November 12, 2017    10 minute read

The US: Its Failure to Become Cashless

Time for a Change?    November 12, 2017    10 minute read

The US: Its Failure to Become Cashless

America is complacent about cash and conspicuously at odds with the rising number of nations planning to abolish it. Several are pondering issuance of digital sovereign currencies. India has already begun removing currency from circulation, albeit in a haphazard process.

Despite keen curiosity of its citizens, the US isn’t about to tread the Scandinavian path. Disappearing cash in Sweden and its neighbours is due to the unique payment preference of its citizens. Other enlightened governments can only dream of that dynamic. Americans, in contrast, like cash. Everyone uses it. Nearly every retailer accepts it. By most estimates, it will circulate for another two or more decades.

American policymakers simply aren’t interested in making America cashless. In a most improbable turn of events, the US, – the birthplace of the credit card, home to the world’s leading payment networks and headquarters for payment innovation – spurns the chance of cashlessness. Worse yet, the primary reason is hollow and out of date. It’s based in the discredited Orwellian phobia that electronic technology leads to a surveillance society.

US leaders are wedded to the view that anonymous cash serves as a bulwark against official abuse of digital data privacy. Never mind that it plays an incomparably larger role in antisocial activities. Thus, the thought of ditching it is counter-intuitive. It’s politically unwelcome and rarely mentioned in professional papers, let alone studied, except in regards to arcane negative interest rate theory.

Reverence for cash, bolstered by headline news of data hackings and identity theft, dominates popular opinion as well. Mention ‘abolition of cash’ to any citizen and he or she is all but certain to ask ominously ‘But, what about loss of cash’s payment privacy?’  Policymakers and citizens alike grossly overvalue cash’s anonymity – so much so as to obscure the profound 24/7 harms linked to cash. These misguided values have consequences and raise the question – how much does overemphasis on cash’s anonymity cost society?  How much longer will the surveillance charade last?

Cashless Progress is at a Standstill

The most pedestrian American realizes that cash is a common denominator to most violent robberies, many burglaries, drug trafficking, tax evasion and a host of other antisocial activities, even if the terrible statistics aren’t known. However, citizens fail to conclude that ditching cash would quash or diminish them. Despite the logic (e.g., cash robberies) citizens don’t trust themselves to believe it. If it’s such a promising idea, one queries, why isn’t it talked up and publicized. In the void, spurious assumptions dominate such as ‘crooks will always find a way’ and ‘they’ll simply use cash alternatives,’ neither of which is accurate.

Rigorous analysis of the social and economic impact of ditching cash would fill volumes. It’s shameful that academia and policy institutions refuse to do it. Yet empirical evidence paints a general picture.

The harsh truth is that tangible, traceless cash ranks with America’s most egregious problems including a raging drug epidemic, human trafficking, corruption, welfare fraud, high incarceration rates, budget shortfalls, and terrorism – because it is integral to all of them. Even cybercriminals rely on cash — to break their data trails, which is an overwhelming reason to say good riddance to cash and cries out for its abolition. In its purely economic context, its cost exceeds outlays for major federal programs including medical or social security.

The dearth of attention to the abolition of cash as a means to remediate any of these problems is appalling. Criminologists, of all people, appear incredibly unimaginative and haven’t scratched the surface in projecting the impact on crime. Sociologists desperate for solutions to the nation’s disastrous drug epidemic appear oblivious to the crucial link between cash and addictive drugs  – one that gave birth to anti-money-laundering legislation (AML) half a century ago and that continues to stymie law enforcement.

Many economists have measured cash’s role in tax evasion. And several leading economists agree casually– in universal perspective absent any sense of urgency — that cashlessness would be a “good thing.” However, the singular study in recent years on the overall cost of cash in America fails to even mention abolition. And, none engage serious argument for it. In general, academic and public interest institutions grapple away for solutions to various pressing cash-linked socioeconomic problems – while disregarding their commonality.

How Important is Cash?

Americans commonly employ cash for payments that if observed  on payment statements or expense records would draw criticism, ire, disrespect and/or disassociation of spouses, family members, partners, employers — as unethical, sinful, wasteful, unhealthy or dangerous – such as gambling, porn, alcohol, tavern and hotel bills. Harvard economics Professor Kenneth Rogoff, a maverick for his outspoken support for abolishing large denomination bills in the US, nevertheless pays homage to a need for payment anonymity. Thus, he would retain circulation of $10 bills because “we wouldn’t want to deprive one from buying a gift for one’s mistress in secrecy.” Unless this is said tongue in cheek, he couldn’t present a less worthy example.

However, cash isn’t the exclusive means to shield payments. One can engage friends to pay for items, or maintain isolated payment accounts, use prepaid cards, or substitute fictitious payees. Such subterfuges won’t foil detectives yet they might suffice for social purposes. Still, even if these fail, the legitimate uses don’t begin to justify the perpetuation of cash. A marital quarrel over a telltale hotel room payment, for example, isn’t in the same league as loss of life in a cash robbery or from cash-purchased heroin.

