How Cash-Heavy Societies Are Less Secure — And What These Foundations Are Doing About It

The Ford Foundation, along with heavy hitters such as the Bill & Melinda Gates Foundation and the Omidyar Network, have joined forces to help create economic opportunities for cash-heavy areas of the world by founding the Better Than Cash Alliance. Ford has no preconceptions that the most impoverished areas will ever be cashless. While the transformation into a cash-light society may be slow, Ford and others are betting that the economic impact will be significant.

Related: Ford Foundation: Grants for Global Development

A cash-light society is exactly what it sounds like. The United States, for example, is a cash-light society because the majority of payments we make are done with debit and credit cards rather than cash. Not only is the United States cash-light, financially speaking, but it is a country of financial depth. Studies show that financial depth helps create economic opportunities and leads to faster economic growth — which are two of the exact goals of the Better Than Cash Alliance.

Financial depth is closely related to financial inclusion, where people have access to financial instruments such as checking, savings, and money market accounts and credit accounts. These accounts allow consumers to store money and make or receive electronic payments. If a country has a higher proportion of electronic payments compared with cash payments, it implies that there is also a higher proportion of electronic deposits within that country's formal financial system. When this occurs, the country is said to have greater financial depth.

According to the study "The Virtuous Circle: Electronic Payments and Economic Growth," a 10% increase in electronic payments led to a 0.5% increase in consumer spending — a main driver of economic growth and stability.

Without access to financial services, people living in cash-heavy societies — like the estimated 2.6 billion people in the world living on less than $2 USD per day — do not have the ability to build their savings or apply for lines of credit such as mortgages or business loans. This makes it difficult, if not impossible, for them to break out of the poverty cycle.

The Ford Foundation and the Better Than Cash Alliance's other founding members hope to help these countries make a gradual shift to becoming cash-light rather than an all-at-once push. The organization has already launched pilot programs in Haiti and Niger, two of the poorest countries in the world. To date, the results of the programs are positive and promising.

Related: David Kaimowitz