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General News    H3'ed 9/13/16

Political unease around cashless economy, war on cash may turn sour

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Message James Halloway

As the public opinion carries on being uninterested in the slow depletion of cash in its everyday transactions, various studies are shedding more and more light on the potentially catastrophic consequences it could yield on our economies and democracies. Clearly, this topic deserves far more attention than it is getting.

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All banks are in agreement that cash is tedious and expensive to handle. Scandinavian countries, which are the Western economies the closest to giving up on cash, have produced relatively solid arguments that turning away from hard currency has made the banking sector more "cost-effective".

Denmark claims it has gone so far as to add an entire point of GDP since the sharp drop in the economy's share of cash. In those countries, the shift has operated quite smoothly in the sense that the national populations more or less carried it out themselves, or at least have shown no resistance or hostility towards the change.

Cities all around Europe have already been launching bank-sponsored initiatives to test out the next cashless phase. Wolfstreet published in November of 2015: "In May this year the city of Bergamo launched an ambitious pilot scheme to become Italy's first cashless city. The initiative, which awards people who use electronic payments with discounts on retail products, is sponsored by (once again) MasterCard, together with CartaSi, Visa, UbiBanca, Banca Popolare di Bergamo and Banco Popolare".

The Irish city of Cork has played along, the British city of Gloucester, and in Scandinavia, it has become standard. Nina Lyon, from the Coin Telegraph , stated in January of 2016 that "The Chamber of Commerce of Denmark has also proposed to allow most retailers (except for essential services like hospitals, post offices, etc.) to make all money transactions electronically and ban cash. Moreover, the Danish government has "set a 2030 deadline to completely do away with paper money." But it will probably be beaten to the chase by Sweden, expected to become the first cashless society ever, in history.

So, a simple snapshot of Scandinavian societies and economies should tell us that destroying cash is a harmless and even smart thing to do. But that would lack perspective. Indeed, national banks market cash, they have the upper hand, until the currency is distributed to the market, at which point the sovereignty of choice -i.e. what to do with the money -- is transferred to the holder.

So, everything is fine in these quasi-cashless societies, for the moment; but that will only last until "something is rotten again in the State of Denmark" -- or anywhere else in Sweden, Norway or in the world. If, and some would fear "when" be a better choice of words, these States were to become dictatorial or turn on their people, the latter would have nowhere to go to protect their livelihood.

With automatic registering of every financial operation, including names, dates, amounts, forms, goods purchased, etc., governments would quietly receive an amount of power unheard of in history. Complete and absolute control of their economies is something the greatest dictators were unable to achieve.

Low-cash economic configurations are also made somewhat popular thanks to the economically strange phenomenon they are able to produce: negative-interest loans. In Europe, there are currently a few rare cases where negative rates are applied, due to the European central bank pressing down the prime rate. So of course, the idea of free credit or even making money off your mortgage is very entertaining to many people who struggle to meet monthly payments. But this argument is both void and dangerous.

First of all, this was already possible with virtual currency, so nothing new here. Second, and most important, this is economically unsound. If national leaders made the (politically very costly) choice to bail banks out, it is because they are essential to a nation's economy, and banks need to keep their earning up.

Now, these cases of negative rates are very isolated, because cash still exists in Western societies. But with a complete deletion of currency, the phenomenon could become widespread. It would be fun in the beginning, but quickly reveal the economic disaster on our hands. If banks collapse for lack of earnings, no matter how disliked they are, we would be foolish to rejoice because our economies and livelihoods would be up next.

There is a reason why politicians, during the 2008 subprime crisis, made the very costly choice to bail banks out: letting them collapse would have plunged their countries into chaos. So, in short, banks not making any money practicing their trade and customers trapped within the system with nowhere to hide, don't make for a very sound and sustainable economy.

The reasons to destroy cash are valid, but because they are presented in a partial way (i.e. without their logical counterparts), they are irrelevant. They should be examined and scrutinized in perspective with all the (numerous and important) reasons not to destroy cash. Only then could a sound decision be made. This partial presentation of the matter, along with the fact that the move is left conspicuously undebated should raise our awareness on it. If anything, the public should make sure that, if cash is indeed suppressed from our economies, it is willing and able to pay the high price for it. If not, by the time it realizes what it has done, it will be too late to draw back.

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Political unease around cashless economy, war on cash may turn sour

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