A Cashless System – What are the Benefits and Costs?

Bloomberg editorial board has become one of the more recent advocates in calling for a cashless economy, following calls from some banks, economists and governments to remove hard currency from use. ‘Bring On the Cashless Future’ claimed that ‘dirty, dangerous, unwieldy and expensive’ cash had had its day and the future lay solely with digital currencies.

Some of the criticisms of physical forms of currency may be valid. Most bank notes show trace amounts of cocaine, it costs to print money, and lots of change can definitely be unwieldy (I had a friend at university who chucked 1p coins down the drain rather than carry them around). Furthermore, digital currency, especially cryptocurrency, has plenty of benefits. Being able to carry out transactions online and internationally is a vital part of our everyday life, and with the potential that cryptocurrencies bring for instant and (basically) fee free payment. Likewise, being able to implement taxes effectively would generate money in the economy; it seems like it’s the perfect solution, so why not make everyone use this new and efficient system?

Well, to start with, if banks were to create their own private blockchains, they would not be the same decentralized system that people can expect with public-blockchain-based cryptocurrencies like bitcoin or etherium. The banks would still be in control and able to change restrictions and parameters which defeats the big draw of being in control of you own finances. I’m sure some bankers can look after money reliably but there have been a few problems that have cropped up in the past..

In addition to this, it is becoming increasingly common for banks to impose negative interest rates, with the Bank of Japan becoming the latest to adopt the stance (although only for commercial businesses). So rather than gaining interest for saving your money in a bank, you instead have to pay for the privilege of storing your cash. Designed to make people spend money and boost economic growth, it would be more likely to make people keep a safe at home. It would definitely make trying to save up for any significant purchase more difficult and saving for anything even more difficult for the poor. If cash wasn’t available – in a cashless economy – I would expect this kind of action to fuel the adoption of cryptocurrencies on a massive scale as people sought secure means to save in the long term.

Total reliance on digital currency that is controlled by the banks also puts the people at risk of factors outside of their control. Cyber-attacks, DDOS attacks, power cuts and the like would be crippling to people who relied on the system, whereas keeping a bit of cash on hand allows people to shop when card readers malfunction.

Privacy would suffer if all transactions were available to be monitored by the government. This may have the benefit of allowing all eligible transactions to be taxed; however, it also means that everything you bought could be monitored. This exacerbates the potential for fraudulent use of peoples data in the event of a cyber-attack.

Many areas of life would suffer in the event of the total removal of cash from an economy. How could Ricky Gervais get into cringe-worthy situations with beggars in Extras if he could just wire them a couple of quid? What would Jason Bourne do when he was on the run without a stack of untraceable notes? How could people on a big night out make it rain?

The addition of digital forms of currency does not have to completely replace paper currency; choice is always good. When word processors became the norm, handwriting wasn’t banned. When the first cinemas were opened, theatres didn’t have to close.  Walking wasn’t outlawed after the first cars were rolled out. The reaction from banks and governments who try to foist restrictive options on us only highlights the benefits that people would enjoy from embracing decentralized cryptocurrencies – the potential to enhance the power of the people, regardless of their wealth or social standing, rather than big corporations and governments. Economists have stated that having a single global currency would be detrimental to the economy; I suspect permanently removing all cash from circulation would be pretty disastrous too.

 

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