# Could the ‘cashless society’ mean the end of the classic bank run? 
Author:  Pal Sinha, Barnali 
Author URL: https://financedigest.com/author/pal-sinha-barnali
Published: 2020-01-07
Category: BANKING
Category URL: https://financedigest.com/category/banking
Meta Title: Are Bank Runs Becoming A Thing of the Past?
Meta Description: Discover how technological advancements and financial innovations are reshaping the banking landscape, potentially rendering bank runs obsolete.
URL: https://financedigest.com/could-the-cashless-society-mean-the-end-of-the-classic-bank-runhtml

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_By **Mathieu Saint-Cyr**, Managing Director, Head of Asset Management, GMG_

For most of modern history, national and global economic crises have been accompanied by a run on the banks. Dating back to the 16th Century, banking runs have accompanied the [British South Sea Bubble](https://en.wikipedia.org/wiki/South_Sea_Company), the Great Depression, and even the 2007 financial crisis included market-liquidity failures that were comparable to a bank run.

![Mathieu Saint-Cyr](https://prod.superblogcdn.com/site_cuid_cm5qst7v3003gwirgwqtxn8i8/images/mathieu-saint-cyr-450x300-1736838981549-compressed.jpg)

Mathieu Saint-Cyr

While people’s impulse to get their [money out before the banking](https://www.financedigest.com/digitisation-of-banking-the-impact-of-digital-money.html "Digitisation of Banking: the impact of digital money") system or economy collapses is understandable, this kind of panic usually exacerbates the situation. It should hardly be surprising then that banks and governments alike have tried to prevent or mitigate the [impact](https://www.financedigest.com/the-latest-trends-in-instant-payments-and-how-they-impact-banks.html "The latest trends in instant payments and how they impact banks") of panic-induced runs on banks.

But, as society becomes increasingly cashless, could the classic [bank run become a thing](https://www.financedigest.com/the-bank-of-things-bot-has-arrived-but-what-does-it-mean-for-banks-2.html "The Bank of Things (BoT) Has Arrived: But What Does It Mean for Banks?") of the past?

There’s evidence to suggest that this may be the case. [Advances in technology](https://www.financedigest.com/banks-deploy-ai-3-major-technological-advances.html "Banks Deploy AI – 3 Major Technological Advances            ") mean that banks and consumers alike are safer from the impact of bank runs than ever.

The ever-increasing number of customers who have direct access to their [bank accounts](https://www.financedigest.com/lebanese-bank-closes-over-30-british-held-accounts-after-uk-ruling-depositors-group.html "Lebanese bank closes over 30 British-held accounts after UK ruling-depositors’ group") through digital portals and mobile interfaces, might accelerate the possibility of early redemptions in a stressed environment.

Nevertheless, banks can always implement maximum [transfer limits](https://www.financedigest.com/natwest-limits-customers-crypto-transfers-citing-scam-concerns.html "NatWest limits customers’ crypto transfers, citing scam concerns") per account, which has the same effect as limiting cash withdrawal at ATMs.

It is worth noting that alternatives to that issue exist. Indeed securities like bonds or equities can be segregated on the bank [balance sheet](https://www.financedigest.com/ecbs-villeroy-lays-out-plan-for-shrinking-balance-sheet.html "ECB’s Villeroy lays out plan for shrinking balance sheet") and could be a good way of protecting assets.

In fact, some of the [big changes](https://www.financedigest.com/pharmaceutical-contract-packaging-market-current-impact-to-make-big-changes-2020.html "Pharmaceutical Contract Packaging Market Current Impact to Make Big Changes 2020") driven by fintech dovetail neatly with the evolution of existing financial systems.

For decades, our financial system has relied on [banks to lend more than they hold](https://www.financedigest.com/major-myths-and-questions-holding-banking-and-financial-services-back-from-full-digital-id-adoption.html "Major myths and questions holding banking and financial services back from full digital ID adoption") as collateral. This is known as the [money multiplier](https://en.wikipedia.org/wiki/Money_multiplier) effect. A purely cashless environment wouldn’t drastically worsen the current imbalance.

The entire financial system is based on trust. Recent paradigm shifts such as the evolution of [Blockchain technology](https://www.financedigest.com/how-blockchain-technology-can-help-the-fashion-industry-make-verifiable-green-claims.html "How Blockchain Technology Can Help the Fashion Industry Make Verifiable Green Claims") make value transfers among counterparties who ordinarily wouldn’t trust each other much easier.

At the individual level, meanwhile, technology is making people less dependent on banks, further [reducing the risk](https://www.financedigest.com/driving-returns-and-reducing-risk-with-data.html "Driving returns and reducing risk with data") of a banking panic.

Bitcoin, for example, is a decentralized network where each coin holder controls an asset that no state can have access to.

On the other hand, [Bitcoin will probably never be as widespread as well supplied state-owned currencies](https://www.financedigest.com/bitcoin-sterling-volumes-spike-to-record-high-as-british-currency-flounders.html "Bitcoin-sterling volumes spike to record high as British currency flounders") which would benefit from the multiplier effect and maximize the use of money.

That said, the [finance industry](https://www.financedigest.com/future-of-the-finance-industry.html "Future of the Finance Industry") will have to be more adaptable if it hopes to thrive in this shifting environment.

New [technologies are bringing](https://www.financedigest.com/adverty-wins-third-us-patent-for-brainimpression-bringing-ad-viewability-technology-to-gaming-on-mobile-tv-screens-and-the-wider-metaverse.html "Adverty wins third US patent for BrainImpression™, bringing ad viewability technology to gaming on mobile, TV screens and the wider metaverse") hyper-transparency and instantaneous transactions. As a result, the [traditional banking](https://www.financedigest.com/traditional-banks-need-an-overhaul.html "Traditional banks need an overhaul") system is under pressure to cope with the fully digitalized processes and let go of paperwork safekeeping.

Fortunately, that does appear to be happening.

Most financial institutions are currently [working](https://www.financedigest.com/making-sure-you-are-compliant-when-working-in-the-finance-industry.html "Making Sure You Are Compliant When Working in the Finance Industry") on increasing the speed of value transfer and reducing the number of required intermediaries.

Ultimately, he believes, this will lead to a brand new way of doing things, integrating profiles in the [Blockchain and digital ledgers](https://www.financedigest.com/blockchain-a-case-for-the-general-ledger.html "BLOCKCHAIN: A CASE FOR THE GENERAL LEDGER"), rather than obsolete forms of support, such as paperwork, fax confirmation, mails, and validation checks.

So, rather than accelerating financial crises as some pessimists might think, technology could well make the global financial system more stable while [empowering](https://www.financedigest.com/the-digital-finance-revolution-empowered-consumers-turn-digital-to-protect-financial-security.html "The digital finance revolution: empowered consumers turn digital to protect financial security") people like you and me, who depend on its infrastructure in our daily lives.


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