What A Cashless Society Would Look Like

Tyler Durden's picture

Submitted by Erico Matias Tavares via Sinclair & Co.,

Calls by various mainstream economists to ban cash transactions seem to be getting ever more louder.

Bills and coins account for about 10% of M2 monetary aggregates (currency plus very liquid bank deposits) in the US and the Eurozone. Presumably the goal of this policy is to bring this percentage down to zero. In other words, eliminate your right to keep your purchasing power in paper currency.

By forcing people and companies to convert their paper money into bank deposits, the hope is that they can be persuaded (coerced?) to spend that money rather than save it because those deposits will carry considerable costs (negative interest rates and/or fees).

This in turn could boost consumption, GDP and inflation to pay for the massive debts we have accumulated (leaving aside the very controversial idea that citizens should now have to pay for the privilege of holding their hard earned money in a more liquid form, after it has already been taxed). So at long last we can finally get out of the current economic funk.

The US adopted a policy with similar goals in the 1930s, eliminating its citizens’ right to own gold so they could no longer “hoard” it. At that time the US was in the gold standard so the goal was to restrict gold. Now that we are all in a “paper” standard the goal is to restrict paper.

However, while some economic benefits may arguably accrue in the short-run, this needs to be balanced in relation to some serious distortions that could rapidly develop beyond that.

Pros and Cons

To be most effective, banning cash would most likely need to be coordinated between the US and the EU. Otherwise if only one of the two Western economic blocks were to do it, the citizens of that block might start using the paper currency of the other, thereby circumventing the restrictions of this policy. Can’t settle your purchase in paper euros? No problem, we’ll take US dollar bills.

This is just one aspect that can give us a glimpse of the wide ranging consequences this policy would have. Let’s quickly consider some pros and cons, as we see them:

Pros:

  • Enhance the tax base, as most / all transactions in the economy could now be traced by the government;
  • Substantially constrain the parallel economy, particularly in illicit activities;
  • Force people to convert their savings into consumption and/or investment, thereby providing a boost to GDP and employment;
  • Foster the adoption of new wireless / cashless technologies.

Cons:

  • The government loses an important alternative to pay for its debts, namely by printing true-to-the-letter paper money. This is why Greece may have to leave the euro, since its inability or unwillingness to adopt more austerity measures, a precondition to secure more euro loans, will force it to print drachma bills to pay for its debts;
  • Paper money costs you nothing to hold and carries no incremental risk (other than physical theft); converting it into bank deposits will cost you fees (and likely earn a negative interest) and expose you to a substantial loss if the bank goes under. After all, you are giving up currency directly backed by the central bank for currency backed by your local bank;
  • This could have grave consequences for retirees, many of whom are incapable of transacting using plastic. Not to mention that they will disproportionately bear the costs of having to hold their liquid savings entirely in a (costly) bank account;
  • Ditto for very poor people, many of whom don’t have access to the banking system; this will only make them more dependent, in fact exclusively dependent, on government handouts;
  • We wonder if the banks would actually like to deal with the administrative hassle of handling millions of very small cash transactions and related customer queries;
  • Illegal immigrants would be out of a job very quickly – a figure that can reach millions in the US, creating the risk for substantial social unrest;
  • If there is an event that disrupts electronic transactions (e.g. extensive power outage, cyberattack, cascading bank failures) people in that economy will not be able to transact and everything will grind to a halt;
  • Of course enforcing a government mandate to ban cash transactions must carry penalties. This in turns means more regulations, disclosure requirements and compliance costs, potentially exorbitant fees and even jail time;
  • Banning cash transactions might even propel the demise of the US dollar as the world’s reserve currency. The share of US dollar bills held abroad has been estimated to be as high as 70% (according to a 1996 report by the US Federal Reserve). One thing is to limit the choices of your own citizens; another is trying to force this policy onto others, which is much harder. Foreigners would probably dump US dollar bills in a hurry and flock to whichever paper currency that can offer comparable liquidity.

In light of the foregoing does banning cash transactions make sense to you? Aren’t the risks at all levels of society just too large to be disregarded?

Unintended Consequences

Paper money can be thought of as a form of interest-free government borrowing and therefore as a saving to the taxpayer. Given the dire situation of Western government finances, probably the very last thing we should do right now is to ban cash transactions.

Think about it. If the government prints bills and coins to settle its debts, rather than issuing bonds, it does not add to its snowballing debt obligations. Of course the counterargument is that this might result in significant inflation once politicians put their hands directly on the printing press. But isn’t this what the mainstream economists are so desperately trying to do to avoid deflation?

