A very important economic transformation is under way, and it seems voluntarily to be placed at a stratospheric level, with stakeholders carefully keeping the subject away from public opinion. Several types of players are even favorable to such an economy. But the implications are many, and not all are good. A close scrutiny of the pros and cons brings useful insight on the stakes for consumers, all the more reason for citizens of a free world.
Cash is often criticized for its role in all sorts of crimes and demeanors, from high-level money laundering, terrorist support, tax evasion to petty theft and small-time drug commerce. This argument is the main one used by state promoters of the so-called ‘futuristic’ cashless society. Here, the stake is state control, under all of its forms. By lacking control over financial circuits, states fear seeing their fiscal revenues depleted over time (slow death risk), or having its enemies have safe financing, such as terrorist organizations (quick death risk). It is indeed clear that cash is used for many illegal activities: black market, illegal drugs, undeclared labor, small tax evasion…
In 2010, the United States IRS estimated over 300 billion dollars to be lost to tax evasion. But on the other hand, a lot of fiscal fraud does not occur through cash : in a great majority of tax evasion cases, the money isn’t transferred through cash, as most airports actually enforce the ban on carrying large amounts of cash (usually about 10 000 dollars). In the great majority of cases, wealth is simply transferred through normal banking systems to countries where states are either complacent with tax evaders or not in control of their banking system, using screen companies, front men, and complex money trails. None of which the destruction of cash can do anything about.
The second point of such a massive, yet slow, economic shift is the aim of governments to boost consumption in their economies. Economists and analysts know about a psychological fault line in the consumer’s mind which makes them spend more when using plastic money. If we don’t actually hand over the bills and coins – a consumer experience mitigated by the pleasure of receiving the purchased item and the unpleasant feeling of giving up our hard-earned money – then it feels less as if we’ve spent anything. Play money, if you will. However, the uncompromising economics of it are unchanged: the money has been spent, has generated fiscal revenue and currency circulation. Exactly what governments want.
Now, while healthy levels of national consumption do benefit citizens in the end, they should be aware of the risk that they will unnoticeably spend more, if they only use transfers, payment apps and debit cards. In Sweden, there is concern that a form of financial illiteracy may occur and young people who, in a few years, will never have seen actual money, may run themselves into debt.
Banks are active supporters of this shift, for two main reasons. The first is that cash is expensive to produce and manage. The Federal Reserve bureau indicates that “Each year, the Federal Reserve Board projects the likely demand for new currency, and places an order with the Department of the Treasury’s Bureau of Engraving and Printing, which produces U.S. currency and charges the Board for the cost of production. The 2016 currency budget is $737.4 million and reflects the following costs per denomination”. As for private banks, they have to bear the financial cost of cash management.
For that same American market, “An oft-cited study by Tufts University puts the total cost of cash for the US economy at $200 billion. Clearly banks don’t foot the entire bill, but cash costs are a concern for financial institutions as they seek to make efficiency gains” says C. Mavredis, from NCR. The second reason why banks like cashless markets is that it protects them from pretty much the only thing which can send them down the drain: bank runs. As Greece experienced recently, and many other economies before (Latvia, Bulgaria or even China), things get edgy very quickly when all customers come to retrieve their cash. When there is no cash to be withdrawn, then the risk is extinct.
Finally, supporters of the disappearance of cash have a point regarding hygiene. Few people are known to wash their coins and bills, do they? That means that in a banknote or coin lifetime (which can last for several years on the market, and be exchanged thousands of times), they will constantly accumulate bacteria and forward them to the next cash-holder, thus being a major illness-propagation vector. But then again, debit-card pin pads are never cleaned either, so either way we are dead.
The reason why banks and states are seeking to keep this subject away from the public sphere is the same reason why the public should look into it: it’s about control and, naturally, about revenue. It’s about how much freedom people wish to give up in exchange for added security. Because, if it is unclear how much more security a cashless society would give us, the freedom to keep a very small and residual part of private citizen’s lives unmonitored will be gone the instant we enter a world without cash.
Its many implications must be discussed, since they may profoundly affect our daily lives. First of all, think about respect for freedom. In his article titled £1984: does a cashless economy make for a surveillance state?, Brett Scott is of the view that a cashless society “increases the power of private banks relative to individuals.” Scott adds: “We will require banks even for buying a bottle of milk. With this comes the spectre of bank surveillance, where every transaction you ever partake in is authorised and recorded by a privately run commercial bank, giving it a transaction-by-transaction history of your entire commercial life. If such a bank does not like an enterprise – such as Wikileaks –it can just freeze it out.”
Admittedly, as long as you’re a honest citizen, you don’t give a damn, you think. But as Scott reminds us so well, “some might argue that this should not matter if you have nothing to hide. The same argument, though, might be used to install a government or corporate surveillance camera in your living room. The desire not to be watched does not mean you have something to hide – just that you like to be alone. So it is with money. Sometimes we like to feel like our transactions belong to us alone”.
A cashless society is also a “bizarro world of negative interest rates” in which “saving will cost you”, Jeff Sommer wrote in the NY Times. What’s the link between a cashless economy and negative interest rates, you ask? That’s pretty simple. Brett Scott explains that “if the only means of holding money is in the form of electronic bank deposits, a central bank can do something it cannot do with cash. It can set negative interest rates to erode people’s money in times of recession, making it costly to hoard it, and thereby theoretically stimulating economic activity.” It’s all upside down, isn’t it? That’s also what Kathy A. Jones, chief fixed-income strategist at Charles Schwab, considers. “Our whole financial system is built the other way, on positive interest rates. This is mind-boggling”, she says.
Now, let’s have a look at cyber security stakes. Paul Cornish, Head of International Security Programme and Carrington Professor of International Security, is of the view that “economic cyber warfare could offer a low-cost, low-risk alternative to both conventional warfare and economic warfare, both of which would cause grave damage to an increasingly interconnected global economy.” Even so, he further points out: “For policy makers seeking to identify genuine security challenges and then to anticipate them, economic cyber warfare is of doubtful credibility”. What about bankers? In its report titled Banks likely to remain top cybercrime targets¸ Symantec warns: “Attacks against the finance industry are becoming increasingly sophisticated and highly targeted (…) Emerging channels, such as mobile and online banking, are opening new doors for cybercriminals”, and institutional experts “have raised the threat level for attacks from ‘elevated’ to ‘high’, citing recent credible intelligence regarding the potential for distributed denial-of-service (DDoS) attacks.” So what shall we do without paper money, the day the whole banking industry collapses under heavy cyber attack? Probably come back to a barter economy. That’s evolution, they said.