Cashless society is the latest buzzword in global finance. At the present moment, only 15% to 20% of the world’s money exists in the form of currency notes. This itself is an absurdity. However, many central banks and governments all across the world have pledged to bring the cash percentage down to zero. This means that first currency notes were redeemable for gold. This was the gold standard. At a later stage, currency notes could be redeemed for other currency notes making it the paper standard. The next standard will be digital medium wherein digital money will be the only money. The money will cease to be something tangible. Instead, it will simply be notional i.e. money will only exist in the virtual world.

Like the taking down of the gold standard, this move will have extremely long-term implications. We cannot even fathom what this might lead to in the future. However, the act of banning cash would provide near total control to the government, which is a recipe for disaster.

In this article, we will criticize the concept of cashless society. We will make an attempt to understand what can go wrong if digital payments replace cash.

The Problem with Cash

Governments claim that cash is a menace in the hands of the wrong people. Terrorist activities, counterfeiting, etc. are all funded by cash. This is indeed true. However, this is not the true motive behind the introduction of a cashless society. To understand the real motives, we need to be a bit cynical. We need to assume that the government only works for vested interests and not for the betterment of the common man. Hence, from the point of view of vested interests, cash in the hands of people is bad. This is because since cash is untraceable, it provides some degree of freedom to the people. If all money turns to a digital medium and can be taxed by the government, then this freedom would be eliminated.

The Benefits of a Cashless Society

Let’s understand how cashless societies will benefit the vested interests. Keep in mind these are not benefits to the common man. Instead, these are the problems that ordinary people will face. The problems of the common man are benefits for these vested interests.

• Imposition of Tax: In the present system, the government cannot levy too much tax. This is because people have the means to evade these taxes. Hence, taxes have to be rationalized. However, given the enormous amount of debt all the governments in the world are facing, it is a known fact that taxes will have to be raised one way or another if these economies have to stay afloat. If all the money in the world is digital, it has the same source i.e. banks. This makes it possible, easy and extremely convenient to tax the earnings at the source itself. It will start as a moderate tax which will be favored by the people. However, rising debt will make rising taxes a necessity. Since all money will be digital, there will be absolutely no way to evade taxes.

• Negative Interest Rates: Western economies have been holding interest rates close to zero for a very long time. This means that the next move would be to move into negative territory. This would also mean that people who hold cash in banks will lose a percentage of it. This will be the opposite of gaining money in the form of interest. Negative interest rates are almost a certainty. However, they can only be levied if all money is digital. If money is not digital, people can simply withdraw their money to avoid this tax.

• Market Stimulus: Consumers will be forced to squander their savings in the name of market stimulus. Banks will tax any money that is not being spent. Hence, there will be a systematic focus on conspicuous consumption rather than on savings.

• Bank Runs Eliminated: The modern day banking system is a Ponzi scheme. If everybody wanted to withdraw their money at once, the system would just collapse. However, since the withdrawal of money would simply be impossible after digitization of money, the fraud will become the system! Bank runs will become impossible.

The Problem

The plan to convert the world into a cashless economy is not as foolproof as it sounds. There are some glaring loopholes in the program.

• Who has the Cash? Firstly, the poor and the middle class do not have much cash. It is the rich that have stockpiles of cash. These are the sort of people who can buy political influence and derail the entire process of digitization.

• War on Saving: Secondly, a cashless economy is a war on savings. If people cannot save their money, they will not be able to wither uncertain events like illness, natural calamities, etc. It would turn the economy upside down and would only incentivize conspicuous consumption.

• War on Entrepreneurship: The savings of the people are later invested into entrepreneurial ventures. These ventures are what keep the possibility of upward social mobility alive and form the basis of capitalism. If cashless society hinders the growth of entrepreneurship, it is not worth the pain no matter how many other benefits it offers.