What A Cashless Society Would Look Like

Tyler Durden's picture

Submitted by Erico Matias Tavares of Sinclair & Co., and reposted from the original as of May 19, 2015 in light of the recent decision by the Bank of Japan to launch negative interest rates.

What A Cashless Society Would Look Like

Calls by various mainstream economists to ban cash transactions seem to be getting ever louder, while central bankers have unleashed negative interest rates on economies accounting for 25% of global GDP, with $5.5 trillion in government bonds yielding less than zero. The two policies are rapidly converging.

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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huggy_in_london's picture

not going to happen anytime soon

Captain Debtcrash's picture

If you don't think its on the way, you're not paying attention. 

Squid-puppets a-go-go's picture

yea, great idea. Cashless society means everyones capital is irretreivably caught up together, so that malinvestment policy error can sink all boats equally.

fucking wonderful.

New England Patriot's picture

To make this work, each person would need some sort of... mark... on the forehead or the hand.

Without this they wouldn't be able to participate in transactions.

EndlessSummer's picture

A sub-dermal chip perhaps. That is coming.

Buckaroo Banzai's picture

There's a good, albeit too brief, interview with Antal Fekete at The Daily Bell. He is asked if cash will ever get "outdated"; Fekete answers that "Cash will never be outdated because, by definition, cash is simply the 'most marketable' asset".

So if they ban coins and banknotes, people will just convert their electronic fiat into whatever the marketplace determines is "the most marketable asset."

What will that be? Gold? Silver? Copper? Liquor? Cigarettes? 50-round boxes of .22 LR? It probably depends on a lot of things....like where you live, what kind of transaction you are attempting to perform, the size of the transaction, etc. Bottles of Tide laundry detergent are currently used as cash in the projects.

Here's the Fekete interview: http://www.thedailybell.com/exclusive-interviews/36764/Anthony-Wile-Prof...

HamFistedIdiot's picture

I can only hope, but cell phones are cheap and ubiquitous, even in the poorest countries. The build out of this technology is relentless despite its 1000s of proven biological effects including the DNA damage it causes. We'll all be zika idiots a hundred years from now, at the rate we're going. What kind of freedoms can we defend when we're a population of 50 IQs?

0b1knob's picture

A cashless economy is an idiotic idea.   The government has a privileged position due to its monopoly of the issuance of currency.   Why would it want to go from a monopoly to a null-opoly?

Creepy Lurker's picture

You're underestimating the ability of .gov to behave irrationally. Especially as it becomes more and more desperate.

These governments have painted themselves into a corner on many levels. None of this will end well. Hedge accordingly.

Xibalba's picture

Anyone else keep getting offers to open a checking account?  '$400 if you move your money over here (right before we bail-in)'

Father Thyme's picture

Hell, I've raked in $400 opening accounts from offers in the mail that say: "We'll give you $100 to open an account." Takes half an hour to open one, so I'm making $200/hour.

I suppose they can take their money back.

And yes, I said "their" money.

Any money you put in the bank is their money; you've lended it to them. Now you're a creditor, chump.

Keep stacking the barbaric phyzz.

Haole's picture

...and an unsecured one at that, even behind derivitive counterparty losses for any restitution. 

Nutsack's picture

It's kind of foolish to believe they will ban fake money, and still let you have real money.

Haole's picture

Well, something tells me we're going to get to find-out eventually but I think it's foolish to imagine them even trying to find people's sunken treasure, etc. even if they wanted to...

Durrmockracy's picture

Who give a flying fuck about "cash"?

If you are really into gold and silver why would you care?  Seperate the men from the boys... who are the real stackers?

philipat's picture

They would then have to ban Gold (And Bitcoin) also? If not, they would serve as a work around, and we can't have that now can we...

