Stories

Earth Day was around the corner and the message this year has been on restoring our Earth – not going back to business as usual as the world returns to normal. Indeed, as education brings about greater awareness of our environmental footprint on the planet, there is demand for stronger action by governments and businesses to help curb the significant effects of climate change.  

When it comes to doing our part as individuals, every action, whether big or small, counts. Changes in our daily habits such as using less paper and water, opting for reusable mugs and tote bags, choosing energy efficient household items and sustainably farmed foods are what most often come to mind. 

However, has anyone thought of the impact of using cash on the environment? While known for its conveniences, its repercussions on the overconsumption of raw materials, energy or its socio-economic impact – is less understood.  

As we look to a building a more sustainable way of life, this is one stream that can be easily addressed through digital payments and currencies.  

Recognizing the price of cash is key to this transformation.  

Production costs are high 

The resources needed for the production of cash are the hidden burdens on the environment. For example, a U.S. banknote paper is made of 75% cotton and 25% linen. This blend of natural materials makes it more durable against wear and tear. The unfortunate truth is that the raw material production process needed to develop these banknotes, such as in cotton cultivation, contributes significantly to global warming and depletes the planet’s natural resources. In the case of cotton farming, this is due to freshwater usage in water irrigation and eco-toxicity byproducts produced in the use of pesticides.  

Although both cash and digital payments require different sources of energy, renewable energy for debit card payments is more easily generated compared to raw materials such as cotton or linen needed for cash, which are not as easy to replenish.  

A study by DeNederlanscheBank found that the average cash payment generated an environmental impact of five grams CO2 equivalent (CO2e), which is 1.3 times higher than that of debit card payments2. Another study by the same bank found that the entire cash payment system emitted a total of 17 million kilograms of CO2e3. To put this into context, any amount of CO2 introduced into the atmosphere will remain for 300 to 1,000 years, trapping heat and warming the planet for this duration4. As economies continue to grow, the long-term impact of cash production will only persist and increase. 

Burden on energy resources 

Automated teller machines or ATMs are a common means of accessing cash. But how many think about the energy these machines consume running all day, every day, all year round? ATMs exist in many different shapes and forms, with differing energy usage levels which are tied to the types of banknotes dispensed. For instance, £10 and £20 notes are very sensitive to changes in ATM energy usage and demand 20% more energy than other banknotes5.  

Energy is also expended when cash is transported to and from banks as well as for the ventilation required to keep the machines operational.  

According to a study by the Dutch central bank, energy used by a cash transaction is equivalent to lighting an 8-watt bulb for two hours, compared to 90 minutes for a debit card transaction6.  This may seem like a small difference but when there are more than three million ATMs in use daily worldwide - such changes will result in significant energy savings and reduction in carbon emissions. 

Socio-economic pitfalls of the banknote 

Energy and raw materials are not the only resources that cash takes away from the environment. As a physical commodity, cash does not have a digital trail, making it harder to track. This is the reason why it is the primary medium for illegal activities such as money laundering.  

The United Nations Office on Drugs and Crime estimates around two to five per cent of global GDP (equivalent to $800 billion to $2 trillion US dollars) is laundered globally. What’s more, the Organisation for Economic Co-operation and Development (OECD) estimates that corruption, bribery, theft and tax evasion cost developing countries around $1.26 trillion US dollars annually.  

This substantial loss of resources has a large impact on governments and businesses, who would benefit from putting this money towards supporting local economies and communities, eradicating poverty and solving bigger social issues. By sealing off loopholes and saving on manpower needed in the cash ecosystem, governments can divert these resources to improving the lives of their people. 

On the flip side, the digital payments ecosystem has regulatory and transparency measures in place, enabling governments and businesses to track transactions in real time, fight fraud, eliminate sources of crime as well as save on labour resources.  

The transition to a cashless society can help alleviate many pressing societal and economic challenges, increase efficiencies and bridge the inequality gap. Experts predict contactless payments will continue to be on the uptick post-COVID and beyond. Though not without its challenges, it is an investment definitely worth making for a more sustainable future.  

Views are by Cameron McLean, Senior Vice President, Core Europe and Australia Enterprise and Growth Markets