Here are some significant risks and downsides to going cashless:
Enhanced Convenience Also Means Loss of Control
Cashless Means Automatic
If money is easy to spend, it is also easy to take. Convenience can easily become tyranny. Automatic payments that come directly from your bank account illustrate the point.
Take a look at this letter that health insurance company Anthem sent to its policyholders:
Anthem letter: if you like your plan you can keep your plan, just pay more, we make it easy with automatic deductions!
Putting aside the loss of economic freedom that one must buy health insurance under the Affordable Health Care Act, the Anthem “good news” letter above highlights how easily your digital money can be taken from you.
It’s easy to pay more!
Anthem will just take more money out of your bank account every month, ““it’s that simple!””
Risk of Confiscation
The convenience of digital money that allows you to spend your money more easily, also makes it easier for banks, governments and thieves to take it.
In 2013, bank depositors in Cyprus experienced a “bail-in”. The failing banks in Cyprus were partially bailed out by the European Central Bank and the International Monetary Fund on the condition that some depositors would also have to forfeit some of the money owed to them. This was done unilaterally – the depositors simply lost a portion of their money in the bank. There was no meeting of creditors (the depositors) with the bank, just a swift removal of a portion of the depositors’ money.
Bail-in legislation is now in existence in many countries and the Vice Chairman of the Federal Reserve, Stanley Fisher noted last year that the United States is also preparing proposals to allow for “bailinable debt” .
The message to depositors is clear- when you put money in a bank you are a creditor of the bank and if it goes bust you are at the bottom of the list of creditors. Your money** will be seized as part of any approved plan, perhaps even before the broke bank files for bankruptcy.
Think your money is safe in the bank? Think again.
Civil Forfeiture – Seize First, Ask Questions Later
Your bank account can be raided by government authorities, like the Internal Revenue Service (IRS) without notice or reason given. If the IRS believes your bank account deposit and/or withdrawals activity is suspicious and/or may involve a pattern designed to avoid reporting requirements, they may seize your account. According to the Institute of Justice, the IRS seized more than $242 million from over 2,500 accounts for illegally structuring deposits or withdrawals. One third of these cases resulted in no criminal charges filed and involved deposits and withdrawals under $10,000.
Here is just one example of a convenience store owner who had $100,000 seized from his bank account.
Done nothing wrong, nothing to worry about? Think again.
Proponents of the cashless society actually tout that theft is more difficult. Björn Ulvaeus of Abba claims that he became interested in eliminating cash after his son’s house was burgled. Eliminate cash, Mr. Ulvaeus reasons and you eliminate theft.
Perhaps it’s excusable for a pop star to not recognize that theft of digital money is far easier than a burgulary involving cash, but for Bill Gates, the former CEO of the world’s largest software company to make the claim that a downside of cash is that it “can be stolen” is irresponsible. (especially since his Microsoft Windows product is notorious for security breaches).
Think digital money is safer than cash and can’t be stolen? Think again.
Crime is Easier
Some actually believe that in a cashless society that crime will go down and drug dealers will go out of business.
Mr. Ulvaeus further reasoned “Without cash, we would avoid the bicycle thief and the television thief, and who would buy the copper that is stolen, if they could not sell it for cash?”
Bicycles, televisions, computers and cell phones will continue to be stolen in a cashless society because they have value in and of themselves and will be stolen for use or stolen to sell in exchange for other forms of “money” (eg. crypto-currencies such as bitcoin, private or foreign currencies) or traded for other items of value.
Drug dealers won’t go out of business – they will just take payment for their wares in other national or crypto currencies, personal services or other items of value (stolen or otherwise).
In a cashless society, theft will occur on line and in far larger amounts than cash heists. An online thief never has to confront his victim, commit violence, crack a safe, get past an alarm system, dog or armed guards and carry away his loot. Rather, in a cashless society, the cyber thief merely has to hack the systems where the ‘money” is. The online heist involves no risk of death or threat to the thief’s personal safety and can be done from anywhere in the world.
Think crime will go down if we go cashless? Think again.
Risk of System Failure
Without cash, the value of currency would have no independent value outside a functioning banking system to which you have access. Your money wouldn ‘work’ without a functioning banking system. If the banking system is down due to a power outage, solar flare, financial crisis, Internet failure, hack or network crash, your money is unavailable and potentially lost. If back up files are lost how do you prove you had $15,000 in your account?
Think a digital banking system is stable and secure? Think again.
Risk of Being Exiled From the System
Even if the digital banking system was 100% fool proof, you may end up being shut out of the system for wrong doing (actual or alleged), bad credit or failure to pay banking fees. Or you may be the victim of identity theft and as a “precaution” your account may be closed. Without access to the banking system, how will you pay your bills and buy items you need?
Think a cashless system is more convenient? Think again.