And it’s not like people in the West have tons of cash under the mattress. Let’s do the math. If only 30% of US paper money is held by residents, this is only about 2% of GDP, and probably unevenly distributed. It is therefore very dubious that any boost to economic activity will be that significant. In fact there is no empirical evidence that demonstrates this policy will work as intended (not that this has ever stopped a mainstream economist)

Moreover, an economy’s ability to create money would be even more impaired if its banking system were to crash – exactly at the time when it would need it the most. In reality it could be hugely deflationary because there would be no other currency alternatives. Talk about unintended consequences.

As to who could replace the US in providing paper liquidity to the world, we don’t need to think too hard. China will surely not ban cash transactions given that almost a billion of its citizens are still quite poor and most have no access to banking services (plus it seems that their own economic advisors are much more sensible). Replacing the US in offshore cash transactions would create substantial demand for the Chinese yuan, at that stage without any real competition from other major economies as presumably none would be using paper.

It is therefore doubtful that US political leaders would ever endorse such a policy; they would be effectively giving up on an incredible advantage – the US dollar ATM, to the benefit of their main geopolitical competitors. However, given the considerable influence of mainstream economists in financial and political circles this cannot be ruled out, especially during a crisis.

And it would be just the latest in a set of unprecedented economic policies:

“A depression is coming? Let’s put interest rates at zero. The economy is still in trouble? Let’s have the central bank print trillions in new securities. The banks are not lending? Let’s change the accounting rules and offer government guarantees and funds. People are still not spending? Let’s have negative interest rates. The economy is still in the tank? LET’S BAN CASH TRANSACTIONS!”

More Central Planning

The problem is that central planners never know how and where to stop. If a policy doesn’t work, they just find a way to tinker somewhere else – and with more vigor. Devolving the initiative back to the private sector is never an option.

Micromanagement of every single detail of our economic lives thus seems to be inevitable. And at that point there will be no more free markets. As pointed out by Friedrich von Hayek, “the more the state plans the more difficult planning becomes for the individual.”

Banning cash transactions seems like yet another excuse to postpone implementing real solutions to our financial problems. How can we have sustainable growth in the economy if:

  • The banks are not solid enough to lend?
  • Consumers are not solid enough to borrow?
  • Overindebted municipalities, states and governments seek ever more tax revenues?
  • An already overburdened private sector is underwriting the cost of every policy error?

The guys and gals who generate real wealth and employment need encouragement and support, not more penalties on how they choose to go about their business.

A cash ban does not address any substantive issues. What is needed is a sensible economic proposal and above all political courage to implement it, which so far seems to be lacking.

There are no free lunches in economics. A cashless society is promising to have very tangible costs to our liberties and future prosperity.

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GoldenGeezer's picture

There is a tipping point for every society.

OT but I think that this guy has reached his.

http://www.dailymail.co.uk/news/article-3087995/Kansas-furniture-store-o...

 

CrazyCooter's picture

There is no where to run ... unless you move to a place no one else wants to live. Then, one might have a shot at self governance for a while, but only until everyone else notices one has stuff then they will move in and take it ... which is back to square one ...

Regards,

Cooter

Citxmech's picture

The authors bring up a good point that the move to all-digital currancy would have to be coordinated more or less globally.  That would take some time to implement even if plans were already made and ready to go.  

Waylon Bits's picture

A word to the power elite.... cashless society is the last mistake in your error prone lives you make.

Bring it.

InjectTheVenom's picture

I love the smell of desperation in the morning !

espirit's picture

Beans, Boolits, Bullion.

Tide, rice, tampons, seeds, guillotines.

MonetaryApostate's picture

How many banking jobs will go bye bye thanks to algos & software??

The impact on the real economy will be devastating at the very least...

CrazyCooter's picture

JFC, are we writing software to steal from us now? Humans are so lazy ...

Regards,

Cooter

Keyser's picture

There is no where to run ... unless you move to a place no one else wants to live. 

You obviously have not been looking very hard as there are lots of places on the planet to escape the insanity and live in peace... Now, if you want to stay in the USA geo-political-economic matrix, then best of luck to you, although I give you 1 out of 10 chance of survival... 

This is all just more bullshit, as 2/3 of the worlds economies are still on a cash basis and zero chance they will go cashless... You want to bend over for US hegemony, then stay in Murka or Yurrup and have their edicts shoved up your ass... 


