Seeing as so many people resist simple public health orders to defeat a virus, it is no surprise that the full potential of the digital world is often foregone. The resistance to changing the way things are done that the digital revolution makes possible is almost normal. It is true that digital tools have made many transactions and processes simpler, easier and faster. It is even true that digital tools have made the previously impossible, possible. But even so there remain outdated practices that could be junked and replaced with digital methods and tools. One of those practices that has to be junked sooner rather than later, is the payment for goods and services with government-issued cash. The idea of junking cash has been kicked around for years. So far the idea of a cashless economy has not grabbed much attention. Is that due to inattention, or is the resistance to the cashless economy a result of lobbying governments by those who profit most from a cash payment system?
The cashless economy exists now to some degree. Pay systems like PayPal, online vendors, digital wallets and cryptocurrency of all kinds have shown that a cashless economy can and does work. Their drawbacks are that PayPal charges a transaction fee, online vendors monetize spending habits, digital wallets are insecure and values of cryptocurrencies go up and down. But if governments were to promote and adopt a cashless economy, the costs, the monetizing, the insecurity and the changing values could be wiped out. The question is why governments have not adopted a cashless economy long before this, seeing as they are the ones that would benefit most from a cashless economy.
Benefits of a cashless society
If governments adopted a cashless economy, the first benefit would be that governments can scrap the mint. There would be no need to stamp the coins and print the bills. The second benefit would be governments would be spared much of the expense of fighting crime of all kinds. Crime thrives on cash. The third benefit to government, and which is perhaps the greatest benefit, would be the end of tax evasion.
1. Scrap the mint
The government mint employs many persons. Some are expert and therefore expensive designers of currency. It is not easy to stymie counterfeiters. But, if there were no cash, there would be no counterfeiters. The mint occupies a vast space and processes vast amounts of material. All that the mint does and buys could be completely scrapped. The demise of the mint would save governments huge expenses. The mints would have to be replaced by an electronic currency farm but the costs of that would be much less than operating a mint.
2. Less crime
Crime thrives on cash. Most criminal transactions involve the transfer of goods for cash. When goods are stolen they are dealt to a fence for cash. In a cashless economy, stolen goods could be handed over in return for a bank transfer. But the bank transfers produce records and those records are available to law enforcement. The records make the whole business of buying and selling stolen goods much more risky. When illegal drugs are sold they too are handed over for cash. If there is no cash how could drugs be paid for and what would the dealer receive for the drugs? It is hard to imagine that drug users and drug dealers could deal drugs for bank credits. But even, if they did, the records would be readily available to law enforcement. And that makes the drug business much more risky than it is now. In both cases, theft and drugs, more arrests, more convictions and more jail time looms for those who steal and sell stolen goods and for those who use and sell illegal drugs. Because the risks are so high the stolen goods business and the illegal drug business would be nearly impossible and certainly not profitable.
3. The end of black markets and tax evasion
But perhaps the greatest benefit to governments is the end of black markets and tax evasion. Each and every transaction produces a bank record. All taxpayers instead of simply reporting income will have to produce bank records that confirm their incomes. Because there is no way to get income that does not generate records, it would be impossible to report anything other than the actual income. Only very sophisticated participants in an underground banking cartel could hide income but even those would produce records.
4. Better for retailers
Not only governments would benefit from a cashless economy. Almost all legitimate retail businesses would benefit from not having to hold and process cash. For many retail businesses, the day starts with a trip to the bank to collect cash to make change. That cash has to be sorted and counted. Then the cash has to be placed in a secure place. Even then the cash is available to employees with criminal intent. At the end of the day, that cash has to be counted and deposited in a bank. The float has to be subtracted from the total cash to learn the total of cash sales. A digital sales system would permit the proceeds of each sale to be immediately deposited into the bank account of the business. At the end of each day the total amount of sales deposited is only a few clicks away.
Objections to going cashless
The main objection to going cashless is the fear of a monetary debacle. A recent currency cancellation and exchange in India may be a useful reference. In December of 2020, India ordered that all existing cash bills then in circulation would no longer be legal tender after a certain date. All current cash bills had to be delivered to a bank and new currency bills would be issued. The underground economy had run amok, crime was fueled with cash, bribes were paid in cash, savings were hoarded in cash and real incomes were in cash and not reported to the taxman. Cash stoked crime, cash expedited bribes, cash hoards prevented the formation of capital, and cash was not taxable. The cash economy was on a road to disaster. But India could not go digital because there were not enough devices nor capable infrastructure. As a result, the government of India issued new currency in exchange for the old. Surprisingly, there were only a few problems. The most pressing problem was that there was not enough new currency to replace the amount of old currency. That problem showed that the planners, who estimated the amount of new currency needed, vastly underestimated the old currency cash in circulation, which was yet another indication that the cash system was out of control. The owners of all that cash could not be traced nor could that cash income be taxed.
Of course, going cashless is not the same as a currency cancellation and exchange. But the process adopted in India does show that such exchanges can be planned and carried out without collapsing the economy. It would not be much different to change from cash to digital money, if governments provided and secured such digital money. The change to digital money is now more pressing than ever. It has been estimated that the worldwide proceeds of crime exceed $ 1 Trillion dollars per year. All of that cash has to be laundered into legitimate funds. In addition, the amounts of income deposited into banks in tax haven countries are not taxed yet benefit the owners of it. Governments everywhere are looking for more revenue. Populations demand that government provide more services. Governments are besieged with demands for more money for all kinds of beneficial programs. The interest payable on government debts alone is crippling. But there are no new sources of funds to tax. While the middle class cannot pay more tax, billionaires are, in comparison, paying little or no taxes. Many governments are presiding over an economy where people barely eking out a living have to pay substantial taxes while billionaires and millionaires pay taxes at rates much lower than workers who are paid wages or salaries. A large part of that inequity is made possible by cash transactions.
With the benefits of junking cash being so clear, what remains obscure are the reasons for not dumping cash. As with most government actions during these times few government actions are for the benefit of the whole population. Most government actions are pursued at the behest of and for the benefit of those who lobby governments and contribute funds to the political parties. Can it be that governments are not junking cash due to the undue influence of thieves, drug manufacturers and dealers along with tax evaders? After all it is thieves, drug dealers and tax evaders that have the most to lose in a switch to a cashless economy. Is it true that laundered drug money finds its way into the re-election campaigns of those politicians who refuse to consider legalizing personal drug use? Just wondering, Eh?
But cashing it in will stymie crime, reduce drug use and increase taxes. So what is holding up the change?