The war being waged on cash

By Megan Graham. Published at Dec 16, 2016, in Features

If you’ve been paying attention to financial news both domestic and international, you will likely be familiar with the term ‘war on cash’.

The term refers to the increasing moves by countries and governments towards a ‘cashless society’.

In an age of convenience, tech disruption, and an ever-appealing narrative of increasing ease and simplicity (which doesn’t necessarily bear out in real life) the term ‘cashless society’ is one that could easily receive an uncritical tick of approval from most people who just desire less complications in their life.

But the transition, led overwhelmingly by governments and banks, to get rid of cash poses some unsettling questions.

We’ve seen negative interest rates applied in several countries including Japan and Switzerland, and the threat of the same being introduced in Australia is real.

Enforced negative interest rates is a way to get people spending and keeping less in their bank accounts, because doing the latter will actually cost them money.

If that sounds manipulative, well, it is. But proponents of these kinds of measures claim it is necessary and in the public interest.

Where this comes into disturbing contact with the ‘war on cash’ is obvious, once the connection has been made – to avoid negative interest rates in Australia (if introduced), people could favour physical cash savings over digitised accounts. Such a move takes back a little of that power given to the bank when depositing money.

Of course, getting rid of the $100 note – as proposed by Revenue and Financial Services Minister Kelly O’Dwyer this week – makes it considerably harder to keep, and deal in, cash. Which is the explicit point.

In May, the European Central Bank announced they were discontinuing the production of new 500 euro notes.

In September last year, Australian bank Westpac published its “Cash Free Report”, suggesting that the country would become cashless by 2022.

In November, Citibank announced it was going cashless at some of its Australian branches.

The most recent and captivating example of the war on cash is India. On November 8 the government declared that 500 and 1000 rupee notes were no longer legal tender.

Imagine that – one day, the hard-earned cash in your wallet is worth a value that you and the payer and your whole country were more or less agreed on; then overnight, that agreement is annulled with no discussion or recourse.

If all of our money is tied up in digitized bank accounts, we have lost full control over our own money. A banking institution could surprise you with negative interest rates, or even confiscate your digital funds for something they can’t even prove you did.

Civil asset forfeiture

In the US, police can seize and keep property that is suspected of involvement in criminal activity. Shockingly, the owner does not need to be found guilty of a crime, or even charged with one, to permanently lose their cash or belongings.

If authorities don’t have easy access to an individual’s money through a digital bank account, things like civil asset forfeiture are harder to implement, and involve more people, time and money to execute.

In addition to that, as personal data and privacy is eroded in the name of anti-terrorism, it becomes easier for authorities to gather circumstantial evidence which can be used to put individuals under suspicion of wrongdoing.

Further, if it’s possible to access complete data on individual spending habits, this would include things like donations to a political party – for a democracy to function at all, it’s vital that individuals are not open to persecution or discrimination for supporting a certain political party, yet access to this information could have dramatic implications.

All these factors lead to greater surveillance and tracking of citizens and forced entry into a banking system which is controlled by the government.

The general justification for getting rid of cash is to target those individuals who are dishonest or involved in the so-called ‘black economy’.

Cashless society to clamp down on tax avoidance, fraud

The official argument around going cashless is that it will clamp down on fraud, crime, and tax avoidance.

There are a few holes to be poked in this argument, and many are doing so. Crime does not rely on cash transactions, for starters. And stopping crime should always be balanced by protecting civil liberties.

And in terms of tax avoidance – if governments were really serious about plugging tax loopholes that rob us from health, education and infrastructure funding, the best place to start would be in corporate tax evasion – according to the ATO, more than one third of large and private companies paid no tax in 2014-15.

Big corporations might be more equipped to pay their dues than, say, an un-banked migrant working a low rate cash-in-hand job, or a uni student making $100 a week at a café. Yes, there are those who will cheat the system and avoid paying tax on significant income – but, as always, it’s a balancing act between stopping ‘the baddies’ without punishing ‘the good guys’.

And many see removing cash altogether as a heavy-handed and overly controlling approach, to say the least.

Another argument is that cashless is safer – who wants to carry around lots of money? But anyone who has been the victim of digital account hacking knows that a few hundred stolen from a handbag is nothing compared to the speed at which damage done via electronic means.

As explained in this article, money is a ‘bearer instrument’, which means a thing for which ownership is not kept on a record – rather, whoever holds it owns it. So going ‘cashless’ completely changes the nature of money as our society knows it. And most of the benefit will be to banks and governments, not consumers.

For those who migrated to Australia without a recorded birthdate or ID number; those who don’t have a permanent address or whose income is not stable; or those who missed payments in the past... a cashless society excludes these ‘invisible’ demographics. Which is partly the point.

So you want to save money?

Negative interest rates are implemented to ‘inspire’ spending to stimulate the economy.

Interestingly, the opposite tends to happen. Those saving money need those savings for a reason – perhaps its education, parenting costs, future medical expenses, or a deposit for a house.

With negative interest rates, people don’t just forget savings goals and start spending – but since their savings goals haven’t simply disappeared, they often will save more to make up the difference. Which means the only winner in that scenario are the banks, who get to keep the ‘negative interest’ earned.

So with these warnings in the air, and evidence that other countries are willing to take significant steps in a ‘cashless’ direction, it’s no surprise that some are suggesting a move from digitised savings to investments in physical gold and silver.

With India’s recent move against notes, the sales of safes in the country has gone up – and the same thing has been happening in Japan, with its negative interest rates.

Since cash can ostensibly be devalued or outlawed overnight (in India, at least) the attraction of precious metals for nervous savers becomes obvious.

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