established economies like Bulgaria, which implies the possibility of Hungary falling further behind in the “packing order”. The research conducted on the country-specific financial and non-financial incentives has revealed the fact that Hungary is unexpectedly well situated to harvest the future advantages of a cashless society due to its respectable cybersecurity protection score, its large tax gap (which the abolishment of cash payments would likely mitigate to negligible levels) and the relatively modest seigniorage revenues the country would have to relinquish. The fact of the matter is though: without the conscious and continuous development towards a cashless future, Hungary will be unable to realize a cashless society, which currently seems like a utopia. Contrary to common sense, this may even be an advantage in the long-run though: through allowing pioneering economies to leave the beaten path first, Hungary and other less developed nations will have the opportunity to examine and analyse the results of their “experiment”, which might lead to a dead-end and goes down history as a failure. For the abovementioned reason, a measured and cautious implementation of the notion of cashless societies is advisable, which may necessitates the introduction of a less-cash, rather than a cashless society. The model refers to the concept of leaving coins (and in extreme cases small denomination banknotes) definitely or indefinitely in circulation. Whatever the future of payment systems holds, it seems to be certain that we are on the verge of their biggest change since the first appearance of coins at around 1200-700 B.C.