Money, or some form of payment has been around for as long as man himself. From an early age, we exchanged services for services, products for products and kind for kind.
This eventually took the form of a token, a promise, or a value; and from this, modern money was invented. This program studies the possibility of a global cashless economy, and identify what advantages and disadvantages there are, and if as predicted, for the world to become a cashless society in the future.
The global war on cash: did you even know there was a war against it? Yes, there is a real push, a concerted effort by governments and their lawmakers to move to a cashless society. First the numbers that prove we are moving towards a cashless system. In 2010, there were 285.2 billion cashless transactions worldwide. BY 2015, that number increased to 426.3 billion.
What medium is used to conduct these cashless transactions? There are a number of ways, but the mode that is used is digital They are the intermediaries, like Paypal and Square, On-line banking, like Visa & Mastercard, smartphones, like Apple Pay, and crypto currencies, the famous one of them all being Bitcoin.
Why the War on Cash?
So, who is behind the “War on Cash?” The U.S. Government and Federal Reserve are fighting against cash on many fronts and for many reasons. Among the many reasons is the cost of manufacturing money and keeping it in circulation. Banks must now report cash withdrawal or deposit of $10,000 or more.
A larger, logical government motive in going after cash is tax evasion. An estimated 18% of total reportable income in the United States is effectively off the books. Cash is the instrument through which people can avoid excessive taxation and government surveillance.
Cash is king for criminals who want to stay off the radar. That being said, the image of briefcases and envelopes filled with money may be the way of criminals as portrayed in the media, but we also see criminals, big and small, using other payment methods. Transfers, offshore accounts, trusts, etc. are just a few ways the grey economy skillfully makes light of financial rules. And the increasing number of scams and blackmail hackers take advantage of the rise of alternative currencies such as Bitcoin. “The extinction of cash wouldn’t erase money-laundering, nor tax fraud,” says Delphine Lalanne, who heads fiduciary activities at the Bank of France.
While digital transactions may force criminals to other transactions, the law abiding citizens will pay with the total elimination of privacy. Without cash, you can never buy or sell a thing or a service without anyone knowing about it.
In 2011, Louisiana became the first state to wage war on cash, enacting a law called R.S. 37:1866. Politicians made it illegal to purchase anything from a secondhand dealer with cash. The law made even going to a garage sale and paying in cash an illegal transaction.
A secondhand dealer shall not enter into any cash transactions in payment for the purchase of junk or used or secondhand property. Payment shall be made in the form of check, electronic transfers, or money order issued to the seller of the junk or used or secondhand property and made payable to the name and address of the seller.
They used the excuse that selling used goods for cash enabled criminals to sell what they stole. But it also helped increase sales and income tax revenue to the state for these transactions that for decades flew under the radar.
Processing Companies are Winning
“The extinction of cash is also a theory disseminated by pressure groups,” one expert notes. Digital payments, after all, aren’t free of charge. Their development implies a massification that generates commission payments from retailers. In addition, when you use your card, they gain the ability to collect commercially exploitable data, the equivalent of gold for the 21st century.
If you think these companies don’t see how they can win big with a cashless society then check out the move taken by Visa this week. The credit card giant is this week announcing a new plan to hand out $10,000 each for up to 50 small food and restaurant vendors if they agree to stop taking cash.
Visa will also upgrade the restaurants’ checkout terminals so they can accept contactless payments, like Apple Pay, and invest in some of the stores’ marketing costs. When you pay at one of the stores you would only be able to do so with a credit or debit card, or via mobile payment.
Amazon’s brick-and-mortar retail stores only accept credit cards and mobile payment methods; and other companies and upstarts are working hard to gain a foot in the cashless game. Facebook recently added a peer-to-peer payment option with its Messenger service; and Apple’s iOS11 will include an upgrade to its ApplePay system that allows users to send money to each other via text message. This is all in addition to services like Venmo, a popular way for consumers – especially the younger generation – to send money to each other easily and quickly.
