November 8, 2015
The War on Cash is advancing on all fronts. One region that has hogged the headlines with its war against physical currency is Scandinavia. Sweden became the first country to enlist its own citizens as largely willing guinea pigs in a dystopian economic experiment: negative interest rates in a cashless society. As Credit Suisse reports, no matter where you go or what you want to purchase, you will find a small ubiquitous sign saying “Vi hanterar ej kontanter” (“We don’t accept cash”):
Whether it’s for mulled wine at the Christmas market, a beer at the bar, even the smallest charge is settled digitally. Even the homeless vendors of the street newspapers Faktum and Situation Stockholm carry mobile card readers.
A similar situation is unfolding in Denmark, where nearly 40% of the paying demographic use MobilePay, a Danske Bank app that allows all payments to be completed via smartphone. With more and more retailers rejecting physical money, a cashless society is “no longer an illusion but a vision that can be fulfilled within a reasonable time frame,” says Michael Busk-Jepsen, executive director of the Danish Bankers Association.
World’s Biggest Cashless Laboratory
While Sweden and Denmark may be the two nations that are closest to banning cash outright, the most important testing ground for cashless economics is half a world away, in sub-Saharan Africa.
In many African countries, going cashless is not merely a matter of basic convenience (as it is in Scandinavia); it is a matter of basic survival. Less than 30% of the population have bank accounts, and even fewer have credit cards. But almost everyone has a mobile phone. Now, thanks to the massive surge in uptake of mobile communications as well as the huge numbers of unbanked citizens, Africa has become the perfect place for the world’s biggest social experiment with cashless living.
Western NGOs and GOs (Government Organizations) are working hand-in-hand with banks, telecom companies and local authorities to replace cash with mobile money alternatives. The organizations involved include Citi Group, Mastercard, VISA, Vodafone, USAID, and the Bill and Melinda Gates Foundation.
In Kenya the funds transferred by the biggest mobile money operator, M-Pesa (a division of Vodafone), account for more than 25% of the country’s GDP. In Africa’s most populous nation, Nigeria, the government launched a Mastercard-branded biometric national ID card, which also doubles up as a payment card. The “service” provides Mastercard with direct access to over 170 million potential customers, not to mention all their personal and biometric data.
The company also recently won a government contract to design the Huduma Card, which will be used for paying State services. For Mastercard these partnerships with government are essential for achieving its lofty vision of creating a “world beyond cash.”
A New Frontier
In India an even more ambitious project is under way: the Unique Identification Authority of India (UIDAI), which aims to create a centralized voter enrolment system for 1.2 billion people. It will be the largest identity platform and biometric database in the world. There’s only one snag: according to its creators, the only way to make the system work effectively will be through the widespread adoption of electronic payment systems, side by side, as always, with biometric recognition systems.
Given that cash is still king on the subcontinent, the government may have its work cut out. Finance minister Arun Jaitley has repeatedly underscored the need to transform India into a cashless economy, supposedly to “rein in the problem of black money.” However, with its huge informal economy, India remains the largest producer and consumer of currency notes after China (as well as the biggest consumer of gold).
Here’s more from India’s Financial Express:
Currently less than 5% of all payments are done electronically. Results from the ICE 360 Cash Survey 2014 show that cash is the preferred mode of payment even in Delhi, the most affluent and developed metropolis. Nearly 73% of all purchases by Delhi consumers are paid for in cash and only 17% by card.
Naturally the Indian government will do all it can to change this situation. In an article in the Daily Mail Nandan Nilekani, one of the technocrats behind UIDAI, urges the government to lead the way. “The government must be the initial driver, using the heft and reach of its social security schemes to drive the adoption of an electronic payments model,” Nilekani asserts. “As momentum grows, private players can step in.”
Those private players will no doubt include banks. After all, in a world where every transaction – or at least every “official” transaction – must be electronic, the power of banks over individuals is likely to dramatically increase, as Brett Scott warns in an article for The Guardian:
With this comes the specter of bank surveillance, where every transaction you ever partake in is authorized and recorded by a privately run commercial bank, giving it a transaction-by-transaction history of your entire commercial life. If such a bank does not like an enterprise – such as Wikileaks – it can just freeze it out.
The New Cost of Doing Business
An oft-overlooked benefit of cash transactions is that there is no intermediary. One party pays the other party in mutually accepted currency and not a single middleman gets to wet his beak.
In a cashless society there will be nothing stopping banks or other financial mediators from taking a small piece of every single transaction. They would also be able to use – and potentially abuse – the massive deposits of data they collect on their customers’ payment behavior. This information is of huge interest and value to retail marketing departments, other financial institutions, insurance companies, governments, secret services, and a host of other organizations.
Another very important perk of cash is that it significantly limits central banks’ ability to continue conducting arguably the greatest financial heist of the modern age, i.e., negative interest rate policy (NIRP). The only way that central banks can maintain negative interest rates ad infinitum is by abolishing cash altogether, as the Bank of England chief economist Andrew Hadlaine all but admitted. As long as cash exists, there’s no way of preventing depositors from doing the logical thing – i.e. taking their money out of the bank and parking it where the erosive effects of NIRP can’t reach it.
So in order to save a financial system that is morally beyond the pale and stopped serving the basic needs of the real economy a long time ago, governments and central banks must do away with the last remaining thing that gives people a small semblance of privacy, anonymity, and personal freedom in their increasingly controlled and surveyed lives.
The biggest tragedy of all is that the governments and banks’ strongest ally in their War on Cash is the general public itself. As long as people continue to abandon the use of cash, for the sake of a few minor gains in convenience, the war on cash is already won.
A war conducted by bankers, politicians, academics, even startup guys.