This new post comes from an article on Financial Times, I read days ago. An interesting perspective which has made me think about this topic: "What would happen globally, if money in cash would not exist anymore..? ". Well, it is not any script of any science fiction movie, although it could be so. Financial times article talks about the new legislation in Denmark, where Danish government permits shops, retailers and outlets decide if cash is accepted or it does not, for current transactions. Read the article on Financial times here: http://www.ft.com/cms/s/0/159b17ca-47f3-11e5-b3b2-1672f710807b.html#axzz3kLBFVLC6.
The reason why this legislation in Denmark goes live, is because negative interest rates in Denmark, makes people keep cash at home, instead of allocating savings on commercial banks or financial markets...
It is well known, central banks in Switzerland, Denmark and Sweden, have applied negative interest rates on deposits held (over - 0.20%), since ECB started off its "Quantitive easing" and its progressive monetary policy reducing interest rates (on 0.5% currently) and applying negative rates on deposits over - 0.10% to boost inter-bank transactions in the EuroZone. The response from the other central banks has been to apply negative rates accordingly, in order to avoid massive capital transfers from Eurozone to those countries, which would appreciate their currencies, impacting negatively on their exports. Negative interest rates mean investors and savers have to settle payable interests for their deposits, instead of receivable interest as it is normally done.
Gold used to be a payment method over 19th and 20th century, specially, when currencies globally were pegged to gold model. The "barbarious relic" as John Maynard Keynes used to refer to it. Global transactions are not being settled by gold anymore, (that's why gold is an asset, deemed as a "shelter" for investors on uncertain times at financial markets, as it is not related to currency fluctuations in the global economy).
As the gold was taken off from the economic system previously, cash money could be getting off as well, and moving on to electronic money instead, in the future.
The key question here, is if zero interest rates are set up for a long time (six years in a row in USA already) and an unstable economic scenario grows up, people will tend to keep savings "in cash" at home instead. This trend could become global, and governments and authorities will try to set up measures to get that volume of capital back to the banking system. One potential method to avoid it, could be abolishing "money in cash" from the system. In monetary theory, there are four types of money (MO,M1,M2 and M3).MO is cash itself (bank notes and coins). In current times, MO just represents 3% in USA and UK, and over 8.3% worldwide.
This percentage is being reduced since decades ago. So, the trend is already there.
I´ve started thinking of what would happen if cash would be withdrawn from the economy worldwide, moving towards electronic money instead. Throughout my analysis, I´ve drawn the following takeaways, (Pros and contras).
PROS:
- Control. All transactions would be easily tracked back, from the beginning to the end, therefore it would be easier to detect anomalies, fraudulent transactions, etc..
- A powerful tool to money laundering. Money laundering practices would be better implemented, and more effective, as all transactions could be analysed from the origin, and easily tracked back.....on the chained payment system.
- Tax collection improvements. More money picked up by tax authorities, as fraudulent transaction would be reduced dramatically. Impacting positively on public deficits.
- Reduction on informal economy practices. It would be more complex to trade over black markets and underground economies, as all operations are recorded on data bases. Although, we have to consider loads of transactions regarding human or drug trafficking are being done by "bitcoins" worldwide, as bitcoins are not controlled or issued by any central bank.
- Streamlining accounting practices. As Financial Times article says, VAT returns may be done automatically, speeding up accounting closed-ends, and improving VAT collections to Tax authorities, and payment methods...
- Transparency. From an entrepreneurial point of view, financial statements and data bases will be more reliable, as balances and figures would be completely verifiable from other data sources. Consistency would be applied to the whole economic system, and accounting audits would be more streamlined and realistic.
- Money creation expenditure. Cash has to be created and printing money is not free at all. Through electronic money creation, this expenditure would be nearly zero.
- Delinquency reduction. No chance to rob a wallet, or stealing any valueable and selling it out afterward, as it would not be feasible on black markets anymore. Delinquency, as we know it, will disappear, but other delinquent approach will come up, fitting with the new economic model, as hacking IT payments softwares, or similar approaches.
CONTRAS:
- Transactions traffic. The volume of transactions would be increased exponentially. Tiny payments are actually done by cash, therefore, all those should be processed electronically, increasing payments traffic worldwide, and increasing the likelihood of technical problems on those systems.
