In the 1970’s, a group of researchers was assigned a simple task.
Imagine you work for the KGB and you need to create a perfect surveillance system without
creeping people out.
And this is what they came up with. [1] They predicted a widespread adoption of debit
cards would be the best surveillance system within the constraint of not being obtrusive.
And they were right.
With a debit card, you are not thinking about surveillance.
It’s been sold to you as a convenient payment method.
And yet it maintains a detailed record of your purchases with a precise location and time. [2]
This data can be sold and marketed by your
provider, retailers, and payment processors, or be collected by a three-letter government
agency just in case they need to look at what your shopping reveals about your personality
– you know, for national security purposes. [3]
The surveillance capability introduced by
debit cards diminishes the anonymity of cash payments.
This makes it easier for the government to collect taxes and eliminate black markets
that heavily rely on cash precisely for its untraceability. [4]
But the success of such surveillance is only
viable when anonymous options are no longer available.
We will soon approach that reality as we are being transformed into a cashless society.
An average pack of cigarettes in Australia costs about $40 AU.
That’s due to Australia’s heavy tax on tobacco products, which is the highest in the world.
But such high taxes incentivized unintended behavior. [5]
Australia struggles with a huge black market
for smuggling cigarettes and there is a crime
epidemic of stealing products from tobacco warehouses.
The result is a massive tax avoidance and organized crime which the Australian government
decided to deal with by cracking down on cash.
It is now illegal to “make or accept a payment or series of connected payments in cash in
excess of” $10,000 AU.
Some are floating proposals to do away with the Australia’s two highest denominations
- $100 and $50 bills.
[10] The goal is to squeeze the juice out of the black market and starve out their businesses. [6]
Limiting cash payments and banning high-value
bank notes is becoming a global trend.
In France the cap on cash transactions is only 1,000 euros and in Italy it’s at €2,999.99. [7]
The European Central Bank has recently stopped issuing €500-notes, although they
will remain accepted as a legal tender indefinitely.
To put it in perspective, this little European project of replacing 500-euro banknotes is
actually going to require covering 300 billion euros in circulation and it will cost 600 million euros. [8]
In some countries, the war on cash gets much worse .
India’s Prime Minister Modi banned the use of 500 and 1,000 rupee notes basically overnight,
giving Indians 50-day grace period to return their notes.
1,000 rupees may sound like much, but it only amounts to roughly $14. [9]
This was a catastrophic blow to the Indian
economy and poor working people that relied on cash to receive wages and pay rents.
The country’s economic growth slowed down by 17% and Indian cities suffered from a massive
exodus of up to 60% of migrant workers who fled the cities because there was not enough
cash in circulation to replace the two highest denominations. [11] [12]
Poor working people suffered the most from
Modi’s plan, but his support was rock-solid, because he framed it as a strike against the
corrupt elites in India. [12]
In fact, in all cases of eliminating high-value notes or posing caps on cash transactions,
black markets and crime is always quoted as the main reason.
However, a recent study conducted in the UK focusing on money laundering and terrorist
financing revealed that regulated banks and accounting firms were the two biggest facilitators
of illegal transfers and funding.
Although cash ranked the third, banks were almost twice as likely to be involved in money
laundering than cash. [13]
So as Elaine Ou from Bloomberg said: if illegal
transactions are the reasoning “for banning cash, then it only makes sense to ban banks
and accounting firms first”.
It seems that living in a cashless society would be convenient for many, but an ordeal for others.
Homeless people, charity workers, small retailers, cab drivers or casual workers getting paid
in cash would suffer the most in a world with no physical currency.
But there is a country closer to being a cashless society than any other country in the world,
and it’s proving everyone wrong. Sweden.
In Sweden, no high street bank in big cities handles cash anymore with 85% of the population
banking online. [14]
Even paying for a coffee or a bus transfer requires mobile or card payment.
Cash is so uncommon in Sweden, that even homeless people carry credit card readers that are
supplied to them by charity organizations.
