Financial writer Dominic Frisby is worried about the War on Cash. In the Guardian, he argues that the end of cash would be disastrous for all of us, from the poorest unbanked citizens to the regular Joe who just wants to own his own money, and to spend it–or save it–however he likes.
What concerns me is the unofficial war on cash that is going on, from the suspicion with which you are treated if you ever use large sums of cash to the campaign in Europe to decommission the €500 note. I’m not sure the consequences have been properly considered.
Frisby also sees the end of cash as somewhat inevitable:
Electronic banking put paid to the cheque. Contactless payment is now doing the same to cash, which is becoming less and less convenient. In the marketplace convenience usually wins.
He points out that wealth distribution is already “about as unequal as it gets,” and that a cashless society might make inequality even worse. But what makes for really interesting reading are his concrete examples of why we should want cash to stick around.
In a world without cash, every payment you make will be traceable. Do you want governments (which are not always benevolent), banks or payment processors to have potential access to that information?
First up, security. Not the security of the transaction, but the security of the person making it. Cash is largely anonymous, and just because criminals use it to move capital around doesn’t mean all cash use is dodgy.
If you listen to the scaremongering, you’d start to think that all cash users are either criminals, tax evaders or terrorists. Sure, some use cash to evade tax, but it’s paltry compared to the tax avoidance schemes Google and Facebook have employed. Google doesn’t use cash to avoid tax. It’s all done via legislative means.
Like most things the government doesn’t want you to do, cash is being demonized. The U.K. government managed to get Internet content filters installed at the ISP (phone company) level by implying that only pedophiles would want unfiltered Internet. Electronic payments are easier to tax, and way easier to track than cash, and we know how much our governments like to track our every move these days. The €500 note may be banned soon, to stop “criminal” transactions, but as Frisby argues, the penalties for giving up cash are far harsher for the poor, and the unbanked. These are also the people with the fewest resources to do anything about it. Will they be lumped in with real criminals in future fiscal policy? In the same way that the outlawing of drugs empowers criminals and persecutes the people that use them, maybe the marginalization of cash will do the same thing for money?
Cash, on the other hand, empowers its users. It enables them to buy and sell, and store their wealth, without being dependent on anyone else. They can stay outside the financial system, if so desired.
Frisby describes cash as a decentralized system that can be used by anyone. Interestingly, he mentions storage. All you need to store any amount of cash is a big enough mattress, whereas electronic cash, or just credit card payments, need the services of large organizations, the kind of organization that doesn’t care too much if it makes a mistake with your money. This, again, underlines the difference between rich and poor in a cashless society. Rich people can afford to take time to fix errors made by, say, Visa, whereas a poor person just wants to get their hands on their last $10 to buy food for their family’s dinner.
It will hand yet more power to the financial sector in that banks and related fintech companies will oversee all transactions. The crash of 2008 showed that, when push comes to shove, banks have already been exempted from the very effective regulation that is bankruptcy.
In 2008 many rushed to take their money out of the banks. If the financial system really was as close to breaking point as we are told it was, then such actions are quite justified. When Cyprus’s banks teetered on the cliff of financial disaster in 2011, we saw bail-ins. Ordinary people’s money in deposit accounts was sequestered to bail out the system. If your life savings were threatened with confiscation to bail out a corporation you considered profligate, I imagine you too would rush to withdraw them.
The only financial danger (as opposed to the physical danger of robbery) of cash is inflation. The money in your above-mentioned mattress is safe forever, with only the depreciative effects of inflation to worry about. Even if your money is in the bank, you can convert it to cash easily. What about electronic cash? Where do you stash that if you no longer trust the bank?
“In Japan,” says Frisby, “So much cash has been withdrawn from banks that there are now reports that the country has sold out of safes.”
Saying that cash is essential is fine, but are there any examples that show how essential it is? Frisby has a great example–cellphones. Fixed-line phones usually require a contract, which require a bank account. That meant that the unbanked couldn’t have a phone, even if they could afford one. But today, anybody can buy a pre-paid phone for cash.
At its peak in 2008, there were 1.3bn landlines for a global population close to 7 billion. Today more than 6 billion people have a mobile phone–more than have access to a toilet, according to a UN study. […] The financial system was actually a barrier to progress for the world’s poor, while cash was a facilitator for them.
Finally, cash can be used to express your middle-class concerns. You can paternalistically ensure that a waiter gets their tip, for example, by pressing a note into their hand.
I like to tip waiters, for example, in cash, knowing they will receive that money, without it being siphoned off by some unscrupulous employer. I also like to shop in markets, where I can buy directly from the producer knowing they will receive the money, without middle men shaving off their percentages
These are rather middle-class reasons for keeping cash, and also unfounded. In Sweden, for example, homeless people can take credit cards. But the fact remains, cash is more than just a way to launder money. It’s an egalitarian system that anyone can take part in, and that aspect is certainly worth fighting for.