Why we should fear a cashless world
Poor people and small businesses rely on cash. A contactless system will likely entrench poverty and pave the way for terrifying levels of surveillance.
This is nothing new. Money is tech. The casting of coins made shells, whales’ teeth and other such primitive forms of money redundant. The printing press did the same for precious metals: we started using paper notes instead. Electronic banking put paid to the cheque. Contactless payment is now doing the same to cash, which is becoming less and less convenient. In the marketplace convenience usually wins.
That’s fine as long as people are making this choice freely. What concerns me is the unofficial war on cash that is going on, from the suspicion with which you are treated if you ever use large sums of cash to the campaign in Europe to decommission the €500 note. I’m not sure the consequences have been properly considered.
We already live in a world that is, as far as the distribution of wealth is concerned, about as unequal as it gets. It may even be as unequal as it’s ever been. My worry is that a cashless society may exacerbate inequality even further.
It will hand yet more power to the financial sector in that banks and related fintech companies will oversee all transactions. The crash of 2008 showed that, when push comes to shove, banks have already been exempted from the very effective regulation that is bankruptcy – one by which the rest of us must all operate. Do we want this sector to have yet more power and influence?
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? The power this would hand them is enormous and the potential scope for Orwellian levels of surveillance is terrifying.
Cash, on the other hand, empowers its users. It enables them to buy and sell, and store their wealth, without being dependent on anyone else. They can stay outside the financial system, if so desired.
There are many reasons, both moral and practical, to want this. In 2008 many rushed to take their money out of the banks. If the financial system really was as close to breaking point as we are told it was, then such actions are quite justified. When Cyprus’s banks teetered on the cliff of financial disaster in 2011, we saw bail-ins. Ordinary people’s money in deposit accounts was sequestered to bail out the system. If your life savings were threatened with confiscation to bail out a corporation you considered profligate, I imagine you too would rush to withdraw them.
We have seen similar panics in Greece and, to a lesser extent, across southern Europe. Mervyn King, the former governor of the Bank of England, recently declared that banking was not fixed and that we would see financial panic again. In Japan, the central bank has imposed negative rates and you are charged by banks to store money. This is to try and goad people into spending, rather than saving. So much cash has been withdrawn from banks that there are now reports that the country has sold out of safes.
These are all quite legitimate reasons to want to exit the system. I’m not saying we should all take our money out of the bank, but that we should all have the option to. Cash gives you that option. Why remove it? It’s our money. Not the banks’.
The telephone teaches us a useful lesson. At its peak in 2008, there were 1.3bn landlines for a global population close to 7 billion. Today more than 6 billion people have a mobile phone – more than have access to a toilet, according to a UN study. Many assume that the mobile succeeded where the landline failed, because the superior technology made widespread coverage more possible. There is something to that.
But the main reason, simply, is that, to get a landline, you need a bank account and credit. About half of the world’s population is “unbanked”, without access to the basic financial services you need. Telecoms companies saw no potential custom, the infrastructure was never built and many were left with fewer possibilities to communicate. But a mobile phone and its airtime you can buy with cash. You don’t need to be banked. Almost anyone can get a mobile – and they have. The financial system was actually a barrier to progress for the world’s poor, while cash was a facilitator for them.
Six billion people around the world will have a smartphone by 2020. They will have pretty much everything they need to participate in e-commerce – internet access, basically – except the financial inclusion. Which is why there will be a huge role to play in the future for new forms of digital cash – from Kenya’s M-Pesa to bitcoin – money you can use even if you are not financially included.
“We already live in a world that is, as far as the distribution of wealth is concerned, about as unequal as it gets. It may even be as unequal as it’s ever been. My worry is that a cashless society may exacerbate inequality even further.”
but why no cash?
“Cash, on the other hand, empowers its users. It enables them to buy and sell, and store their wealth, without being dependent on anyone else. They can stay outside the financial system, if so desired.”