Can liberalism kill liberalism? (I) : A cashless world

Many banks and other financial organizations are now urging for an end to cash. They argue that this would improve financial transfer and increase liberalization. Here why it is a serious threat to liberalism and why we should reject this.

 

Omnipotent banks

Is a world without banknotes and coins possible? Some financial experts and journalists often describe a future where cash would be consigned to oblivion, and people will only have their credit card when they will go out or buy stuffs. Since the apparition of the contactless card a few years ago, which cut down the time for paying with credit card, we went one step further toward this utopia. Indeed, regarding Scandinavian countries nowadays, this is maybe where we’re heading for.

For centuries, all economies and financial transfer were carried out by cash money. It comes from the fact that material exchange, through barter system, could not allow to have sustainable goods and accumulate wealth. Even in the early time, one can find vestige of old currency. The first one to be known, comes from the 7th century BC, in the former region of Lydia, located in the current Turkey.

Therefore, an end to cash money would be a milestone, as this means of payment has framed the bulk of economic relations from time immemorial.

Why this should occur? Because of the longstanding pressure from banks and states.

For banks, being able to control narrowly money transfer and the exact history of their customers would empower them as never, and bank will completely interfere with the lives of people.

First of all, economically, what would banks gain from this cashless system?

They will be able to prevent liquidity crunch, as people will no longer be able to rush at the near corner ATM when bank crush occurs. Consequently, it would expose bank users to an increased uncertainty, and even expose them to the hazard of getting taxed by their own bank in order to finance its bailout. This scenario, which was deemed inconceivable a few years ago, arose in Cyprus in 2013. To recall briefly the fact, the Mediterranean island was a thriving tax heaven, with a huge banking system, until the crisis of 2012. This banking system collapsed, putting the whole economy in a serious predicament. Following the European incentive, they decided to tax 10% of all deposits on Cypriot banks.

This kind of situation, although they are unlikely to happen daily, are the looming danger of a world without cash. Almighty banks could be less scrupulous to tax people on their deposit, and could also have overconfident behavior on markets, which may lead to situation of economic instability if not a mayhem.

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People, deprived of their banknotes, will be comprehensively tied to their banks for their daily consumption. This will also increase the power of Central Banks, giving them powers to implement macroeconomic policies more efficiently than ever. This, again, is a threat to our conception of what a liberal economy is.

In the current context of a high fiduciary money system, this will also encourage banks to have reckless behavior on the market, and Central Banks to set up negative rate to boost consumption.

Some anti-cash advocates argue that the amount of frauds and money-laundering would be curtailed with this system. At first sight, we’d say yes, as we all have in mind gangster movies, with mobster checking luggage full of banknotes.

We cannot reject the whole argument, this is undoubted that banning cash would prevent money from going outside the legal circuit. However, numerical money will bring another lot of possible embezzlement and frauds. This kind of money can be deleted, modified, and misappropriated by hackers. Indeed, the question one should ask first to the advocate of the cashless world, is the one of security. Are banks online security systems secured enough to go all-numerical? Indeed, a breach into this security process and the whole world economy could be threatened.

The last point is about the use of data that the bank will harvest from your consumption history. The technology of targeted advertisement will reach new height, and our free will may eventually be at stake.

 

Your credit card as an electronic 

In the context of a war waged against terrorism, due to the recent spate of attack throughout the world, and particularly in western country, security systems of monitoring are skyrocketing. Since 2001, in US, and now 2 years in France, governments are investing billions in new ways of watching their citizens, and controlling them in all their daily lives.

Our credit cards are a precious tool for this kind of monitoring. Indeed, the microchip incorporated into it can be used to track you down, but, more often, to know all your purchases.

Besides, parallel market will be wiped out, or at least will face deep upheavals. Prostitution, drugs dealing, or even undeclared works and black market will be damaged. Indeed, how can you pay a fix or an undeclared worker without a debit-card terminal?

Even though it may have many beneficial externalities to tackle illegal trades, it may also give frightening means for states to trample on our individual liberties.

Moreover, other activities that does not genuinely breach the law, and are tolerated because they cannot be monitored, as donation within a family or basic undeclared work, will be hindered.

 

The end of cash: a looming threat?

So do we have to fear that within a few years, our cash may disappear?

In Sweden, citing to the last figures, around 80% of monetary exchanges are realized without cash. It is the closest country to become a cashless society as depicted above. Paying in cash there is almost a suspicious behavior.

Despite the increasing calls and the excitement around this idea, this system is unlikely to be implemented within the next decades. Indeed, the main hurdles to banks and big financial agents are not regulation or economic impediment, but the mindset of 

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An article from The Economist of (July, 2016), analyzed this trend toward a cashless society. They found out that the implementation of this system was related to a “culture of cash”. In southern Europe, as in Italy or France for instance, people are more reluctant to abandon their banknotes and use solely their credit card. This is due to a deep-rooted mentality that will be slow to changed.

 

Therefore, the day where all banknotes and coins will be out of fashion will manifestly not happen any time soon. However, as liberal upholding individual liberty and free trade, we must keep an eye on this trend and fight for our cash if needed.

 

Yann Le Meillour

Student at Sciences Po, campus of Reims, and Law student at the University of Reims

 

The views expressed are his own and do not necessarily represent the views of Think Liberal

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