The Risks of a ‘Cashless’-Economy and Society

From Alipay to Bitcoin – even with growing digital possibilities around, today still almost 85% of all retail payment transactions worldwide are done with cash, representing about 60% of total retail transaction-value.

But these global figures are changing quite a bit when we look at different countries. According to a report by ‘Mastercard’, presented at a recent conference called ‘the journey from cash to cashless’, the use of cash is diminishing fast in nations like Belgium, France, Canada, Sweden or Australia.

In these ‘nearly cashless’ societies, over 80% of all transaction are already done digitally today, while in Italy, Greece or Poland, cashless accounts for less than half and in Russia or India for less than a third of all transactions. Common in all these nations is a much higher use of the cashless-option in urban centers than in rural areas.

Currently, there is a tremendous interest worldwide among policy makers and commercial enterprises to move towards a cashless economy. This should rise a red flag for any individual: officially, the authorities and companies put the two factors ‘costs’ and ‘security’ in the spotlight:

First, the costs. To maintain a currency in a still cash-heavy country like India, the costs are indeed enormous. According to the Reserve Bank of India, only 5% of the currency is with the bank, implying that almost the entire volume of currency is transacted every day. Globally, the cost for printing money, storage, transportation, detection of counterfeits, offering and maintaining ATM’s etc. accounts for as much as 1,5 % of GDP.

Second, the security. In the EU, finance ministers called last month on the European Central Bank (ECB) to look at ways to tighten access to the 500-EUR-banknotes as part of a move to cut funding of activities of terrorists, drug- or weapon-dealers as well as tax evasion, corruption and other crimes.

The irony number 1: In the already ‘nearly cashless’ country Sweden, bank-robberies have almost gone down to zero in the last decade, while financial-scams have multiplied. So the ‘crime-risk’ has moved from your bank to your bank-account.

The irony number 2: The also ‘nearly cashless’ societies of France and Belgium did anything else than prevent the population from terrorists.

The irony number 3: The amount of cash in the euro zone rose to more than 1000 billion EUR, almost 30% of it hoarded outside banks in 500-EUR bills, reflecting the almost zero-returns on savings thanks to the ECB’s recent monetary policy.

ECB-President Mario Draghi suggested that savers could use the 200-EUR note instead. A big step further goes Larry Summers. The former chief-economist of the World Bank argues that in certain circles the 500-EUR-banknote is known as the ‘Bin Laden’ and calls for a ban on printing bills worth more than 50 or 100 USD.

Well, I am afraid, that the once mainly technological-progress-driven ‘journey to a cashless society’ is now in danger to become a ‘war on cash’.

Anyone who had the miss fortune to stay or visit the US during the heydays of the ‘war on terror’ might know what I mean; so I just like to highlight the so called ‘Patriot-Act’ including warrantless domestic surveillance.

This is exactly the risk of a cashless society. Beyond the modern surface of using the computer, a card or a chip to buy stuff or pay bills, lures the risk of a total surveillance of your transactions. So ‘Big Brother’ in form of governments and companies has an easy access to all your data and knows what and when you buy or pay. And they will use your private data sooner or later not just for data-driven ads on pages you browse.

Therefore we have to be aware, that the benefits of ‘cashless’ soon will endanger one of the highest values in today’s digital world: Privacy. This is more serious than many people may think, people who already (and carelessly) pay their ‘free’ e-mail- or Facebook-account with their private data.

This weekend, the civilized world is celebrating Easter with the main issue of the resurrection. I am anything else than a believer in religious issues, but I sincerely hope, that people will soon acknowledge the virtue of privacy in the digital world and prefer to pay in cash sometimes instead of using a card, a chip or their private data.

This would not only be the resurrection of cash, but support one of most successful principles in economy ever: ‘the freedom of choice’ that describes an individual’s opportunity and autonomy to perform an action selected from at least two available options, unconstrained by external parties, so clearly advocated in the book ‘Free To Choose’ by one of the most important economist of our time, Milton Friedman (1912 – 2006).

Maybe the current Easter-holiday is an opportunity to recap a few thoughts from this immortal truth.

Digital or cash? It’s important to maintain the freedom to choose amid powerful interests to move towards a cashless economy and society.