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"No need for a fully cashless society", says a senior economist

The question of cashless societies has occupied the scene for long enough for economists to start looking into the theory. With one country having jumped in already, in others considering it, economists review what the shift could bring to the citizens who would opt for it. The latest to date, Ian Bright, senior economist for ING, sees no future for the idea.

Supporters of cashless societies are many, come in different shapes and forms, and expose an endless list of arguments pointing to the fact that cash must be eradicated as quickly as possible. Because cash transactions need no witness, third party, or anyone other than the buyer and seller, they are blamed for the lack of transparency. And because they cannot be looked into, governments are quick to jump to a conclusion of guilt, pinning the responsibility of unemployed labor, black markets, drugs, crime and tax evasion onto cash’s backs.

Governments, which are among the most vivid, yet discreet, supporters of cashless economies, consider that people’s and companies’ money should be monitored by the state, so as to ensure that tax bases encompass the entire economy. So far, only India has actually tried to demonetize its entire economy, in a vigorous attempt to attack what the prime minister calls “black money”. Until then, India had a cash-based economy, using banknotes for purchases as large as houses, and the government had difficulty tapping the economy. There are doubts, amongst economists, as to whether the reform did any good, or if it did more good than harm. One of these economists, Ian Bright, doesn’t see a completely cashless future ever happening and, if it did, doesn’t see anything good coming out of it.

Ian Bright is a senior economist. Despite working for a bank, and banks being traditionally hostile to cash, he sees no economic advantage in suppressing banknotes. As such, he is confident that people will choose against it. “Cash continues to have many advantages. It is tried, trusted, and true. It is a technology that works, it is simple, and if need be, you can get by on it” he says.

The expression “if need be” highlights one of the most important social functions of cash : giving economic existence, regardless of status. Advisory firm McKinsey reports: “2.5 billion adults, just over half of the world’s adult population, do not use formal financial services to save or borrow.” All of these people rely exclusively on cash to carry out their business and feed their families. This fear is shared by many economists, including Dominic Frisby, who warns that “The beauty of cash is that it’s a direct and simple transaction between all kinds of different people, no matter how rich or poor. If you begin to insist on cashlessness, it does put pressure on you to be banked and signed up to financial system, and many of the poorest are likely to remain outside of that system. So there is this real danger of exclusion.”

Beyond the anti-cash arguments presented by such an such a party, Ian Bright believes people will not make the choice of reducing the available options at hand. He explains: “I use the example of shoelaces. There’s lot of other ways of doing up shoes. You can use velcro, have slip-ons, buckles etc. But shoelaces persist. If the technology works, why bother disturbing it?” Indeed, in the case of mobile payments, they rely on two things : access to power, and to a data network. In cities, this seldom turns into a problem, and yet phones running out of power or cell phone coverage being blown out by storms or accidents do happen. In those cases, cash fills in quite nicely. If cash is remitted to museums, a dead phone battery, or a faulty reception means the blocking of economic life for the unlucky customer.

Then, comes the tricky question of political security. Civil rights activists have been blowing whistles for some time, warning that a cashless world would trap businesses and citizens in the banking network, where they can be monitored by banks and governments through the system. Activist Alex Newman says: “The global establishment is increasingly pushing the notion of what it calls a “cashless society” — a world in which all payments and transactions would be conducted electronically, creating a permanent record for governments to inspect and track at will.” Some societies trust their states not to take advantage of this power, while others do not.

In a recent survey led by ING, citizens were asked whether they would ever accept living in a cashless world. Northern Europeans showed far more inclination to entrust banks and governments with their economic life than Southern Europeans, who traditionally distrust States and corporations more. But even in the case of the Netherlands, which showed one of the highest degrees of cashless inclination in the survey, fewer than one in two citizens considered they could ever make such a move.

The concept of unnecessary risk-taking is quite well-known to economists. Because economics are a semi-hard science, there is always a degree of uncertainty behind economic policies. Unlike scientific experiments which will give specific and unchanging results if the right method is properly applied, economic experiments can surprise their makers with explosive results. And given that this theory would profoundly disrupt the balance of powers between governments, banks and the people, while yielding little or no advantage, it is logical that economists would raise an eyebrow.

Whichever government office will make the decision to kill off cash will likely experience what PM Modi did : the limits of their own power. Not only will a large part of society refuse such State and bank omnipotence, unless resistance is quashed using violent repression, but the State will also perceive the limits of their power to foresee the future. India had not foreseen its reform evolving the way it did, and therefore had to increase pressure on its people. According to Ian Bright and the other economists warning people not to head in that direction, that’s a lot of risk taking for suppressing something which works perfectly well.

This was posted in Bdaily's Members' News section by Ryan Wright .