Latin America is a cash based economy. Eight five percent of all then transactions in Latin America are in cash. The dependence on cash is one of the hurdles in the economic development of Latin American countries.
Leonardo Gonzalez Dellan opines that the amount of cash transactions in an economy is a differentiator between developed economies and developing economies. He states that the presence of more cash makes it difficult for individuals in developing economies to get formal work contracts and get access to loans from banks. Moreover, it becomes increasingly difficult for governments to calculate and collect taxes. Leonardo states that the strongest economies of the world are cashless economies.
According to Leonardo Gonzalez Dellan, Mexico is a major example of economies lagging behind because of the use of cash. The country has a huge economic potential but is lagging behind because of over dependence on cash. The country has very less bank account holders despite majority of the population having access to banks. He insists that the prime reason for lack of trust in banking is mistrust on banking institutions in Latin America.
The prevalence of cash makes it harder to track transactions. The highly prevalent drug trade in Latin American countries is majorly financed by cash. This makes the potential investors, looking to invest in the Latin American countries be wary of the economy.
Leonardo Gonzalez Dellan states that the Latin American economies cannot stabilize and grow sustainably, if these economies do not reduce their dependence on cash. The Latin American economy should promote banking and reduce the dependence on cash if it wants to transition from a developing economy to developed economy. They have to take appropriate steps to promote trust among the population and get them on board with the idea of banking. They should use more app based schemes to attract the young generation towards banking.
They can use creative initiatives that eliminate the cumbersome paperwork and long process to open bank accounts and avoiding the minimum income stipulations and ID checks to encourage the habit of banking and eliminate cash from the economy. Leonardo Gonzalez Dellan opines that small steps in the right direction can help the Latin American economy to be on the path to development.