Digital money in a cashless economy is not safe. Here’s why.

Experts are reacting to the unprecedented rise in cybercrime, to verify whether the promises of furthered security are on the level, in our current world where cash operations have yielded much of their place to e-wallet payments. Despite the appearance of safety, a cashless economy, which numerous players on the economic field are pushing for, deals dangers far greater than pickpockets.

Our world is currently cash low, and not cashless, and yet your money isn’t safe. Most of the people alive today, and certainly all of the people old enough to be decision-makers, were born in a world where making payments in cash was a very usual way of doing business. But will future generations rely on cash as much as we do? Will they even know what cash is? Darren Allan reported for IT Portal: “For the first time ever in the UK, cashless payments have overtaken the amount forked out in notes and coins […] Cash payments made by consumers and businesses throughout 2014 dropped to 48 percent of total outlay, down from 52 per cent in 2013.”

Some experts have predicted the end of cash, which could yield to more practical, secure and transparent spending habits. And with the end of cash, the end of theft. Christopher Beam assessed in 2011: “As credit and debit cards replace greenbacks, the odds of a petty thief leaving a job empty-handed are higher than ever. The prospect of a cashless economy—which some predict could arrive within the next decade—could drive street crime to all-time lows.” And yet money has never been more at risk.

The most obvious and present threat to online wallets is, of course, fraud. In recent years, criminal organizations have honed their skills in tampering with financial systems, realizing that online fraud was way more effective to acquire money than physical robbery. While assault is conspicuous, it yields no more than a few hundred pounds and makes the thief liable for years in prison, fraud can be operated from a remote location, can go on for many years, and earns the malingerer a white-collar sentence, if he is ever caught. Contradicting forecasts from only a few years ago, it therefore turns out that virtual money is no safer than carrying banknotes, quite the opposite.

Crime analyst Scott Dickson says: “Criminals are likely to adapt to a cashless economy, whether by eluding electronic detection or by creating their own currency. People were committing crimes long before cash was created“. In addition, a pickpocket will only steal the contents of your wallet, and that is bad enough. Online fraud can escalate to far worse situations, namely through identity theft. Small towns in Eastern Europe have even specialized in stealing money from Western citizens, as Yudhijit Bhattacharjee reports: “According to authorities, these schemes have brought tens of millions of dollars into the area over the past decade, fueling the development of new apartment buildings, nightclubs, and shopping centers. Râmnicu Vâlcea is a town whose business is cybercrime, and business is booming.” Are thieves once more to be feared, in this new virtual economy?

Sadly, they are not the only – or even the smallest – danger. The new cashless economy brings an additional danger of imbalance between banks and citizens. Thieves would be a small matter in a cashless economy : banks would take far more. In an effort to spur consumption and spending in the Eurozone, the European Central Bank has been pressing down interest rates to unprecedented lows, sometimes even below zero. As a result, savings accounts, instead of earning its owner interest, may shrink month after month.

Economist Sara Zervos explains: “Applied to the banking sector, negative rates mean that the depositor has to pay the bank to hold his/her cash. If deposit rates were -1%, for example, for every $1000 deposited in a bank account, the holder would have around $990 at the end of the year.” Banks soon realized that this could quickly result in their clients withdrawing their savings, bleeding the banks dry. They have therefore been pressing the lobbying agenda to get rid of cash, in order to lock their clients’ money into their banking system. In this configuration, it’s not a few hundred pounds in cash which are at risk, it’s every penny owned.

Finally, it would bring about a society where state surveillance would potentially be everywhere. It could therefore monitor every penny of every pound, and hugely increase its tax base. Here again, far more is at risk than a few banknotes. With government agencies having a watertight radar of every penny owned by every citizen, they will quickly identify where money is stashed, legally or not, and levy taxes on it. This places the citizen’s money at the mercy of the government’s decision. Shaila Dewan reported the misadventures of seized American business owners: “Using a law designed to catch drug traffickers, racketeers and terrorists by tracking their cash, the government has gone after run-of-the-mill business owners and wage earners without so much as an allegation that they have committed serious crimes. The government can take the money without ever filing a criminal complaint, and the owners are left to prove they are innocent. Many give up.” It even places the citizen’s money at the mercy of the government’s mistakes. Stephen Galgoczey warns against this type of nightmare: “With one notice sent to your bank, the IRS can seize every penny you’ve got, and apply it toward your tax bill. To make it worse, you may never realize it until the money is already gone.” Right or wrong, the government has the power to seize every possession of a citizen, not just his banknotes.

Thanks to a few countries which have implemented the cashless revolution, or are getting close to it, experts were able to verify whether the cashless theory, according to which our money would be forever secure in the encrypted virtual world, was tried and true. As it turns out, it doesn’t protect citizens’ money, it only makes it entirely and inescapably visible to banks, governments and fraudsters. For this reason, several countries have stepped back from their previous efforts to phase out banknotes.



Categories: Economy & Finance, Regulations & Legal

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