Boasting more digital transactions than ever, Korean officials believe coins are outmoded and therefore are making strides toward becoming a “coinless society” by the year 2020
By Joshua McMorrow-Hernandez for Coinweek …….
South Korea has announced it is going cashless by 2020 as the nation becomes increasingly dependent on the use of credit cards and smartphones.
It’s a lofty goal for a country with a population of more than 50 million people, a figure that is increasingly elderly.
“The most important goals are resolving inconvenience that consumers and shops feel while carrying and storing coins and reducing the cost of minting coins,” commented Kim Jung-hyeok, director of electronic banking at the Bank of Korea and lead figure behind the national initiative to go cashless.
Another motive is to exterminate criminal activity that relies on cash to support an underground economy.
The Bank of Korea is already reducing the volume of coins it produces. For example, in 2005 the nation struck 137.8 billion won ($120.2 million USD), whereas a decade later in 2015, overall coin production fell to 103.2 billion won.
Even today, Korea spends 50 billion won producing coinage.
Under the new initiative, Koreans who pay for their goods or services using cash will receive their change in the form of credit cards, transportation cards, or other non-coin payment mediums. There would also be circumstances where paper currency could be returned in change, such as if a consumer used a 10,000-won note for merchandise that costs 8,500 won. The merchant would deposit 500 won to a card and return 1,000 won in cash. The customer may also elect to have the entire amount of change deposited to an account.
In this system, cash would not necessarily become extinct but its use would be discouraged.
“Consumers show different preferences for the options to transfer the coin change into their cards, but we will begin with public transportation cards first. By next year, the system is expected to run after completing a model development and pilot test this year,” Kim remarked.
While the transition to a cashless society has some cultural implications, observers don’t believe it will have a significant negative impact on Korea’s economy. “While the demise of cash needs a social consensus, the coinless society is more like a technical issue in which the success of the scheme depends on the realization of infrastructure,” said Hanyang University professor Kang Im-ho, advisor to the Bank of Korea on the implementation of its plan. “It’s a coordination game among the government, financial firms, retailers and consumers.”
According to Kang, Koreans have an exceptionally high average of 1.9 credit cards – a statistic conducive to moving the nation toward cashless transactions. Nevertheless, even in a nation that appears poised to embrace cashlessness, more than a third of consumer transactions in Korea utilize cash. In 2015, a sizable 36 percent of transactions were handled with cash, versus the 39.7 percent of transactions completed with credit cards.
“In some Asian nations including Korea and China, people give large sums of cash as gifts at weddings or funerals. Such a cultural backdrop shows that Korea needs a different approach toward a cashless economy,” related Myongji University economist Moon jong-jin.
“I don’t think it’s possible to establish an absolute cash-free world here,” he continued. “It will be better to give seniors options like we did for smartphones. Not everyone uses the smartphone, but it’s their choice.”