HamFistedIdiot's picture

Agreed. I think I heard Stefan Molyneux describe .gov as a power addict who is always seeking its next (and greater) fix. There was a Nazi term for takeover via government bureaucracy. Government develops a momentum that is difficult to shift by logical persuasion alone. Catherine Austin Fitts says we should starve .gov and move as much of our economic activity outside of the current system. Build a parallel system, as Ghandi did. (That's why I support the Tenth Amendment Center, for State Sovereignty.) There was a Bank of England exec recently who said that physical cash would continue on despite .gov's attempts to eradicate it, persisting in our society's sewers "like a crocodile." But it may still be illegal to transact in physical cash. I know that TPTB are tightening the noose in every way they can, like limiting cash withdrawals, penalizing cash transactions, etc. We'll see how far they get. PMs, tradeable skills, greenhouse, solar panels, rural acreage, good neighbors, what else can be done to prepare for the ponzi system's inevitable failure?

Creepy Lurker's picture

Everything you say is spot on. All any of us can do is try to get ahead of this BS as best we can

I think mental preparedness is more important than all the rest. Don't know if you've ever heard of this guy, but he's well worth reading.

http://shtfschool.com/blog/

ZippyDooDah's picture

Barter economy.  Be prepared to trade and hoard.

peddling-fiction's picture

@HamFistedIdiot

Zika virus idiots not.

Zika VACCINE and GMO food idiots YES.

You are right, Cell phone magnetic fields are way higher than WHO guidelines. The problem with the Cell phone towers is much worse.

We live in an electromagnetic soup that is buzzing us to idiocy.

MSimon's picture

Has the inverse square law been repealed?

TheEndIsNear's picture

"So if they ban coins and banknotes, people will just convert their electronic fiat into whatever the marketplace determines is 'the most marketable asset.' What will that be? Gold? Silver? Copper? Liquor? Cigarettes? 50-round boxes of .22 LR"

In fact it might encourage the use of gold and silver in the blackmarket, especially for large transactions. It would presumably still be possible to buy and sell gold/silver for digital currency.

 

marts321's picture

"The devils of truth steal the souls of the free" -Reznor

Ignatius's picture

Cashless is code for locking us all into dollars.

NEKO's picture

What's a cashless society like - well mixed with NIRP its just like my frequent flyer points - use them or loose them, and over time they will be worth nothing anyway.

peddling-fiction's picture

Probably will be called the Phoenix (rising out of our ashes).

The Economist (Rothschild magazine) predicted this back in 1988

https://socioecohistory.wordpress.com/2014/07/26/flashback-1988-get-read...

JimS's picture

Slight alteration to your thought: "malinvestment policy error can sink all boats equally", actually it would be "sink all SMALL boats equally". This is the true case, as, large boats (big investers/wealthy people) will be notified early enough so that "they" can get well positioned to the actual "sinking of all boats". Don't worry, you and I, along with all the "small boats" will get fucked in the ass, as is the usual case.

Croesus's picture

Let them ban cash...what it's really all about: 

1. The banks/DotGov having the ability to know about, and tax, and charge fees for every financial transaction that takes place. 

2. Total control. - If you don't want to comply, DotGov can just freeze your accounts. 

 

If a cash ban happens, then: 

 

1. People will start "cutting out the middle man", and using barter, and alternative forms of currency. 

2. A huge black market will occur. 

3. DotGov and Banksters will still lose. 

 

in4mayshun's picture

Totally agree. Even in Kalifornia, there are no less than 3 counties who's economy absolutely collapses without the marijuana grow business, which is 100% cash based. There are alot of people who will not go along with a cashless society. Silver, gold, bullets, booze, and labor would be the new currency. It wouldnt be long before someone devised a way to trade "labor units" which, ironically, is basically what a dollar is supposed to be. In the end, I dont see it happening because it could back-fire on the establishment in a big way.

Ignatius's picture

Expansion of laws is an expansion of the prison system.

hellocroissants's picture

I share your prediction, but it doesn't really matter. The point with a cashless society is not keeping criminals in check, but keeping the silent majority of honest, working people in check! Draw a parallel with gun control if you will.

Regarding the establishment, they will be the last ones to be affected by any shortcomings of a cashless society, believe me. They will simply shoot the messengers.

g speed's picture

people will use dolars anyway cause thats what stuff is priced with---but dollars will go up value as they become more desireable---fuck the gov't--they are so full of shit-

Welfare Tycoon's picture

I was out grocery shopping with a couple of my co-worker friends last weekend. Both are Sanders supporters, and both are in their mid twenties. One is from the socialist hellhole of Washington, the other is from a North African country that got a good dose of Exceptionalism recently. 

