cash is king

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Working for a quasi-Bitcoin-ish tech start-up, I’ve blogged a couple of times on cash & currency but I experienced a full-on-penny-dropping moment t’other day when discussing who’s interest is it in exactly to continue our headlong rush towards the cashless society.

As we all know, various tokens of commercial exchange and stores of value have been around forever, with the East leading the paper money way in the seventh century and Europe eventually following suit about a thousand years later. Different communities, countries and economies obviously adopt different tokens & trends at different times and so it is with the cashless society. Many shops and businesses (including several banks!) within Sweden, Denmark, Norway and Belgium no longer accept cash and cash payments (in value terms) account for as little as 5%. On the other hand, however, 83% of monetary transactions take place with cash in Italy. And let’s not even mention India, where the government’s attempt to scrap high-value banknotes has led to widespread chaos & confusion.

Within developed economies then, hard cash is on the wane (scuse a qualsiasi lettura italiana!), and as a proportion of overall money accounts for only 2-3%, with the rest being held as entries on bank ledgers. It’s clearly still viewed as a store of value but is losing its appeal as a means of exchange. Cards, crypto currencies and, increasingly, smartphones are doing-it for cash. In Africa, where the vast majority of the populace have no access to traditional banking facilities, mobile payment apps such as M-Pesa are now enabling the by-passing of bank accounts, cash and cards.

As in India, governments and banks are quick to claim the scrapping of cash is essential for the prevention of crime and tax fraud. They argue a cash-free world would put an end to armed robbery, to street mugging and cash-machine con-men; that the black economy, organised crime, corrupt officialdom and drug underworld would all find it increasingly difficult to evade the long-arm of the tax-law. There’s no denying it probably would but last year’s ‘national risk assessment’ concluded that the biggest culprits of the illicit storage & movement of funds were the banks themselves, with accounting and law services a close second! Ban cash by all means but get rid of banks, accountants and lawyers first if you actually want to crack down on crime.

So, the crime argument is spurious at best and a complete red-herring at worst. The real reason governments want to get rid of cash is to more fully control their economy.

Governments the world over are trying to prevent their economies from entering recession, and they’re doing this, via their central banks, by cutting interest rates. And they’ve done so, so aggressively that they’re all pretty much at zero, and there’s nowhere for them to go but below zero. If they did so, why would we bother to keep to keep our money in the bank? We wouldn’t and we’d most-likely take it out and keep it in physical form in a shoe-box under the bed. However, if cash wasn’t allowed we’d be stumped: we’d be inclined to spend it rather than see it visibly shrink month by month, statement by statement. Expect cash to be squeezed out, and expect negative interest rates coming to a bank account near you soon…