No More Cash

I read an interesting article today, that is actually quite frightening. I have been referring to issues related to governments obtaining too much access to our private finances, and it certainly is a concern for me in the long run. The recent crack-down on potentially non-declared assets is one thing, but the article I read today was about an idea proposed by renowned economist Kenneth Rogoff.

His idea is to actually remove physical cash. In his opinion there are many advantages in doing this, and I would have to agree with a number of them. The first is the obvious impact this would have on various illicit organizations such as drug trafficking or arms dealing. If there is no more cash, then this would have to be paid for somehow with electronic wire transfers, and these can obviously be tracked. I suppose bribing would also be considerably reduced since you could no longer hand over some cash to get things done, or to speed things up. By having to make electronic transfers, there would always be a risk of the payment being tracked. Certainly there would be a record of any transaction done. This then also extends to all the little non-declared jobs like gardeners, baby-sitters or cleaners. With no cash, you could not pay the gardener in cash, and so there would be an electronic trail of the payment that could be tracked. Although black labour can be a problem, I think that removing this sort of payment would create more problems than what it would solve.

In his ideal world, removing cash would technically lead to a full and proper fiscal income for a state. Fraud would be nearly impossible, or certainly there would always be the risk of an investigation since there would be records of any and all financial transactions. And I suppose this is not a bad thing, as eradicating tax evasion should ultimately lead to lower taxes for the law-abiding regular citizens. But that is in a perfect world…

The cynic in me instead sees a huge problem with this. Essentially any money we would have saved up would basically no longer be our money. It would simply be an electronic code in a computer, to which the government would have full access. As it stands today, we are almost there since most of our money is indeed simply an accounting entry in a computer, but at least we still have the option of obtaining cash. We have seen how a government can, in my opinion, totally abuse the system. In Cyprus the government simply decided to basically seize large portions of individuals’ assets on all bank accounts. They applied a tax of nearly 10% on all savings above EUR 100’000 (it was 6.75% for amounts below 100k). They had financial difficulties, and then simply decided to take the money from the people.

I really don’t think for a second that cash will be abolished anytime soon, but I do get annoyed at ideas like this that focus too narrowly on one issue and totally miss out on all the potential consequences as a result.

One really great example of something like that is an incident in Gothenburg Sweden from a number of years back. At the time there was a system in place where companies could purchase lunch-cheques, and then distribute them to their staff as a benefit. They actually cost a bit less than their face value, making them particularly interesting. The problem was that the socialists in the city at the time were vehemently opposed to these cheques as they claimed they only benefitted the rich, and on top of that also provided these rich with an unfair tax benefit since they would receive these partially tax free. They pushed the issue through, and were able to have the lunch cheque system abolished, and screamed victory.

Shortly after, the number of people actually going to restaurants for lunch started dwindling as it became more expensive, and there were other cheaper alternatives such as sandwich places and fast-food joints. It did not take long before the restaurants began cutting their staff due to the reduced clientele. Some restaurant ended up shutting down in the long-run, with obviously the whole staff losing their jobs. So, the end result of this brilliant victory by the socialists was that the upper middle class were still essentially making the same amount of money, but the state was collecting a little bit more income tax. On the other hand, something like close to a hundred jobs were lost in all, and the state actually ended up losing a fair amount of tax income from VAT charged on the lunches previously sold, and obviously had to provide more unemployment beneficiaries for those that had lost their jobs. However the socialists still claimed this as a victory because they had removed an unfair advantage to the upper middle class.

So, if cash would be to go the way of the dodo, our savings would in the long term become something which is really no longer ours. With the total control by the government, and the total removal of all privacy, we would be completely at their mercy. Now ask yourself if you trust that government. Maybe someday, somebody in power will decide that for equality nobody should have more than $10’000 savings, and anything above that held in savings accounts will be taken by the government.

Interesting read as usual Henrik, thanks.

Thanks Danny Boy, although I write these things because I need to vent, it is nice to see that somebody actually reads my drivel!

I always read your rants, Henrik.
Sometimes nodding sagely, other times shaking my head - but all are read from start to finish.
Then, suitably brain-nourished, I head to the fridge for some refreshment...  

It sounds like this guy has the Bitcoin bug. You will always need some sort of cash to cover purchases. Plus the government will need physical cash to back the currency. This move would take us further from a gold standard, to simply data in the air. Not a good idea if you ask me.

technically speaking cash is just a printed trade credit