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Venezuela: Could It Become Cashless Before the US?

 5 min read / 

An irony is in the making. The basket-case economy mismanaged by near-dictator Nicolas Maduro in Venezuela is short of currency. The Bolívar fell to 108,279 against the dollar on Dec 4. Its plummeting value, coupled with regulatory caps on ATM withdrawals, finds citizens queuing hours for paltry disbursements.

Many now rely on their credit and debit cards for all but the smallest of purchases.  This move from cash to digital money turns the Orwellian scenario of cashlessness as a step toward a totalitarian society on its head. It also reverses the argument that cash is still practical when digital systems fail to function.

The Situation in Venezuela

Some 40% of Venezuelans lack payment cards. Many of them will likely migrate to bank cards. If Bolívars sink to the point that no one accepts them, the monetary shift could have beneficial consequences. In a country racked by street crime, an absence of cash would discourage most robberies. This, in turn, would make it safer to conduct retail business. It would deter kidnappings for ransom as well as extortion and any crime in which cash plays a role.

If Venezuela’s ATMs become defunct, thugs will no longer force victims to withdraw funds from them. It would even deny cybercrooks their common means of converting hacked data into spendable money. Crooks in a cashless Venezuela, of course, might simply rob victims of bankcards instead of cash and take ransom and extortion payments in digital form.

Yet, the fact that Venezuelan authorities fail to control street crime doesn’t prevent digital payment processors from cancelling stolen cards and stopping unauthorized payments. Overall, there will simply be less crime, particularly the violent type.

Venezuela’s dire cash shortage contrasts sharply with the United States where tangible money is plentiful, ubiquitous and on course to circulate for decades. But, the two countries share common ground because a great deal of American crime is also tied to cash.

American policymakers are slow to recognize, let alone act on, the opportunity that this presents. The Fed and Treasury Department are, at most, just beginning to “think about” a digital currency. And even this belated idea doesn’t necessarily envision abolition of cash.

The incoming Fed chairman Powell has already reiterated the lame excuse for governmental disinterest in the digitization of the nation’s currency, namely, that intervention in digital money could “stymie innovation.” All the while enlightened governments around the globe are actively winding down their cash systems. America is foolishly becoming an odd-man-out.

The danger associated with cash is serious business. It’s why convenience and other store clerks keep loaded firearms aside their cash registers. One reads occasionally that a pizza deliverer or even an ice cream shop worker is shot, beaten or murdered. Some fifteen banks are robbed in the United States every day. It all adds up. America is violent, in large part, because most of its 1,000+ daily robberies target cash.

Easy to Steal

ATMS themselves are sitting ducks. Officials don’t keep statistics for this crime, but industry observers report that on an average day, thieves across the country use stolen vehicles to ram fifty or more ATMs and cart them off.

Apparently, this ‘crash and grab’ attack isn’t hard to pull off. Step-by-step instructions are available on YouTube. Structural damages to buildings, loss of the machines and cash plus public outlays for this activity alone may run some $2.5bn per year.

The greatest single economic cost of the cash system, however, lies in nonpayment of taxes “due but unpaid” per IRS syntax. It’s one of the rare areas of cash mal-usage that’s well researched. Yet, the fact that cash leaves no trail makes it difficult to estimate the deficiency.

Paying tax isn’t exactly popular, of course. But, paying someone else’s share should infuriate citizens. America’s cash-lubricated underground economy is estimated to run as high as $700bn per year – enough, if redirected, to make universal medical coverage quite inexpensive.

In the social context, the role of cash that deserves ardent attention is in drug abuse. It’s odd that health care strategists are silent about this. The fact that cash is the universal payment for street drugs and in narcotrafficking renders these activities vulnerable to disruption.

Of course, unlike the role of cash in bank robberies, for example, the essentiality of cash in drug abuse is speculative. Other means of payment, even if less secure for crooks, are available. Still, if the abolition of cash were only 10% effective, it would save some 5,000 lives annually. Given the paucity of other prevention methods and the horrific numbers of OD deaths, the ditching of cash should take centre stage.

Conclusion

These observations are a small window on the myriad socioeconomic benefits of ditching cash. Unfortunately, the idea hasn’t yet surfaced in serious discussion. Planning is years away and implementation is further off still. The concept is wholly suppressed by an overemphasis on payment anonymity and distrust of government – a mindset that ignores the profound costs and departs from reality.

It’s a remarkable phenomenon that economic mismanagement in the Bolivarian Utopia is set to undermine the position of American policymakers who embrace cash for its payment anonymity and fail to call for its abolition.

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Americas

Suspect Detained in New York

New York

Following an explosion in midtown Manhattan, a male suspect has been arrested in New York. 

