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The global war on cash


Modi
Yuya
Shino/Reuters


There is a global push by lawmakers to eliminate the use of
physical cash around the world. This movement is often referred
to as “The War on Cash”, and there are three major players
involved:

1. The Initiators
Who?
Governments, central banks.
Why?
The elimination of cash will make it easier to track all types of
transactions – including those made by criminals.

2. The Enemy
Who?
Criminals, terrorists
Why?
Large denominations of bank notes make illegal transactions
easier to perform, and increase anonymity.

3. The Crossfire
Who?
Citizens
Why?
The coercive elimination of physical cash will have potential
repercussions on the economy and social liberties.

Is Cash Still King?

Cash has always been king – but starting in the late 1990s, the
convenience of new technologies have helped make non-cash
transactions to become more viable:

  • Online banking
  • Smartphones
  • Payment technologies
  • Encryption

By 2015, there were 426 billion cashless transactions worldwide –
a 50% increase from five years before.


Screen Shot 2017 01 19 at 3.23.37 PMVisual
Capitalist

Online banking (Visa, Mastercard, Interac)And today, there are
multiple ways to pay digitally, including:

  • Smartphones (Apple Pay)
  • Intermediaries ( Paypal , Square)
  • Cryptocurrencies (Bitcoin)

The First Shots Fired

The success of these new technologies have prompted lawmakers to
posit that all transactions should now be digital.

Here is their case for a cashless society:

Removing high denominations of bills from circulation
makes it harder for terrorists, drug dealers, money launderers,
and tax evaders.

  • $1 million in $100 bills weighs only one kilogram (2.2 lbs).
  • Criminals move $2 trillion per year around the world each
    year.
  • The U.S. $100 bill is the most popular note in the world,
    with 10 billion of them in circulation.

This also gives regulators more control over the
economy.

  • More traceable money means higher tax revenues.
  • It means there is a third-party for all transactions.
  • Central banks can dictate interest rates that encourage (or
    discourage) spending to try to manage inflation. This includes
    ZIRP or NIRP policies.

Cashless transactions are faster and more
efficient.

  • Banks would incur less costs by not having to handle cash.
  • It also makes compliance and reporting easier.
  • The “burden” of cash can be up to 1.5% of GDP, according to
    some experts.

But for this to be possible, they say that cash – especially
large denomination bills – must be eliminated. After all, cash is
still used for about 85% of all transactions worldwide.

A Declaration of War

Governments and central banks have moved swiftly in dozens of
countries to start eliminating cash.

Some key examples of this? Australia, Singapore, Venezuela, the
U.S., and the European Central Bank have all eliminated (or have
proposed to eliminate) high denomination notes. Other countries
like France, Sweden and Greece have targeted adding restrictions
on the size of cash transactions, reducing the amount of ATMs in
the countryside, or limiting the amount of cash that can be held
outside of the banking system. Finally, some countries have taken
things a full step further – South Korea aims to eliminate paper
currency in its entirety by 2020.

But right now, the “War on Cash” can’t be mentioned without
invoking images of day-long lineups in India. In November 2016,
Indian Prime Minister Narendra Modi demonetized 500 and 1000
rupee notes, eliminating 86% of the country’s notes overnight.
While Indians could theoretically exchange 500 and 1,000 rupee
notes for higher denominations, it was only up to a limit of
4,000 rupees per person. Sums above that had to be routed through
a bank account in a country where only 50% of Indians have such
access.

The Hindu has reported that there have now been 112 reported
deaths associated with the Indian demonetization. Some people
have committed suicide, but most deaths come from elderly people
waiting in bank queues for hours or days to exchange money.

Caught in the Crossfire

The shots fired by governments to fight its war on cash may have
several unintended casualties:

1. Privacy

  • Cashless transactions would always include some intermediary
    or third-party.
  • Increased government access to personal transactions and
    records.
  • Certain types of transactions (gambling, etc.) could be
    barred or frozen by governments.
  • Decentralized cryptocurrency could be an alternative for such
    transactions

2. Savings

  • Savers could no longer have the individual freedom to store
    wealth “outside” of the system.
  • Eliminating cash makes negative interest rates (NIRP) a
    feasible option for policymakers.
  • A cashless society also means all savers would be “on the
    hook” for bank bail-in scenarios.
  • Savers would have limited abilities to react to extreme
    monetary events like deflation or inflation.

3. Human Rights

  • Rapid demonetization has violated people’s rights to life and
    food.
  • In India, removing the 500 and 1,000 rupee notes has caused
    multiple human tragedies, including patients being denied
    treatment and people not being able to afford food.
  • Demonetization also hurts people and small businesses that
    make their livelihoods in the informal sectors of the economy.

4. Cybersecurity

  • With all wealth stored digitally, the potential risk and
    impact of cybercrime increases.
  • Hacking or identity theft could destroy people’s entire life
    savings.
  • The cost of online data breaches is already expected to reach
    $2.1 trillion by 2019, according to Juniper Research.

As the War on Cash accelerates, many shots will be fired. The
question is: who will take the majority of the damage?

Read the original article on Visual Capitalist. Get rich, visual content on business and investing for free at the Visual Capitalist website, or follow Visual Capitalist on Twitter, Facebook, or LinkedIn for the latest. Copyright 2017. Follow Visual Capitalist on Twitter.

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