What's the cost of cash to Malaysians?

Cash is still king

Despite a relatively high number of banked adults in the country (91% in Malaysia vs. global average of 60%), 80% of all consumer transactions in Malaysia are still made in cash.

The rise in popularity of electronic payments in Malaysia could one day reverse this dynamic but the reality is that majority of Malaysians prefer to use cash.

In some cases, it may be a personal preference. In others, it may be their only option.

It’s easy to feel as though cash is the cheapest form of payment.

For consumers, it’s free to withdraw from most ATMs – or from your bank – and free to deposit. And, there's still plenty of resistance towards card payments in Malaysia as merchants incur a fee for every card transaction.

But the truth is cash is an incredibly expensive payment instrument; more so than its electronic alternatives.

The cost of cash

Bank Negara alone spends about RM360 million a year in taxpayer's money to print and distribute banknotes.

Banks and businesses shoulder the majority of the burden of cash, spending billions in cash security, storage, transport as well as ATM maintenance.

However, banks recoup these losses by passing the cost over to consumers by charging high bank fees on every service they offer from cross border transactions to international transfers.

Consumers also incur personal transportation costs and waste time to access cash. In the US, the poor pay up to 4 times more the average cost to access cash and spend five more minutes travelling to get cash.

Carrying cash makes you vulnerable to theft and you may lose some change occasionally. Cash also earns no interest. For every sen out of your account, that's money foregone.

Collectively, the cost of cash adds up to RM9 billion annually to Malaysian households.

The high cost of cash has resulted in global efforts to eliminate cash to help boost the economy. In the UK, the cashless movement has also given banks the excuse to shut down branches and ATMs to cut costs and increase their own profits.

Dangers of going cashless

A cashless society has serious consequences on:

1. Financial inclusion

Going cashless negatively impacts the unbanked, underbanked and the elderly as they lack access to and knowledge of digital payments. Therefore, they are likely to be excluded financially.

It may also potentially cause unintended harm to these groups just like the 2016 demonetisation exercise in India. The Indian government wiped out 86% of cash circulation in the economy overnight to root out black money.

The operation did not only fail to meet its objectives but led to the deaths of 100 people, costed at least 1.5 million jobs and left 150 million people without pay for weeks.

2. On privacy and surveillance

A future of surveillance where governments can easily see what we're doing and track our every purchase sounds like a dystopia. It also leads to greater possibility of economic censorship and control.

Dictatorships for instance, can easily quash protests by ordering companies to simply not process any electronic payments within the protest area.

3. On security and usage

When the only option to pay is through cards or your phone, what happens when payment systems go offline? Cash is the only widely accepted payment instrument available for use offline in these cases.

Should we trash cash?

Cash is without a doubt costly and RM9 billion can do wonders for a developing economy like Malaysia.

However, it doesn't seem plausible to trash cash just because it's expensive. After all, cash offers significant benefits to many Malaysians.

Let's also not forget that the only payment instrument that's easy to use, available offline, guarantees anonymity and convenient is cash.