The one from WA is LOUD AS FUCK and of course, incredibly outspoken for Sanders and Socialist policies. He never lets an opportunity go to waste for bashing anything even slightly resembling a conservative-minded ideal. He drives me up the fucking wall sometimes and is not the brightest bulb in the bunch. Part of this is probably due to him doing a rainbow-spectrum of drugs over time. This is the norm for Washington kids, as far as I can tell. Most of the students I met from WA who went to my college could be described as coke-snorting vacuum cleaners. 

The interesting one here is the one from North Africa. He is a member of a prominent family and is highly educated. He earned his Bachelor’s at Oxford and a Master’s double in eCONomics and Marketing. The guy is very intelligent and can soak up information at a rapid rate. Very cultured as well. He can talk for hours about the places he has been to and experiences he has had. It never gets old. He believes that the banks are the biggest problem we have right now, and thinks that the Closet Communist’s rules and regulations will put a stop to this. 

While out shopping, I tell him about the article on the Norwegian bank wanting a cash ban “in response to the oil glut they are having”. I was intending to get his updated opinion on the oil situation, since he is very knowledgeable on Black Gold and commodity markets.  

He surprises me and instead comments on the cash ban. “Cash ban? That’s a great idea!”. Upon hearing this, I got light-headed and nearly passed out. I can’t tell if this was from an eruption of Incandescent Rage or a potentially experiencing a minor MindFuck episode. Maybe both. I lost it and let it slip. “HOW IN THE FUCKING FUCK could you honestly think that the banks are corrupt and the biggest problem we have when you think it is a good idea for them to take control of all of your money and be the sole holder of it?!”. He stuttered and had a deer-in-the headlights look on his face. A wave of incoming shoppers made us swerve and he took the opportunity to change subjects. Hopefully I did not offend him. Even if I did, he probably has a picture of Bernie lying around somewhere that he can stare at to help socialize his pain to others. 

In all seriousness though, I am starting to get worn out by this point. I don’t really know anyone that just GETS IT. No parents, no friends, no co-workers. NO ONE. They are so brainwashed by the MSM and TeeVee that it is impossible to get through to them no matter how convincing you are. By this point, I’m pretty sure that the truth could punch most people in the face and fuck a Liberal in ass and they would still deny it exists. There is no way that Western Civilization is going to turn this shit-show around. Even if it did, what would there be to to make it worth it? 

Sometimes, I can understand why they refer to the masses as GOYIM. 

Creepy Lurker's picture

They won't get it. They will stubbornly hang onto thier delusion until everyone is hungry and shivering in the dark. Just look at Venezuela.

clymer's picture

im with you WT. I can count the number of people I know personally that are awake on one hand and have a couple of fingers to spare. (none good friends or co-workers or family). Tragic. I don't understand how people can't see the obvious. But I’ve come to learn that nothing is obvious to the uninformed. And none are informed, unless they choose to become informed. But choosing to become informed means staring into a dark, bleak and cold abyss, from which no answers are forthcoming. Thus most choose not to pursue information and instead cling to uninformed hopeless hope.

peddling-fiction's picture

No toilet paper for you. - The Toilet Paper Nazi

post turtle saver's picture

haha yeah know both types, you see them everywhere here in the People's Republic of Travis County (AustinTX)... so fucking sure of themselves, cannot wait to see the ground pulled out from underneath them...

Lore's picture

Re: "cannot wait to see the ground pulled out from underneath them..."

...And then some will BLAME YOU. 

Best thing for all involved is for you to wait for someone to ask the right questions (it may never happen), and then be careful not to overwhelm with a bunch of related points as you try to offer a focused, simplistic answer. Don't preach. Don't wander. Some of the things you've said will stick and they'll come back with more questions. That's how they'll form their own big picture, if they're able and willing.

JamaicaJim's picture

Here here, Tycoon.

I have long stopped trying to convince anyone (clients, friends, associates) of anything anymore.

TOO brainwashed, ignorant, by the constant bombardment daily of the fucked up media....

