Living in a Cashless Society
Our monetary system has undergone a sea of change in the past century. If our great grandfathers were to see our lives today, they would not be able to relate to any form of payment. Fiat currency, plastic money, negotiable instruments are all creations of the financial innovation that has taken the world by storm in the past century. Although there is widespread skepticism about the fact that fiat currency has historically always declined to zero in value, it is currently in use all over the world.
However, if critics are to be believed, this innovation might be going too far. There have been some experts that have suggested that the government must adopt a drastic change in the way that we handle our finances. This drastic change is outlawing the use of cash! It may seem bizarre but many countries are already implementing these rules in a big way. If these rules do get implemented, for the first time in monetary history, we may have a society which doesnt use cash!
Glimpses of what that would look like are already being seen in some countries.
- Britain does not accept cash for bus tickets any longer!
- France has outlawed cash transactions greater than 1000 Euros
- In America, possession of even moderately large amounts of money can lead to the money being forfeited
In this article, we will discuss the pros and cons of living in a cashless society.
The Decline of Cash
Financial innovation has caused a gradual reduction in the amount of cash in circulation. Less than 10% of the money supply today exists in the form of cash and bills. Majority of the money supply is in the form of digital currency. The cash that exists today is only to grease the wheels of commerce. Many believe that a demand to eliminate this balance 10% is simply absurd and bordering on infringement of privacy.
The government believes that removing this cash will have many beneficial consequences, the most obvious being reduction in crime. Cash is the fuel that powers criminal machinery. If the government can track all payments, crime would be reduced drastically. Drug dealers, weapon salesman, gambling syndicates etc all conduct their business because of cash. In the absence of cash, operating these criminal enterprises would be next to impossible.
The government also believes that a lot of other benefits will accrue as a result of implementation of this policy. The pros and cons analysis is as follows:
Pros of Cashless Society
The benefits of living in a cashless society are as follows:
- Taxation: The government would be able to effectively collect tax revenues as and when they are due without any hassles. The tax burden is heavy on the middle class because of the massive tax evasion by the others. If a cashless society were to come into existence, tax evasion would become very difficult, if not outright impossible and hence the tax burden on the common man will be reduced.
- Convenience: A cashless society is inherently convenient. Transferring money would be easy and hassle free. Also, there will be no threat of theft of money. In a normally functioning system, the convenience will be unparalleled. However, this also means that if the system were to somehow breakdown, the inconvenience would also be unparalleled.
Cons of a Cashless Society
- Privacy: Privacy will be a thing of the past in a cashless society. This is because the government will have a way to track each and every transaction belonging to every individual. Thus government will have the resources to snoop in and check what a person is buying or where they are travelling. People are skeptical that a cashless society might be a huge infringement on the privacy of people and may end up severely compromising their freedom.
- Deposit Insurance: Also, cashless societies will force people to deposit their money in banks. At the present moment, bank deposits are insured up to $100,000 per account. In case of a cashless society this limit will have to be raised since keeping money in the bank would no longer be a choice. The government would therefore have to take accountability for actions of private parties i.e. banks which would drastically increase the taxpayers liability.
- Negative Interest Rates: Many believe that cashless societies are just a prelude to the era of negative interest rates that await us. People are likely to pull money out of banks if negative interest rates were to come into effect. However, if the option of cash is eliminated, people would have no alternate asset to hold their money in. Therefore, cashless societies may possibly have ulterior motives too.
- Government Restraint: Lastly, government spending now is restrained by the threat that people will not contribute to taxes if they are unreasonable. In a cashless world, the government does not have to ask for money. Rather, it would simply take its share. Therefore, a cashless society would blow the lid off any sort of restraint in government spending. The resultant hole in the taxpayers pockets will be massive.
Therefore even though humanity is on the verge of adopting a cashless system, many questions remain unanswered. How will the system deal with the possible misuses and threats that this system may impose is yet to be seen.
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