Redneck Hippy's picture

If we couldn't use cash for our illicit activities, the society would lose a very important safety valve.  It wouldn't be pretty.

CH1's picture

Pro: Enhance the tax base

WTF! Increased theft is "Pro"?

Statist, criminal shit.

Squid-puppets a-go-go's picture

no cash society:

babysitter: you only get paid at the end of the calendar month with tax taken out and a 401 contribution

street beggar: sorry, you'll have to invoice me

donation to your church: paypass swipe, please. Of yes, of course, every card swipe the banks get to keep $1.50 'transaction fee' 

and the human interactions that make a civilisation go round grind to a standstill along with the wheels of industry

stack silver - in coin form, not bars

Oh regional Indian's picture

The fact that the so called gov is williing to up their " http://en.wikipedia.org/wiki/Seigniorage " is a huge tell.

Who would want to give up a business where you make something for literally 2 cents and sell it for a $100?

What % profit is that?

Stinks....

 

Four chan's picture

if you dont hold gold and silver you already live in a cashless society.

TahoeBilly2012's picture

Maybe the Anti Christ is AI taking over, just sayin'. Sumptin' fowl a comin'.

N2OJoe's picture

This guy got some of his pro's and con's mixed up.

Illegal immigrants would be out of a job very quickly – a figure that can reach millions in the US, creating the risk for substantial social unrest

Somehow he got confused and listed that under cons.

cowdiddly's picture

Water. Wagons, Wampum and Winchesters

stant's picture

And cordless saws all to cut down the cell , survallence towers

duo's picture

Tide, 9mm and 50 cal ammo, cigarettes, booze.  All of these will become currency.

Keyser's picture

Go watch "The Road", then get back to us with revisions to your list... 

ZeroPoint's picture

If America devolves into 'The Road', it's all over anyway.

Slomotrainwreck's picture

When they control the transactions, The first to become unauthorised will be the preious metals.

TahoeBilly2012's picture

.44 cal is the biggest I can afford

MonetaryApostate's picture

It is all over anyway, the elite WILL remove cash, they will collapse the markets, they will institute digital banking, and NO there will be jobs for you.  They do NOT give a fuck about the 99.99%, get that truth through your head folks, they have NOTHING TO LOSE by doing whatever they want.  They will do what they want, when they want, and there isn't a damn thing any of us can do to stop it, period.

The Road is coming for the world at large, believe it.  (They don't joke about what they put in movies, not one iota, Elysium is coming, bank on it!)

I don't mean to rain on anyone's parade, but reality bites, and it's not my fault these people are so damn greedy & selfish.

Kirk2NCC1701's picture

Beans, Beer, Bread, Bullets

Meat, Meds

Toiletries (Tampons, TP...), Tide, Tequila.

Veggies, Virgins, Vodka.

All of these will become valuable.  Stackers will be trading their pile of Precious for Stuff Of Life.

Talcott's picture

Aye Waylon....

 

...they will have to create chaos and violence to have any hope 

 

of that trope not hanging from a rope.

chalcedonite's picture

Yep!  They may have power but they don't have dominion.  For example, the following story is from a study of the FairFax Resolves... from the early days of our republic:  "Now one of the things that was common in those days to was the right to print your own money. Did you know that right was only eliminated by congress a hundred years ago? In California there was a great deal of privately minted money. Now if you minted a bad coin it wouldn’t move, and they would say “Oh well, John Doe there is producing coins that are no good. Don’t take his money. But if Moffat and company, that was one of the companies that was making gold coins, if they were making good coins everybody would say “I want Moffat’s Coins.” Now in the early days of California after the Gold rush, there would there was practically no American money printed in California, they were way out there in the wilderness, at the other end of the country. So what did they do? Individuals or companies began minting their own coins. Gold coins. They are worth a lot of money today. And everybody preferred them. As a matter of fact a little after the war when they were making greenbacks, if you went to California and you had a wad of greenbacks, and you went into a store and bought something with a greenback, you bought it once. They didn’t want the greenbacks. So the next time you went into the store and tried to buy something, you’d get “sorry, we’re all out.”   “But I see them over there, a whole stack of them.” “Well, we’re sorry, they are all spoken for.” They didn’t want your paper. They had to take it according to the government. But the next time they were all out of everything you wanted. So if you wanted to back there and buy something you’d better go out and work for some gold money, and then go back jingling the gold coins and say “I’m here to buy something.”  http://www.pocketcollege.com/beta/index.php?title=Course_-_American_Hist...