The blast occurred on Monday morning near 42nd Street and Eighth Avenue, just one block from Times Square, in one of the busiest parts of New York. Eyewitnesses have said that a man entered the train station with a pipe bomb attached to him before detonating it on a platform. The suspect, Akayed Ullah, suffered burns after the device failed to explode properly and three others sustained minor injuries. New York’s mayor Bill de Blasio confirmed that the incident was a terror attack, making it the second in less than two months. Back on October 29th, a terrorist killed eight people by driving a truck into a busy Manhattan park.

 

Keep reading |  1 min read

Americas

Trump Attacks the WTO

Trump WTO

Argentina joined Latin American leaders to strengthen the WTO system in the wake of Trump’s recent comments.

Over the past several months, President Trump has accused the WTO of an anti-American bias and his government is actively blocking the appointment of new judges to site on the WTO’s body. Other WTO nations view this as an attempt to fundamentally alter the system, which has for decades prevented trade wars among its 164 members. Yesterday, at the WTO meeting in Buenos Aires, WTO nations urged the US to re-commit to the organisation’s principles and strengthen the existing relationships within the current system.

Keep reading |  1 min read

Americas

Republicans Without Principles: Roy Moore and the Tax Bill

 4 min read / 

Roy Moore

The Republican National Committee (RNC) joined with Mitch McConnell and approximately 18 Republican Senators in urging Roy Moore to resign. They pulled campaign funding and took the moral high ground…until the Senate voted on the tax reform legislation and they discovered that they only had one vote to spare.

The Alabama election takes place on December 12, 2017, before the date of a final vote on the reconciled tax bill that Republicans hope to place on the President’s desk before year end. And so, following the lead of the President, who is satisfied that Roy Moore not only denies but “totally denies” all allegations against him, the RNC changed direction and agreed to re-dedicate its support for the alleged perpetrator of over eight sexual assaults, four of which were on minors.

The Senate Tax Bill

Analysis of the Senate Bill has been extensive in the past few days. It has highlighted several problems arising from the hasty way it was passed.

Firstly, the alternative minimum tax (AMT) has not been repealed. Under current law, AMT is 20% compared to a regular tax rate of 35%. The bill passed by the Senate has both at 20%. Because certain deductions permitted against the regular tax liability are added back for AMT purposes, most corporations will, unless this is fixed in conference, now pay AMT rather than regular tax.

Additionally, the base erosion anti-abuse tax (BEAT) is a problem. It’s complicated. It’s intended to protect the tax base from US parent companies making payments to overseas affiliates whose earnings will be subject to a lower tax rate. But it will have negative consequences for the US taxpayer who reduces its US tax bill by any number of legitimate tax credits available to investors in renewable energy or low-income housing.

It’s not clear if these problems are oversights or intended features. It’s hard to admit the truth – that this was passed too quickly and without due consideration – because that is the point made by the Democratic Senators. Perhaps, as Nancy Pelosi said in respect of the Affordable Care Act, “We have to pass the [healthcare] bill to know what’s in it”. It was a terrible argument then; it’s a terrible argument now.

Christmas for the 1%

The 1% wealth bracket in the so-called Blue states of California and New York will be negatively impacted by the elimination of deductions for state and local tax and the limitation of the property tax deduction to $10,000. Overall, however, it is clear where the benefits of the Senate Bill flow, state, local and property taxes notwithstanding: to those making over $1,000,000.

The reduction in the corporate tax rate that has been approved will, according to many the CEOs interviewed, result not in additional investment in human or other capital but rather in share buybacks and increased dividends.

Why is the 1% Angry?

Senator Charles Grassley observed that the importance of repealing the estate tax was to ensure that those productive members of society would not be punished for a lifetime of thrift and hard work:

“I think not having the estate tax recognises the people that are investing, as opposed to those that are just spending every penny they have, whether it’s on booze or women or movies.”

The quote from Grassley raises a great point: fundamental attribution error. People are comfortable attributing outcomes to others based on their character and disposition: the poor are lazy; that’s why they are poor; the rich are rich because of hard work and intelligence. When explaining their own misfortunes, however, people are inclined to attribute causation to external circumstances. Gressley reinforces this fundamental error by his tactless comment.

The last ten years have been extremely rewarding for the top wealth slice of US society. Corporate earnings have been strong, and the financial markets have delivered robust returns to those who have been able to participate. It is not clear why either corporations or the wealthy have any reason to complain.

The middle and lower classes, on the other hand, have struggled with wages that have been essentially flat over the same period and with health, education and housing costs that have been climbing. It was this constituency that Donald Trump appealed to in his bid to be elected.

One of the unfortunate features of this tax bill is that, while everyone will enjoy tax cuts for the next ten years, the benefits will flow disproportionately to those with incomes over $500,000 after ten years. Individual tax cuts will phase out unless extended, whereas corporate taxes will remain at the same level. Consequently, the benefits of the corporate rate cut – increased dividends and share buybacks – will continue to flow to those with incomes over $1mn.

Conclusion

There is hypocrisy on both sides of the political divide, but the Republicans are running the show at the moment and the ‘house’ is beginning to look very crooked indeed.

Keep reading |  4 min read

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