Cash is a curse?

Tuesday 13th September 2016

In this issue of Money Truths….

  • Cash is a curse?
  • Rogoff’s first step….
  • Government’s ultimate ambition….
  • The ceaseless creep of the cashless society….
  • Britain moving inexorably towards cashless….

Cash is a curse?

Cash is a curse. So says Kenneth Rogoff, a professor at Harvard University and a former chief economist at the International Monetary Fund….

The Curse of Cash is the title of his new book in which he argues that it is time for a less-cash society – not just in America but globally.

He stops short of proposing a fully cashless society where notes and coins would cease to exist. But that is where this argument is headed – whether or not Rogoff ultimately does the arguing….

Like the international grandmaster of chess that he is, Rogoff uses his new book to get the anti-cash lobby’s pieces in place. He’s not going straight for a check-mate position. That’s for later. For now he’s content to set-up, win pieces and help build a position….

Big changes designed to permanently remove your rights and liberties are rarely imposed on a just-like-that basis. You need a really big event – something like 9/11 – to justify any big and immediate stripping-away of individual freedom….

Ordinarily, the process is incremental – using arguments that suggest the changes are for the good of the people or for their protection and security. It’s a gradual erosion over protracted periods of time – so that the process is almost invisible and the change almost unnoticeable.

Rogoff’s first step….

That’s why Rogoff starts by proposing a first step – an end to the big notes in common circulation. Big denomination notes like the US $100 bill, the Japanese 10,000 yen note and the 500 euro note.

He doesn’t mention Britain’s £50 note but that would be the first to go in any drive to move Britain toward a cashless economy.

Big denomination notes make-up the largest proportion of the overall cash supply, Rogoff argues, but are seldom used by ordinary people. Instead, he says, big notes primarily serve the activities of drug dealers, racketeers, human traffickers, terrorists, extortionists and other criminals.

Big notes are the criminal’s perfect tool – impossible to trace, easy to hide, easy to move and very liquid.

Another argument Rogoff makes is that big notes help unscrupulous employers make cash payments to undocumented workers – helping drive illegal immigration.

And he says that cash makes it easy for individuals and businesses to avoid tax – depriving government and public services of billions of dollars of revenue.

Big notes are bad news. That’s the central proposition of Rogoff’s book. Removing them from circulation would only affect criminals. That’s what Rogoff maintains. The rest of us would still have the smaller denomination notes we need to go about our daily affairs….

Government’s ultimate ambition….

But for how long? Once big notes are gone, how long before smaller denomination notes come under the anti-cash brigade’s spotlight?

Not long would be my call.

Would criminals not use smaller denomination notes?

Would tax evaders start paying tax because they have some aversion to 10s and 20s?

Would drug runners not substitute a suitcase for a briefcase when moving cash across national borders?

My point is this:  the same arguments Rogoff is making today for the eradication of large denomination notes will be equally applicable tomorrow when calling for the removal of small denomination notes.

Removal of the big denomination notes is an initial step. It is not the final step.

The ultimate ambition of financial planners is the removal of all cash and the global implementation of cashless economies.

The process won’t be complete until government has succeeded in removing all cash from circulation and replaced it with an electronic system where every financial transaction is a matter of permanent record.

It won’t stop crime or corruption. But it will ensure that the average individual is completely in thrall to the banks – and to the taxman. That’s the real point.

The ceaseless creep of the cashless society….

Few wars are fought on one front and the war on cash is going on all around us – getting us accustomed to the idea of a world where cash no longer exists….

A friend recently spent time in Sweden. There’s a coffee house chain called Espresso House where tourists are considered a pain in the backside.

Why? Because they like to pay in cash. Locals don’t pay for coffee and pastries in cash any more. Instead they pay via contactless payment – swiping cars or phones across a payment reader.

Tourists who want to pay cash meet with coffee house staff rolling their eyes and informing them that they have no change….

‘No cash’ signs are popping up in windows all over Northern Europe. Electronic transactions are gradually replacing cash. The Northern Europeans have really bought into the idea of a cashless world.

In Denmark the government pays benefits straight onto debit cards….

Back in Sweden, only 7% of taxi customers now pay their fare in cash….

In Holland, one bakery chain has gone cashless so that staff are not handling produce after handling ‘dirty’ money….

The Economist recently reported that Norwegians made 456 electronic transactions per person last year. In Italy the figure is just 67. That disparity highlights how much more receptive Northern Europeans have been to electronic commerce.

But Southern Europeans will not escape. They are being re-educated another way. In Italy and in Greece government have imposed caps on cash purchases (1500 euros and 1000 euros respectively).

In Germany a proposed cap on cash payments of 5,000 euros met with protest. The idea has been shelved – for now. No doubt the plan will be revisited.

Britain moving inexorably towards ‘cashless’….

In Britain too the cashless society draws nearer as consumers – especially the young– choose electronic transactions over cash….

Tap-and-pay is already catching up with chip-and-pin as contactless card readers spread across the country.

And the acceleration of tap-and-pay payments is shifting at a rate of knots. Shoppers spent £9.27 billion via contactless payments in the first half of 2016 – double the figure for the whole of 2015….

Fifteen million contactless cards were issued last year according to the British Bankers’ Association. There are currently 92.1 million contactless cards being used in the UK – compared to 65 million debit and 27 million credit cards.

And the transaction limit on the contactless cards was raised from £20 to £30 last September – driving even more contactless spending.

Richard Koch, head of policy at the UK Cards Association says: ‘Contactless cards are firmly entrenched as the preferred way to pay for millions of consumers, who expect to be able to use them for everyday purchases….’

Meanwhile cash payments are declining incrementally year-on-year. In June 77% of retail sales were paid for with a credit or debit card compared to 75% in June 2015.

The ultimate outcome of these trends is clear – cash is on the way out.

A tipping point is fast approaching where the removal of cash from the economy will barely register a ripple.

Only individuals with libertarian instincts will complain. And their arguments will be quickly put down. Politicians will argue that ‘paranoid’ concerns about freedom and privacy play to the interests of criminals.

But a cashless society won’t eradicate crime. That I promise you. It will only encourage new crimes and new ways of committing them….

That’s a money truth….

I’ll be back with more on Friday.

All the best,


Dave Gibson

Money Truths