Countries go cashless, and then… step back

Banknotes are regularly threatened to disappear from our economies, under the pressure of banking and credit card industries, governments economic policies and social trends. But once cash yields to more “modern” payment systems, it seems it is sorely missed, enough for countries to revert back to paper currency.

In November of 2016, in an unforeseen decision which rocked both his country and the world, Indian Prime Minister Modi announced on national broadcast that virtually all of the currency circulating in the country was now invalid. The decision was intended to help the government gain complete control of the economy so as to curb so-called black money and increase tax revenues. Instead, it sent the economy rocking for months and caused scenes of chaos across the country, sending the population in droves to the banks in despair, attempting to save their life’s earnings.

The reform made the rest of the world realize that cash was not to be taken for granted. Indeed, other countries in the world are slowly inching their way towards a cashless way-of-life. The European Union holds cash in disfavor, because it stands in the way of economic policies. And several northern European countries, such as Sweden, Denmark and a few others, still legally have cash, but barely use it anymore.

One of the reasons for eliminating cash, according to governments and banks, is its unsafe nature : cash would be  more easily stolen, forged and hidden, and should therefore be replaced with “virtual money”. Mellody Hobson, CBS financial correspondent, says: “You don’t have to worry so much about theft, you’re not worried about how you close out the cash register at the end of the day, taking the money to the bank at the end of the day”… making everyday operations safer from theft.

However, it seems that the diagnosis which blamed cash for all the crime happening in the world jumped the gun a little : fraudsters simply took a little while to follow the money, as it shifted to the online world. After years of increase, online fraud is now the most common offence, according to Hellen Warrel, Financial Times correspondent: “Fraud and cyber offences now make up almost half of all UK crimes, according to new figures that show criminals switching to the internet from activities such as burglary.” A wallet full of banknotes is therefore now safer than an e-wallet, helping the return of cash.

Also on the economic level, the arguments held by banks to entice people and businesses to go all cashless seem to be losing traction : no more securing cash, no more counting bills at the end of the day, no more tedious and dangerous walks to the bank to make deposits, is not only safer but also saves time. Visa recently launched a program to increase the number of retail stores going entirely cashless, following the example of several shops already. But store owners are not easily sold on the program. Going cashless implies placing every single cent earned under the control of banks, and letting them collect a percentage on it. Visa currently charges between 0.5 and 2 % for each transaction, in addition to payment terminal sales or rental, and extra services such as insurance. Amad Ebrahimi, financial network specialist, explains : Credit card processing fees are extensive, complicated, and somewhat overwhelming.” The choice to give up on cash therefore amounts to placing all eggs in one basket, and increasing overheads altogether.

The main opposition to cashless economies, however, is political rather than financial : people seem increasingly attached to the historical symbolism within the banknote, while fearing the Big Brother phenomenon which a cashless economy would yield. Through the little plastic rectangles tucked into purses and wallets, mounting levels of traceability are worrying the public and setting off strings of alarms, within civil rights groups.

Dominic Frisby, essayist for the Guardian, warns It will hand yet more power to the financial sector in that banks and related fintech companies will oversee all transactions. […] In a world without cash, every payment you make will be traceable. Do you want governments (which are not always benevolent), banks or payment processors to have potential access to that information?” Through the banking system today, a citizen can be pinpointed and tracked with his purchases, his transportation card, his contactless swipes, etc. Cash, indeed, remains the only payment method to leave citizens off the radar of banks and governments.

The use of cash remains an essential liberty that everyone should be able to have” advocates Thomas Savare, CEO of printing-company Oberthur Fiduciaire. According to him, “most people aren’t criminals or terrorists but they have no wish to see their banks have all their data; how and where they spend their money (…) we see across the world that the usage of cash isn’t decreasing even in countries with more and more electronic payment solutions, because they aren’t completely trusted”.

So countries are reverting back to cash, while others never gave up in the first place. Canada, France and the Netherlands carry out more than half their purchases in cash. Australians deal out banknotes for two thirds, and Germans are champions with four fifths of cash-based operations. Studies on the relationship between people and their cash indicate that it gives the holder a feeling of control. Even the Swedes, considered to be the most cashless people in Europe, are showing renewed attachment to their little pieces of paper history. Riksbank spokesman Thomas Lundberg told the press that “Sweden is due to get more new notes in October, including a 100 kronor note adorned by Greta Garbo, and a 500 kronor note carrying the image of Swedish soprano Birgit Nilsson”, despite less than 2% of the nation’s purchases being cash-based.

India gave the easiest case to analyze : any reform, liberal or conservative, led brutally can only have disastrous results. The other lessons which can be drawn from countries going cashless are more subtle : do citizens really want to be tracked in their every economic operation by companies, banks, governments and who knows who else?  If cash is banned, will fraud and theft outright disappear, or will fraudsters and thieves simply adapt to the new environments? And when economies are put totally under control of governments, can they be trusted to make good use of it?  Turns out cash, with its woes and shortcomings, wasn’t such a bad friend after all.


Categories: Economy & Finance

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