December 2, 2016 / 8:20 AM / a year ago

South Korea can offer roadmap to cashless Asia

HONG KONG (Reuters Breakingviews) - - South Korea’s dislike of cash is now official. The country wants to go coinless by 2020. For one of the most wired nations in the world where electronic payments are already commonplace, it is an achievable target. Asia’s latest currency experiment can also offer valuable lessons for a region hooked on ready money. 

A currency dealer counts Japanese yen and Korean won currency at a money exchange bureau in Tokyo October 27, 2008. REUTERS/Issei Kato (JAPAN)

Consumers in South Korea will soon no longer have to fill their pockets with annoying change after buying small-ticket items at convenience stores. From the first half of 2017, they will be able to put the coin value returned onto prepaid cards that are already widely used to pay for public transportation. Further down the road, consumers might be able to deposit change directly into banks and mobile payment accounts.

Completely getting rid of metal money may not be possible, because, for one, many short-term foreign visitors may not bother to sign up for alternative payment methods. The Bank of Korea is not saying it will stop minting coins either.

But a significant reduction in the amount of coins in circulation is feasible, thanks to the existing wide use of electronic payment systems. Take the prepaid transportation cards; in the second quarter to the end of June, average daily transactions amounted to 13 million in a country of 50 million.

A different bold currency experiment is currently taking place in India, with New Delhi last month abruptly canceling banknotes that accounted for 86 percent of the total by value. The move aims to curb corruption but is also intended to encourage a shift to digital transactions. The latter is a much taller task in India, where financial inclusion remains an issue.

Another factor that helps South Korea in implementing a big nationwide change is that it has a dense population that is quick to adapt to trends.

Still, Asia as a whole relies on cash transactions far more than other parts of the world. Governments may watch how Seoul’s grand experiment progresses, given cash-driven economies are inefficient and prone to corruption. South Korea will likely show that with the right use of infrastructure and technology, countries can smoothly curb the use of cash.

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