Negative Interest Rates
Remember the high cost of handling and moving money we mentioned before? Well, even banks don’t want to handle your money. In France, there are already banks that have absolutely no money.
A growing trend around the world is negative interest rates. It’s when a government or bank charges you to hold your money in a bond or account. It’s like a second tax on money you have already earned.
It may sound crazy, but it’s happening all over the world. More than 20 countries have already implemented negative rates. And the United States has been flirting with the idea, too.
To sidestep these negative rates, citizens in countries affected by them have been hoarding their cash.
For instance, in Japan, one of the hottest-selling items in the country has been safes. People are using them to store their cash at home rather than a bank.
If you live in a country that decides to embrace negative interest rates, buying a safe to hoard your cash won’t be enough to protect your money.
That’s because negative interest rates will be followed by the other government policy in the War on Cash. For negative interest rates to really work, the government needs to ban cash. Not all cash at first, but at least large denominations to start. The government would have to make it inconvenient to store large sums of cash.
First Goes Big Bills
This is already happening. In November 2016, India’s government abruptly declared invalid all bills of 500 and 1,000 rupees in an unprecedented and slightly chaotic operation. In February 2016, European Union central bank head Mario Draghi pushed to ban the €500 note. The very next day, he was supported by former U.S. Treasury Secretary Larry Summers, who then called for an end to the U.S. $100 bill.
The Bank Of England website has no timetable on it for the introduction of a new £50 note; and the Bank’s chief economist Andy Haldane recently spoke at length on how much easier modern monetary policy would be if only people were forced to stop using cash. The aim is to make the UK an entirely cashless society by 2020.
The most efficient and vicious method governments can use is simply inflation while refusing to emit any new banknotes with higher denominations. The purchasing power of a $20 bill in 1960, for instance, is equivalent to the purchasing power of about $165 today. With only 2% inflation rate, the value of a $100 bill will be divided by two every 35 years. Inflation will be enough to impede the use of cash in current transactions.
If large-denomination notes are banned or removed from circulation, it would be difficult to hoard money in your home. Imagine trying to store $100,000 worth of savings in $1, $5, or $10 bills. You’d need a bank vault.
Other countries have turned to less spectacular measures, like imposing limits on cash transactions. In France, the cap was brought down from 3,000 euros to 1,000 euros in September 2015.
Sweden Leading the Way
Sweden is a pioneer country when it comes to money. That’s where the first bank notes were invented and where the first national central bank was created, in the late 17th century. Sweden was also the first to introduce negative interest rates in 2015. And the Nordic country is ahead of the curve when it comes to cashless societies. Going cashless is a goal openly admitted by the authorities, so much so that they even promoted it on the state-run website Sweden.se.
The Swedes no longer pay, they “swish.” Swish is the name of a payment app launched by Swedish and Danish banks. And although ABBA sang “Money, Money, Money,” the museum dedicated to the Swedish band in Stockholm doesn’t accept any cash. Another piece of evidence of the willingness to switch is that any shopkeeper in Sweden has to right to refuse payments in cash. As a consequence, the volume of cash only represents 2.1% of the GDP in Sweden compared to 10.3% in the Eurozone and 7.7% in the U.S.
The Swedish example attracts much discussion in the world of payments. For some, it’s a full-scale showcase of the prospects of tomorrow’s digital world. For others, it raises serious concerns: First of all about the risk of more exclusion for the poorest and the weakest members of society, but also about the risk of a Big Brother-like turn that would, in the future, ban all non-traceable transaction and limit individual freedoms and the right to property.
We’re not there yet, and far from it. While no innovation has ever succeeded in completely replacing cash, digital methods of payments widen the offer, but cash is resisting and even checks are managing still to survive. We can rest assured, in other words, that our beloved bills will be with us for a while yet, but you still wonder for just how long.