It is sobering to listen to them.

I ask the question; "If the election were held today, whom would you vote for any why"....?

SOBERING are the replies. Sad. I don't offer anything; I just listen to them.

Most know I see data they never do. It is interesting - since I do not offer my own thoughts, how bellicose and stubborn they get, damn near arguing at their damn selves, over their passion of their "candidate".

Gay people are funny. I know a few, and they are for Cuntlary. It is hilarious - and sad - to see a Cankles licker in the mix with a Trump stumper.

When the group/person FINALLY gets me to proffer my opinion, I give them my stock answer;

"Who do I think is going to be SELECTED? (I sneak that altered word in)

Whomever The Powers That Be want.

Talk about deer-in-the-headlights...when they taser themselves out of that verbal digestion, they ask (ALL of them);

"Well, who are they"?

................................................sad

DipshitMiddleClassWhiteKid's picture

Hey dude..well atleast you aren't alone here on ZeroHedge.

 

I'm an atheist Jew (Khazar) and I keep trying to tell my communist family that things are changing in this country because of the ZOG banking machine and the shitskin invasion. Not to mention the new brand of white nationalism isn't going to be poor working class whites, but displaced corporate employees who are watcing their world turned upside down. They belive in gun control, pro-union, etc..typical Libtards.

 

I've met a handful of peopel in corporate America (ive worked @ F500 companies) that were "awake" but most of them were foreigners. Everyone is asleep at the wheel..especially people my age (millenials)  

 

What i've realized about most people, especially working class and the negro is that they are inumerate.  I'm not a math whiz at all but most people do not comprehend basic statistics and what big numbers are and their implications.  I try to explain to my libtard commie family (most jews are communists..even the republican ones..except for a select few like me who are just wanna-be white nationalists/racists..im actually more racist than most white nationalists that i know) that close to 1/3 of the population is out of work and that only 45 million or so people make enough money to support our 'economy' and 'way of life' aka sending shekels to israel, MIC, freeshit army, etc ... 

 

These people won't get it until a wild pack of niggers and arabs are rampaging through their upper middle class suburban McMansions and screaming "KILL DAT WHITEY" and "ALLAH ACKBAR" 

 

~DipShitMiddleClassWhiteKid

 

 

11b40's picture

Am I the only one who thought the items in the PRO list should reallly be in the CON list?

SoilMyselfRotten's picture

Agreed and there is an endgame for these MastersOTU as Aaron Russo revealed before passing. Getting everybody chipped and they control the chips. What good would cash be in that scenario? Only terrorists and anarchists will be using it at that time and i'm afraid gold/silver may actually get caught outside the system as well. Making it illegal to own it and such. I think one will have difficult choices in the not so distant future.

ultimate warrior's picture

The drug trade depend on cash and that isn't going away anytime soon. As long as drugs are illegal, the black market will use dollars as a medium of exchange.

swmnguy's picture

Not only that, but the "black budgets" of the various intelligence agencies that depend on the drug trade.  The means of paying operatives and mercenaries.  The black market in weapons.

They're not going to end cash.  They will make it difficult and risky for law-abiding folks to hold and use.  There are numerous reasons law enforcement has been turned loose to seize cash without charges.  But for those well-enough armed and influential, there will be cash to use.

peddling-fiction's picture

This will start in the Nordic countries.

Probably first Denmark, then Sweden, Norway, and Finland,

then in no particular order, Netherlands, Belgium and then Germany and the rest of Europe.

The US, Canada, New Zealand, Australia are probably well setup to start whenever it is convenient.

Who knows what Russia and China, Brazil, India and South Africa will do.

Most countries in South America are nowhere close to being able to implement this, nor Africa and some of Asia.

Pepper in some wars, mayhem and destruction, and out of the ashes rises the NWO.

bamawatson's picture

hey Capt Debt; sure he's paying attention; he pays with iPhone card swipe paypal visa electonic digits

that's what the cool n groovy hip folks do

marts321's picture

You're just jealous 'cause you haven't got the latest plastic rectangle ;)

bamawatson's picture

"...new car, caviar, four star daydream.."