Risk of Not Having Access to the System
You may lack the means to have access to a computer, smart phone or Internet connection. Or your computer or smart phone may get damaged or stolen (would never happen in a cashless society, right?) and you have no back up. Without a way to access the banking system what would you use to buy food?
Think it can’t happen to you? Think again.
Risk of Creating a Vast Powerful Criminal Underground Economy
Cash as Contraband
Banning items or substances often increases their allure. Passing laws prohibiting wide spread behavior often creates a criminal underclass of people willing to break those laws. Millions routinely violated the 18th Amendment to the U.S. Constitution by selling, buying and consuming alcoholic beverages in the 1920’s.
Today millions break drug and gun laws to procure narcotics and firearms.
Other than the most ardent bitcoin proponents or those with a real need to use a currency outside the banking system, relatively very few today would risk jail time or fines to use bitcoin if it were made illegal. Ban cash, however, and the number of people willing to break the law and use a banned currency would explode exponentially. Ban cash and usually law abiding citizens may break the law and continue to use the cash that the authorities were unable to confiscate.
An unintended consequence of government’s desire to collect more taxes and to track transactions, is that it will drive people out of the system. People whose bank accounts have been seized or have been otherwise denied access to the banking system will revert to other means of exchange.
Currently, few would risk jail time or fines to use cash, BUT for those exiled from the banking system (or those fed up with excessive banking fees-see below) it may be their only alternative. Given the vast amount of dollars in currency form (bills and coin) in circulation today in the U.S. and overseas, these dollars and other currencies could be used as forms of payment for those outside the cashless banking system.
To combat the lawless use of cash, the government would have to engage in an actual “War on Cash” and treat cash as contraband, with an increase in training dogs to sniff out cash to be confiscated or further investments in machines to find hidden cash. In a mandated cashless society, a robust black market in alternative currencies and goods and services will certainly evolve.
As a result, the government may ultimately collect fewer taxes and spend more money combatting illegal currencies and transactions.
Think the government will collect more taxes in a cashless society? Think again.
Raises The Cost of Doing Business
If there is no cash, even though the cost of producing currency is near nil, a monopoly can charge whatever it wants to use digital cash in the form of holding your money and transaction fees. In a cashless society, banks most likely, not the U.S. Treasury will be the primary creators of digital currency***. For this service, they will continue to charge credit card, deposit and late fees.
For consumers and merchants this means that they will pay currency issuing banks a portion of every transaction.
Think going cashless will reduce transaction costs? Think again.
Results in a Loss of Freedom
Bake That Cake, Pay That Raise, Buy That Insurance.
While going cashless may be convenient when you choose to buy something, but if a purchase is thrust officiously upon you by government order, your money can be removed from your account to pay for it, conveniently of course. This type of forced convenience results in a removal of freedom of choice of how you may wish to spend your money.
“Money is coined liberty, and so it is ten times dearer to a man who is deprived of freedom. If money is jingling in his pocket, he is half consoled, even though he cannot spend it.” Money can always and everywhere be spent.”
Take cash away, and you remove that liberty.
Loss of Property Rights
Ultimately, property rights and personal rights are the same thing – Calvin Coolidge
Property rights are the foundation of a free society. If you don’t have control, ready access or the ability to spend your money when and as you please, you do not really own it. Rather, you are a co-owner with the currency issuer (the bank) who has veto rights over your use of the currency.
Loss of Privacy
In a cashless society there is the loss of privacy. Digital money offers the convenience of allowing you to track and budget your money online. Such a system, however, also leaves a permanent digital foot print of where you spent your money, accesible to just about anyone who has access to your account. (criminal hackers and government agencies). A common objection to this privacy invasion is that “if you have nothing to hide you have nothing to worry about”.
Consumers, however, may buy perfectly legal items (eg. a confederate or hammer and sickle communist flag or over the counter drugs like sudafed) that may give the government reason to believe they are a potential threat or engaged in illegal activities. Indeed, your purchase history can create a profile that the government can use against you including your purchases of books deemed to be critical of the current government. Buy the “wrong” items and you may find yourself on a government “list”.
Think if you buy only legal items in a cashless society, you have nothing to worry about? Think again.
Loss of Understanding Value & Responsibility
Without cash, consumers are no longer market participants that evaluate tangible value based on how much cash they have in their wallets, but mindless spenders without a sense of the value of the items they are purchasing or a sense of understanding of their actual cost after incurring bank and credit card interest fees. (still sky high even after years of zero interest rate policies across the globe).
In a society that uses cash, acts like making change and giving tips provide market participants with a tangible sense of economic value. Children that grow up saving money in piggy banks and counting their pennies, nickels and dimes learn the value of money through the tactile experience of handling money – even if today’s coins have been debased and since 1965, are no longer minted of silver.
A cashless society turns money and value into digital abstractions as defined and controlled by the banks and central planners.
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