Donating to a church or splitting a restaurant check among friends that used to be a domain
of cash is now a matter of using inter-person payment apps. [15]
Going cashless is certainly going to have its benefits.
Payments will be fast and convenient.
Theft will be basically non-existent.
And tax collection will be easier and fairer.
In the US, people without a bank account spend
5 to 9 minutes longer to get cash than average Americans. [16]
Theft of cash alone cost businesses $40 billion a year, which is more than credit
card fraud, refund fraud, Internet fraud and bad checks combined. [17]
Credit card fraud results in $16 billion in
losses affecting 15.4 million Americans although this number is rapidly increasing year by year. [18]
Tax evasion is a huge problem in the United States.
The IRS estimates an average tax gap between 2008 and 2010 to be $458 billion.
This is the amount of tax revenue the IRS expected to be collected but was not even reported.
How much of this revenue is black market or financing illegal activities is unclear.
But much of the tax evasion happens in plain sight. [19]
Recent investigations show that in total $2.6
trillion in profits is held offshore by the US Fortune 500 companies. [20]
This is achieved by abusing loopholes in foreign countries.
Four jurisdictions – Bermuda, Ireland, Luxemburg and the Netherlands – account for 63% of
all profits from American multinational companies. [21]
Between 2008 and 2015, Apple earned $305 billion
in revenue and paid only 5.8% in foreign tax and returned nothing in the US taxes.
They were able to do this not by hiding their earnings in cash, but by shifting their profits
through three Irish subsidiaries that are structured so that they are not “residents”
of neither Ireland nor the US because, for tax purposes, they are under foreign control. [20]
Living in a cashless society will represent
a major change in economic dynamics.
People will no longer have custody of their money.
All that will be left for them is a mere claim that
a number on their account balance belongs to them.
But this claim only means as much as it can be enforced. [13]
During the Greece debt-crisis in 2015, banks
imposed a nationwide limit on cash withdrawals to 60 euros a day, essentially preventing
people from accessing their savings in the name of protecting national economy.
The capital controls that also prohibited foreign transfers
were only fully lifted three years later. [21]
Cashless society will grant banks and card
companies unaccountable and unchecked control over people’s finances.
There will be no choice but to accept their service on their terms.
The affects will spill over into social and political realms, as payment providers already
ban their customers for speech or political positions.
The existence of cash made it difficult for central banks to enforce monetary policies.
During the Eurozone crisis, the European Central Bank resorted to charging negative interest
rates on savings and deposits in order to discourage saving and boost spending. [27]
The strategy of quantitative easing didn’t
bring the desired results.
When people started to lose interest on their live savings, it only incentivized them to
spend less and save even more.
People who wanted to avoid being charged for their savings could simply store their savings
as cash in a safe.
In a cashless society, this scenario would not be an option and central banks would always
have an ultimate say over people’s funds. [22] [13] [23] [24] [25]
Making all transactions electronically creates
troves of data that can be used to track individual purchases or even macro-engineer economic
behavior of an entire nation. [2]
Data is one of the most sought-after commodities in the world and digital payments allow companies
to track real identities and build profiles of shopping habits.
For regular people, this will mean they will no longer be allowed to buy drugs, visit a
pub, or buy a book anonymously.
Gradually, we are being nudged into a cashless society. [26]
Banks are making it more inconvenient to use cash by closing down their branches
or limiting cash withdrawals at counters and ATMs.
[28] In 2017, Visa ran a campaign where it wanted to reward $10,000 to 50 US-based businesses
who go completely cashless. [29]
The resistance to cashless society is not
all that futile.
Germany is the leader of stubbornly holding on to cash.
80% of point-of-sale transactions are made in cash, and an average German carries over
100 euros in their wallet. [30] [31]
Big supermarket chains only began introducing card payments in 2015 and tens
of thousands of restaurants and shops are still cash-only.
Most Germans view cash as a means of freedom from government control and a way of preserving
privacy and anonymity which they are refusing to give up.