Perimetr's picture

here's another set of ideas:

END THE FEDERAL RESERVE

PUT THE BANKSTERS IN PRISON

RETURN TO THE GOLD STANDARD

 

A "CASHLESS" SOCIETY THAT GIVES TOTAL CONTROL TO THOSE RUNNING THE COMPUTERS

IS A FASCIST DREAM COME TRUE

Perseus son of Zeus's picture

A cashless society is how they shove bitcoins down your throat.

JustUsChickensHere's picture

Bullshit .... Bitcoins are exactly 'cash' - but digial rather than analogue (PM's)

(1) NOT shoved down your throat - strictly optional, private money

(2) Peer to Peer - no bank needed

(3) Capital controls Impossible

(4) Freeze your account? Impossible.

(5) Arbitrary 'printing' - no ... money supply is finite and predictable (unlike FRNs)

 

If you are going to criticize Bitcoin, at least complain about it's actual problems.

 

crazytechnician's picture

Slow down , That is probably about 80 points above his IQ score , you have to explain bitcoin slooowly - try to figure how you would explain bitcoin to somebody who is mentally retarded , that way you may get somewhere.

fiftybagger's picture

Exactly, utterly without a clue.  I also like florin coin(FLO) because of the Alexandria Project and the Chinese seem to be piling into Blackcoin(BLK)

The Bitcoin Channel

Perseus son of Zeus's picture

I'll get you coin-fucks if it's the last thing I do!

turnoffthewater's picture

"Pro

Enhance the tax base, as most / all transactions in the economy could now be traced by the government;"

Sure they will trace the money, just like the draw down on the money markets back when some group stole 550 billion.

http://www.jrdeputyaccountant.com/2009/02/bank-run-which-shall-not-be-named-91808.html

What a joke the three branches of govt have become. Tilt, start game over

MonetaryApostate's picture

I'm afraid there will be no more start over once the game is over....  It will be like "The Road" for many people, for sure.

The Christian all believe that the RFID implant is the mark of the beast & they believe if you take it, your are damned to hell for eternity..  Good luck getting any christian to take that mark, in any form, they would rather starve to death, which is just fine by the elite.  (They get what they wanted to do anyway, kill the Christians)

Tick Tock people, time is running out, and if you think digital currency/banking is the answer, then you are defnitely one ignorant person.

Perseus son of Zeus's picture

"Sure they will trace the money"

Probably only trace it on the debt slaves. You and I both know the Pentagon will not be questioned when another 2 Trillion fucking dollars goes missing.

"Didn't we have a few more pallets of J-confetti in the warehouse for those ISIS/Israel guys? Where did that go?"

MonetaryApostate's picture

News flash, we are ruled by a Fascist Kleptocracy / Oligarchy / Corporatocracy...

Translated, get ready for cashless societies, they are coming, 100% for certain.

Ajax_USB_Port_Repair_Service_'s picture

I have property in an area that no one wants to live. My next door neighbors over there are preppers. They have a high privacy fence, but everyone knows what they are doing. If disaster strikes, people with no food, but plenty of guns and ammo, will 'own' the prepers supplies in short order. Damned if you do - damned if you don't.

Calmyourself's picture

We will I can assure the PTB find a way to value our labor, our inputs of brain, labor and assets will be found.  We will bypass you and we will defend freedom to choose fair valuations.

Bendromeda Strain's picture

If disaster strikes, people with no food, but plenty of guns and ammo, will 'own' the prepers supplies in short order.

Another 'tard who needs to send his script back to rewrite. If you really believe that, why not try and knock 'em off now, tough guy? Just based on what you wrote, I wouldn't be surprised if dealing with YOU isn't high on their checklist, fucking idiot.

NoDecaf's picture

If those are real preppers you can bet they are very aware of the douche bag living next door and probably have him on their list of things to do when TSHTF.

Squid-puppets a-go-go's picture

does that retard really think the preppers are prepared only for systemic collapse, but not a collapse in orderly behaviour of his neighbours

thats what 'prepper' means... they are PREPARED dickhead

auntiesocial's picture

DHS buys millions of bullets, military urban warfare excercises, remove cash from strapped Americans, FED has to admit mistakes, Derivatives Market, Bond turn to shit....

WHAT COULD POSSIBLY GO WRONG?