I’ve been reading a lot lately about the notion of a cashless society. This is not a discussion of the fact that nobody has any money (it’s true, they don’t), but rather a trend towards big changes in the physical currency of a nation.
Canada has made plastic money and even phased out the penny, but this is not what we are talking about. When you hear discussion of a cashless society, it is a discussion on whether it would be wise to phase out physical currency.
Alternatives to Cash
If a country decided to get rid of its physical currency, it doesn’t take an economist to figure out that something will need to replace it.
The most obvious replacement for currency is a debit card. The federal government could mandate that all transactions be made with either a debit card or a credit card, all linked to a central account that is probably also linked to your Social Security and Medicare profiles (for USA residents).
Another option is the barter system. Shopkeepers and business owners could start doing business between each other by trading goods and services off the books. This would leave the wage slave at a disadvantage if he produces no goods or services with which to trade. He is chained to the debit-currency system in a cashless society.
Pros and Cons of a Cashless Society
There are probably many reasons why most (if not all) societies have stuck with physical currency. Let’s take a quick look at some pros and cons (keep in mind that these are based on my opinion, you may or may not agree):
- Would probably hamper the private criminal black market (drugs, weapons, etc)
- If needed, a criminal’s entire cash savings could be instantly frozen
- The government would save printing and minting costs
- Money could not be removed from the face of the earth
- Would eliminate counterfeiting
- People spend more when using a card versus cash
- Requires processing a logged record for even the smallest transaction
- Privacy and government tracking concerns
- Potential loss of tax revenue if some transactions go “underground” through barter
- Would money “disappear” if a server crashed and data was lost? What about hacking?
Some of these pros and cons of a cashless society are subjective and I must admit I haven’t done a ton of research to see if they are valid. For example, maybe the government would save on printing costs, but they squandered it all and then some developing a computer network to track the cashless transactions.
It’s possible that this would make it easier to implement one currency for the entire world, but I didn’t put that in a category because I’m not sure how I feel about it (leaning against).
Moves Toward a Cashless Society
Despite what you may think about whether it’s wise to move towards a cashless society, some things are happening around the world that are moving us at least a little bit closer.
According to the Toronto Gazette: “…the Royal Canadian Mint is preparing to launch a digital alternative to all coinage and small bank notes – dubbed MintChip – which it hails as the natural next step in the “evolution of currency.” The concept was quietly introduced on Wednesday, when the Ottawa-based crown corporation activated a Website outlining its vision for the future of MintChip – described as “better than cash” and “so easy even a child can use it” – and invited software developers to begin imagining different ways the technology could be employed.”
According to the Daily Bell: “Spain has outlawed the use of cash in business transactions in excess 2,500 euros in order to crack down on the black market and tax evaders. The motivations behind the push for digital currencies is exposed as Spain heads down the road of the Greeks in combating their sovereign debt crisis.”
According to Wikipedia: “Bitcoin is a decentralized electronic cash system that uses peer-to-peer networking, digital signatures and cryptographic proof so as to enable users to conduct irreversible transactions without relying on trust. Nodes broadcast transactions to the network, which records them in a public history, called the blockchain, after validating them with a proof-of-work system. Users make transactions with bitcoins, an alternative, digital currency that the network issues according to predetermined rules. Bitcoins do not have the backing of and do not represent any government-issued currency.”