There is an adage in the marketplace: cash is king, and there are reasons why that phrase rings true.
Cash prevents the invasion of privacy by government bureaucrats. When cash is gone, and you rely primarily on pieces of plastic or even microchips, you can easily be monitored and tracked, which is why blockchain technology is becoming popular among central banks. Cash guarantees anonymity in transactions and your daily affairs.
Big banks will gain more customers when cash is gone because you are forced to enter the system. When subzero rates are imposed, then you can’t protect your wealth by fleeing the system because there is nowhere to go.
It is true that tax evasion would likely be ended. Since the state has control over your money in a cashless world, bureaucrats can extract the taxes from you.
A senior economist at the International Monetary Fund (IMF) has published a working paper entitled “The Macroeconomics of De-Cashing.” In his twenty-six-page paper, Alexei Kireyev outlines what governments need to do to establish a cashless society and why it helps states to adopt such a world. This is essentially the blueprint for the war on cash, a battle that has certainly escalated in the last two years.
Although the IMF economist explains that his working paper is “purely illustrative” and an “evaluation,” it does provide any public official with the wisdom to institute a policy of eliminating cash altogether.
Here is how Kireyev defines de-cashing:
The gradual phasing out of currency from circulation and its replacement with convertible deposits.
Kireyev explains how de-cashing can improve monetary policy.
When negative interest rates serve as a recommended mechanism for monetary policy initiatives, the public’s reaction doesn’t always go as planned. This has often resulted in depositors taking their money out of the banking system and leaving it at home. The Economist notes that de-cashing prevents this from happening since most money is stored in the banking system. It also, he states, spurs economic growth by encouraging consumer spending.
Another benefit he avers is the increased rate of tax collection. By de-cashing, tax evasion is reduced:
In Sweden, for example, with de-cashing, the government has benefited from more efficient tax collection, because electronic transactions leave a trail. To the contrary, in countries like Greece and Italy, where cash is still heavily used, tax evasion remains a big problem.
De-cashing may also help in battling illegal immigration. Since there is less physical currency in circulation, businesses would no longer be able to attract illegal immigration by paying them in cash.
He highlighted the primary hurdle to instituting this vision: fundamental, human and constitutional rights. Kireyev wrote that consumers may view carrying cash as a human right and that households and small businesses conducting transactions anonymously may see it as their constitutional right.
The solution to this problem, he notes, is a target outreach program to help minimize suspicions regarding de-cashing:
A targeted outreach program is needed to alleviate suspicions related to de-cashing; in particular, that by de-cashing the authorities are trying to control all aspects of peoples’ lives, including their use of money, or push personal savings into banks. The de-cashing process would acquire more traction if it were based on individual consumer choice and cost-benefits considerations.
Moreover, he encourages other nations to work together to advance the cashless initiative by “coordinat[ing] their de-cashing efforts.” He also believes consensus between the public and private sector would assist in removing cash from our day-to-day transactions.
Kireyev isn’t the first one to think of such a concept. Over the last two years, there have been numerous prominent officials and organizations who have championed the virtues of eviscerating cash and relying primarily on digits.
Soon after the European Central Bank (ECB) announced it was getting rid of the 500-euro banknote, former Treasury Secretary Larry Summers argued that it was time to end the issuance of the $50 and $100 banknotes and SFR1,000 franc notes in Switzerland. Earlier this year, at the World Economic Forum, Joseph Stiglitz, Nobel Prize-winning economist, presented the case for phasing out cash and shifting into a digital economy. Kenneth Rogoff, the former chief economist of the International Monetary Fund and current Harvard University economist, opined in Bloomberg the advantages of abolishing cash.
The reason for this action, they say, is to combat illicit activities, fight terrorism and end tax evasion.
Is this truly the endgame of eradicating physical money? Thwarting illegal action and collecting taxes?
The war on cash is only a lust for greater power by governments, central banks, and the academic community. It is also a signal of frustration that people aren’t acting the way they want them to – despite low rates, consumers are saving their money at higher rates either home or the banks, The Wall Street Journal reports.
Cash serves as the final refuge of protection from their capers, even if it is marketed as a way to shield you from the mafia and the Taliban.
In 1956, H.L. Mencken, when criticizing the fallacious arguments of the day, wrote:
If you were against the gross injustices and dishonesties of the Wagner Labor Act, then you were against labor. If you were against packing the Supreme Court, then you were in favor of letting Wall Street do it. If you are against using Dr. Quack’s cancer salve, then you are in favor of letting Uncle Julius die.
This idea has been updated: if you are against the prohibition of cash then you support crooks!