Money Talk: The implications of the war on cash
Articles on the “war on cash” have been popping up on the Internet from the Wall Street Journal to Bloomberg Review.
The global transition to cashless money transactions has been mostly one of convenience, but has also been pushed heavily as a reason to keep criminal activities down. Yet the idea that most cash transaction is done by criminals is detrimental to the real majority, the low-income demographic.
Cashless societies are barring low-income individuals from having a stable footing in the economy.
While the overarching perception is that there is a concentrated war on the poor to keep them out of the economy, the two causes holding up the arch are privacy and removal of the zero-interest rate bound.
With negative interest rates becoming more common in the world – as well as the European Union (EU) looking to ban their €500 notes and some American politicians claiming it’s time to do away with the $100 bill, it will only become harder to hold cash.
Willem Buiter, Citigroup’s chief economist wrote, “This cost has to be seen against the cost that the anonymity of currency presents to society. Even though hard evidence is hard to come by, it is very likely that the underground economy and the criminal community are among the heaviest users of currency.”
That is a response to monetary economist Charles Goodhart, who claimed that abolishing currency was “shockingly illiberal,” according to WolfStreet.com.
Doing away with the privacy that comes from cash transactions is illiberal because everyone has a right to privacy, a sentiment that any politician, regardless of their position on the aisle, should support.
An opinion piece for the Wall Street Journal titled “The Political War on Cash,” cites that 20 percent of the EU’s gross domestic product, or GDP, is conducted through cash transactions.
Markets that are mainly comprised of cash transactions are referred to as gray markets – and these are markets that governments would have an interest in taxing and regulating.
Those policies could push legitimate businesses out of the market.
Cash also keeps interest rates from going below zero easily, which is why many economists are freaking out that interest rates are going below zero.
It’s seen to be inevitable at this point, but that’s not to say people won’t make the transition quietly.
Although if history is to teach us anything, it’s that convenience is the best driving factor for something to be status quo and carrying cash has come to seem very inconvenient.