Yet, privacy advocates miraculously transform lowly social predicaments into something of grave importance. Unsurprisingly, they struggle to find significant factual scenarios to support this. Some hail  payment anonymity as a means to preserve political choice by shielding one’s identity when donating to unpopular causes thus preventing authorities from investigating and taking reprisals against contributors. For this, cash is said to uphold democracy.

This seems contrived. It’s dubious that many employ cash for that purpose and there’s little to no evidence that authorities take reprisals. The glaring role of cash in democracy lies in widespread corruption, as evidenced by a bevvy of ex-officials residing in prison. A 2013 Transparency International survey found that one in fourteen Americans had bribed an official during the previous year. It’s unlikely that many tendered bankcards or checks.

Some privacy advocates turn to Constitutional argument and seek to have the payment anonymity of cash adjudged a right entitled to legal protection. However, it’s unthinkable that jurists would extend this concept to block abolition of cash.

Once one accepts that Orwell’s surveillance society is plausible in the US, rational thought goes out the window. America has been down this road before. Recall the outcry of privacy advocates years ago when public security cameras were first installed. They railed against such devices as the devilish devices which Orwell warned of. Yet, even fake public security cameras prove effective in reducing crime. They’re invaluable in identifying bad guys in the act. As a bonus, cameras occasionally record unlawful police actions as well. The chief complaint nowadays is that not enough are installed.

Today we hear the hue and cry that ditching cash ‘could lead to, empower government, set the stage for,’ etc., the dreaded Orwellian society. This plays well to true believers that a Stasi-type cabal operates within government. It implies that cash is a defense to such sinister elements. One only has to envision North Korea to realize how ridiculous this is. Unconstrained Orwellians produce wild pronouncements, for example, that officials and attorneys in cashless America would be empowered to view another’s entire financial profile. Others exclaim that government would know everything about citizens, ‘even ‘what people eat for breakfast, and what type of lipstick one uses.’ All of which ignores the fourth amendment, and that no one cares about these things, and that most of these facts are already available to officials because virtually all Americans pay digitally for the great majority of their purchases.

Snowden’s explosive revelation of the NSA’s clandestine warehousing of private communication and payment data gave credence to Orwell’s warnings. Even its scoffers feared that officials were out of control. The very secrecy of it was a shocker. To Orwell disciples, it is proof positive that government is up to no good and can’t be trusted. Nowadays the NSA is quite open about data collecting. Having survived the shock, most Americans understand its purpose and accept any encroachment on data privacy as necessary for the greater good.

Notwithstanding the NSA’s operations, the fourth amendment still holds authority. US citizens don’t live at the whim of the government. Orwell didn’t have America’s independent courts and its army of lawyers in mind when he wrote 1984.

Putting America on a Cashless Mission

Unlike Swedes, Americans must be convinced that an all-digital-payment society makes good sense. The immediate challenge is to change attitudes.  Cash is still the most frequently used form of consumer payment. And a siege mentality about data surveillance still rules the day. It will take a great deal of campaigning to sway minds and reach a planning stage for winding down the archaic system.

Many Americans are receptive to it. Some 13% are cash averse. Most of the business world, not least retailers and their organizations, would be relieved to see physical money disappear. And influential individuals who occasionally write op-eds condemning it probably comprise the tip of an iceberg. This article undoubtedly preaches to a faction of policymakers who silently harbor a similar outlook. Given a catalyst, which might consist of a single highly-respected advocate, this overall body could easily produce a cadre of proponents for the abolition of cash.

However, America needs the catalyst. Thus it is incumbent on the enlightened, particularly those with a lectern, pulpit and/or public following, to speak up, write papers, to promulgate abolition of cash among their colleagues and to establish discussion forums. Hopefully, this will ignite research by institutions that generate fact-based forecasts of the impact of the abolition of cash.

Solid facts and figures are vital in order to overcome stiff resistance from well-funded and connected privacy organizations. As well, campaigners will face opposition from some in the business world. Cash is the raw material of multi-billion dollar industries that fabricate and service safes, automatic teller machines, cash registers and counting devices – and that transport, store, and secure cash against theft.

It would be quite valuable if a Congressperson would request a GAO cost-benefit study on the abolition of cash — and if the Fed would unleash some of its many researchers on the issues. FinCEN, the Treasury Department’s nerve centre for AML, could provide highly useful material as well. But, given the radioactivity of data privacy, this is probably wishful thinking.

Campaigners must focus on the complete abolition of cash. Proposals are bandied about for nudging consumers away from cash by imposing taxes on ATM withdrawals as well as by eliminating large denomination bills. These are merely half-measures that delay the inevitable, fail to halt the worst roles of cash and extend victimizations. The $10 bills that Professor Rogoff would leave in circulation, for example, are the price of a ‘dime bag’ of cocaine.

Narcotrafficking by means of $10 bills would merely render it less efficient. It would have little effect on robbers who regularly attack victims for small sums. Pizza-deliverers “carry no more than $20” yet several are murdered each year in course of robberies.

Conclusion

This course of action should steer America in the right direction. At some point in time, its policymakers will realize that a liberal democracy is far better served by denying antisocial elements the benefit of tangible anonymous money. That day cannot come too soon.

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