“There will be a time – I don’t know when, I can’t give you a date – when physical money is just going to cease to exist.”
Economist & Former US Secretary of Labor, Robert Reich
The rise of mobile banking and restrictions on the movement of cash continue to move us ever-closer towards a cashless society. New financial technologies are rapidly changing the way we pay for everything, making transactions quicker and more convenient. But what happens when these devices become the only way to pay for anything? What are the costs of becoming entirely dependent on technology in a cashless society?
Global usage of mobile banking is growing and can give you better control over your finances. A recent survey conducted by ING concluded that the Netherlands has the most “developed” mobile banking market, closely followed by the United States and the United Kingdom. Currently 33% of mobile device owners in Europe have used mobile payments and this figure is predicted to rise to 51% in the next 12 months. Having instant access to your bank account makes it a lot easier to manage payments on the go and prevent you from making late payments.
Forcing all transactions to be made through cards and mobile applications enables closer monitoring of spending. The ability to link all transactions to individual identities could help curb the sale of illegal goods on the black market and fraudulent activities. Indeed, the tragic Charlie Hebdo shooting in Paris earlier this year have catalyzed cash and privacy-related policies which were described by Michel Sapin as necessary to “fight against the use of cash and anonymity in the French economy.”
However, this added security also comes at the expense of everyone’s privacy. Privacy has been a hot topic of discussion since documents leaked by Edward Snowden revealed the long-standing mass-surveillance program being conducted by the NSA with degrees of collaboration with other intelligence agencies across the globe.
“Having everyone’s account at a single, central institution allows the authorities to either encourage or discourage people to spend. To boost spending, the bank imposes a negative interest rate on the money in everyone’s account – in effect, a tax on saving.
Faced with seeing their money slowly confiscated, people are more likely to spend it on goods and services. When this change in behavior takes place across the country, the economy gets a significant fillip.”
If notes and coins were abolished and the only way to hold money was through a government-controlled bank, there would be no way to escape monetary policy. In essence, the reigns to the economy would be handed over to government-controlled institutions. Physical paper money provides a check against negative interest rates, if they become too great, people will simply withdraw their funds and hoard cash. This becomes impossible in a cashless society. Paper currency also allows for bank runs.
The possibility of a “permaban”, whereby you are denied the right to hold a bank account at all, is cause for particular concern. The suggestion is not so unrealistic when you consider that PayPal already employ a similar policies across their current platform. When you are banned from PayPal not only are the assets in your account frozen, you are prohibited from making or receiving payments from any PayPal merchant. Any cards associated with your name and address become blacklisted, preventing you from making purchases through PayPal in the future.
A bank deposit levy, such as the one that took place in Cyprus during the 2012-2013 financial crisis where a levy of 6.7% for deposits up to €100k and 9.9% for larger deposits was taken from all domestic bank accounts, would be far easier to implement and charges would be unavoidable.
Developments in mobile payment applications are paving the way for more convenient and secure financial transactions. They appear to be the natural successor to our legacy systems. Whilst the close monitoring of all transactions can aid authorities in identifying terrorists, it also comes at the expense of everyone’s privacy. The submission of financial control, where depositing your money in a bank no longer becomes a choice but a necessity for survival – that’s when things become worrying.
Of course, many things are “best left to the experts”. However, when a McKinsey report shows us that global debt was at $199 trillion in February (it’s probably higher now), the ex-chairman of the Federal Reserve becomes appointed as an economic advisor to one of the world’s most leveraged hedge funds, HFT firms fined for manipulating stock prices, and the son of the President of the European Central Bank works as an interest rates trader at Morgan Stanley. It makes you wonder whether the implementation of a cashless society should be left solely to the conventional experts, or opened up and placed under greater public scrutiny.