The war on cash is coming

The gradual transition to a cashless society has finally made its way from obscure technicality/conspiracy theory to the pages of mainstream newspapers, after ECB chief Mario Draghi and ex-Treasury Secretary Larry Summers both called for the abolition of high denomination notes. A few weeks ago Germany became the latest country to put the issue on the political agenda, with Angela Merkel’s junior coalition partner the Social Democrats tabling a proposal to ban all cash transactions in excess of €5,000. If implemented, Germany would join the likes of fellow EU countries Spain and France in introducing cash bans, and similar policies are in place in non-EU countries as well, Russia being one. Switzerland are considering it too.

The official reasons for the policy are designed to make it seem trivial to the ordinary citizen: terrorists and drug traffickers do their dealings in cash, and banning large cash transactions will make laundering their money more difficult. And of course cash is dirty, unwieldy and an unnecessary relic from the past. So who needs notes and coins? Much better to have your cash in the bank and use cards for financial transactions. But is that really all that is going on? And what is driving the timing of the sudden rush to introduce cash bans across the world? Is the government just trying to rid us of a legacy system which has had its time and bring on the inevitable move to a digital economy? Hardly.

Of course the government would love a digital trail of all economic activity, even if you are a law-abiding citizen they like to know exactly what you are up to. So your garden variety government bureaucrat would certainly be pleased at the chance to monitor your financial dealings more closely. But there are even more sinister qualities to a fully digital economy. We live in a world where central banks are gradually moving rates below zero in their continuous attempts to keep the bubble inflated, and the effectiveness of their policy is dependent on digital money: negative interest rates don’t affect cash, so only by forcing people to keep their money in a bank accounts can the policy be effective. A bank bail-in, as we saw in Cyprus in 2013, also requires people to actually keep their cash in the bank. And of course it is easier to evade tax on cash. Said simply, it is much more difficult for the government to steal cash than digital money.

The good people of the United Kingdom won’t be burdened by a heavy wallet for much longer either. We already have legislation in place requiring any business which takes cash payments in excess of £15,000 to register with the tax authorities. Peter Sands, former Standard Chartered chief and now an advisor to David Cameron, recently suggested eliminating the £50 note. And Andy Haldane, the chief economist at the Bank of England, gave his support to a formal cash transaction limit back in September, and he didn’t even try to conceal his motivation: that it would help the bank to manage inflation by making it easier to lower rates below zero. In fact, notes and coins in circulation has increased significantly in the last decade, as the opportunity cost of cash has all but disappeared. Hardly surprising, but highly inconvenient when you are about to introduce a stealth tax on bank deposits.

Cash circulation BoE

This is all happening without much public debate or even knowledge of what is going on, but of course the governments want the public to think it is a natural progression of the monetary system, and nothing that will impact the lives of ordinary citizens. A technicality. And those are the policies governments like the most: those that allow them to control us by stealth.

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