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Forget the $100 bill—why does cash still exist in the digital age?

When restaurateur David Silverglide stopped accepting cash in 2012 at his San Francisco-area sandwich shops, he thought it was only a matter of time before payments went digital.

But more than three years later, he's back to accepting greenbacks.

"It was surprising the amount of pushback we received. The people who wanted to pay cash were loud, vocal, attached," said Silverglide, CEO of Good Food Guys — which runs restaurant chains Mixt Greens and Split Bread.

Between 10 and 15 percent of Split Breads' transactions were cash across all his locations, even in 2012. "We put up a good fight but we gave in, for those 10 percent."

Man holding smartphone with pile of coins on screen illustrating electronic money.
Richard Newstead | Getty Images
Man holding smartphone with pile of coins on screen illustrating electronic money.

Despite former Treasury Secretary Larry Summers recently saying that it's time to get rid of the $100 bill, there remains a significant constituency for coins and paper money.

But noncash payments grew 8.9 percent to reach a record high of 389.7 billion transactions in 2014, business management consultant Capgemini estimates, thanks to spreading Internet adoption and financial sector innovation.

In at least one corner of the globe, all bills and coins have mostly gone the way of halfpennies and pieces of eight. In Sweden, there exists a completely unstaffed convenience store, where customers use smartphones to unlock the door, scan their purchases and check out.

Is a cashless society simply a matter of spreading disruptive technologies like credit cards and mobile wallets? If so, why are other technologically advanced countries not following Sweden's lead?

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Cash is king

Harley Spiller is one of those vocal cash lovers that would have given Silverglide's cashiers an earful.

Spiller is the author of "Keep the Change: A Collector's Tales of Lucky Pennies, Counterfeit C-Notes, and Other Curious Currency" and works at New York City's Museum of American Finance.

"People don't trust the banks," he said. "People keep their stuff, they keep their store of value."

Indeed, from 2007 to 2012, the value of U.S. currency in circulation rose 42 percent, even as other forms of payments also gained popularity, according to an essay by John Williams, president of the San Francisco Federal Reserve.

"During the recent financial crisis, some people may have withdrawn cash from accounts at banks and other institutions because they were afraid these institutions might fail," Williams said. "Around the world, during periods of political unrest or war, cash — especially the currency of a stable country like the United States — is seen as a safe asset that can be spirited out of harm's way with relative ease."

Americans are far from alone in their penchant for cash, according to a 2014 Boston Federal Reserve study, which surveyed habits in Canada, Australia, Austria, France, Germany, the Netherlands and the United States.

In that study, Austria and Germany both used cash for 82 percent of transactions. Canada, the Netherlands, U.S. and France used it for about half. The average ATM withdrawal in Austria and Germany, it followed, was $125 to $150, compared to between $50 and $75 elsewhere.

Cash purchases tended to be smaller, and occur less often at gas stations across all countries, and are usually made by older citizens (though in the U.S., young people used cash frequently too).

Note that all these countries rank among the top in the world when it comes to cybersecurity. All are in the top 30 of the World Economic Forum's Networked Readiness Index, which measures "factors, policies and institutions that enable a country to fully leverage information and communication technologies for increased competitiveness and well-being."

Meanwhile South Africa, No. 75 on the list, has a "roaring" electronics payment system, according to research from Mercator Advisory Group.

Another argument that Silverglide heard frequently among customers is that cash must be universally accepted. That's not true, however: There is no federal statute which mandates that private businesses must accept cash as a form of payment, according to the Treasury Department's website.

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Cash is dead

Silverglide estimates that the cash-free stint trimmed five to seven seconds from the average transaction time, and saved money too. No longer did he have to count and reconcile cash drawers at the store and corporate level, nor anchor a salesperson constantly at the front register to deter theft.

"The managers are taken from interacting with guests, making them manage the cash for two hours a day," Silverglide said.

Cash does have its downsides.

First of all, cash costs more than it is worth in many cases. A penny costs 1.7 cents to produce and a nickel costs 8.1 cents (though the government picks up some savings on quarters and dimes, according to the U.S. Mint's 2014 congressional report).

"I think it's an argument that has been used for the last 25 years by the penny lobby that supports keeping the penny," former U.S. Mint Director Philip Diehl told CNBC in December. "The reality is that about 25 percent of all transactions are now in cash. The other 75 is in electronic forms of one type or another."

And as an almost untraceable payment method, cash is often associated with underground trade, covert deeds and crime.

A working paper by the National Bureau of Economic Research found that switching the welfare payment programs from paper checks to electronic benefit transfer cards led to a significant decrease in the overall crime rate and the specific offenses of burglary, assault and larceny in poor Missouri neighborhoods.

Moreover, there's the convenience of more high-tech money. Credit cards and other cashless systems provide more recourse when money is stolen, establish a purchase history with a merchant and can provide privacy — all attributes of payment systems that were valued highly by participants in a study presented last year at the seventh Information Design International Conference.

In that study, participants only used cash when they feared card fraud, the study authors noted. But digital payment processor Braintree said technological advances like tokenization have rapidly improved transaction security.

The process of issuing vendors a key code, rather than a credit card number, to charge accounts enables Braintree to connect customers to real-time services like Uber, Airbnb, Munchery and other quickly scaling services that would not have made sense with cash.

"The first thing we sought to do is to democratize the access," said Juan Benitez, general manager at Braintree. "Many of those merchants want to go global more quickly than ever before, supporting all these mobile technologies. ... It's really important to merchants to select a platform that helps them do those things."

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Long live cash

Despite the potential advantages of noncash payments, cash still thrives in most of the world.

One reason cash persists is historically low interest rates that have given people little incentive to put cash back into the banks, according to Williams. Political uncertainty abroad also plays a role.

There's also a portion of society that's "underbanked," and view other financial resources like bank accounts or credit cards as too difficult or expensive to obtain, according to a separate San Francisco Fed paper.

But there's another, more sentimental bent to it as well, said Spiller, who has a "beautiful" personal collection of coins and bills, which are marked, bent or torn in unique ways.

"It's a human thing," Spiller said. "It's like handwriting. People complain it's not part of schooling anymore. Is it going away? No, it's as basic as a signature. ... Radio was going to kill magazines. And as soon as radio hit, there were new magazines about radio."

Indeed, while people have been talking about the death of cash for a long time, it's unlikely to come anytime soon, said Sarah Grotta, director of the debit advisory service at Mercator.

"When we do consumer studies, we ask them why," Grotta said. "A lot of it has to do with security. ... They use it as a budgeting tool to keep them from spending money they don't have. Our conversion to EMV chip cards [in the U.S.] has also been pretty uneven. Consumers are really confused about what card to use what way, that's reverting them back to cash."

While tools like mobile wallets have come a long way, cash is still the backup of choice when things go wrong, she said.

"I think, eventually, cash is going to be used much less than it is today," Grotta said. "But I think a lot of things need to happen before that. People need a really compelling reason to use something other than cash. We need to develop a mobile wallet or some other methodology that provides all the benefits of cash: ubiquitous, really fast, a lot less confusing."