- Technological dependence. Cash flows globally should be done by electronic systems. Strong dependence to this system which may be hacked, collapsed or coming down. If that happens. it would be impossible to buy any basic good or service, like water, food, or getting on a bus, or any other routine activity...
It would be like all the money disappears from the earth suddenly.
- Lay-offs. Dismissals would arise on commercial banks, and other jobs involved in cash management.
- Control over population. If all payments around the world would be made electronically, Governments, Banks and Data-bases management agencies could be getting full access to all info involved in "your payments". Analysing historical data, they would be able to know about your likes, priorities, personal tendencies, and other sensitive information. Great tool to "Big Data" for instance, but damaging your intimacy.
- Social impact. Homeless and poor people would be totally dependant to NGO's and Government benefits, rather than tipping on streets, which would reduce their incomes. Simply, they would be poorer.
- Illegal immigration. Immigrants who are working and receiving their salaries on an illegal way, would be completely gone from the society and the economic system, as they could not receive their "cash in hand" wages anymore. No chance to buy groceries, basic goods, etc....It would be like taking off the oxygen to breath to all of them. The impact on countries which are harbouring illegal immigration, would be enormous and dramatic from a social point of view. Phenomenons like hunger, riots, social imbalance, or lack of public safety would take place. Also, immigrants might come back to their countries or other legal environment, where they probably won't get jobs to receive their salaries by electronic money. What that means, poverty will rise up, and subsequently further wealth imbalance. Special mention to drugs addicts who won't able to pay for their "stuff" by cash anymore. No chance to "feed the monkey" by MasterCard, Visa or American Express. That means more social instability.
- Disable and elderly people. The world health organisation estimates about 285 millions of people suffering blindness, or visual impairments. Any blind person may distinguish bank notes easily to the touch. Something absolutely impossible, if cash would disappear from the global economy.
Also, elderly people would be on trouble to carry out their domestic economies, as they are not normally familiarised to new technologies.
They are my conclusions about this fictional scenario. Probably, if i would be thinking further, more potential consequences will come up.
Anyway, coming through this analysis, my corollary is "better off if cash remains as it is. It would be more costly, taking it off from the market in terms of social and economic perspective, rather than doing the otherwise".
The reason why this legislation in Denmark goes live, is because negative interest rates in Denmark, makes people keep cash at home, instead of allocating savings on commercial banks or financial markets...
It is well known, central banks in Switzerland, Denmark and Sweden, have applied negative interest rates on deposits held (over - 0.20%), since ECB started off its "Quantitive easing" and its progressive monetary policy reducing interest rates (on 0.5% currently) and applying negative rates on deposits over - 0.10% to boost inter-bank transactions in the EuroZone. The response from the other central banks has been to apply negative rates accordingly, in order to avoid massive capital transfers from Eurozone to those countries, which would appreciate their currencies, impacting negatively on their exports. Negative interest rates mean investors and savers have to settle payable interests for their deposits, instead of receivable interest as it is normally done.
Gold used to be a payment method over 19th and 20th century, specially, when currencies globally were pegged to gold model. The "barbarious relic" as John Maynard Keynes used to refer to it. Global transactions are not being settled by gold anymore, (that's why gold is an asset, deemed as a "shelter" for investors on uncertain times at financial markets, as it is not related to currency fluctuations in the global economy).
As the gold was taken off from the economic system previously, cash money could be getting off as well, and moving on to electronic money instead, in the future.
The key question here, is if zero interest rates are set up for a long time (six years in a row in USA already) and an unstable economic scenario grows up, people will tend to keep savings "in cash" at home instead. This trend could become global, and governments and authorities will try to set up measures to get that volume of capital back to the banking system. One potential method to avoid it, could be abolishing "money in cash" from the system. In monetary theory, there are four types of money (MO,M1,M2 and M3).MO is cash itself (bank notes and coins). In current times, MO just represents 3% in USA and UK, and over 8.3% worldwide.
This percentage is being reduced since decades ago. So, the trend is already there.
I´ve started thinking of what would happen if cash would be withdrawn from the economy worldwide, moving towards electronic money instead. Throughout my analysis, I´ve drawn the following takeaways, (Pros and contras).
PROS:
- Control. All transactions would be easily tracked back, from the beginning to the end, therefore it would be easier to detect anomalies, fraudulent transactions, etc..
- A powerful tool to money laundering. Money laundering practices would be better implemented, and more effective, as all transactions could be analysed from the origin, and easily tracked back.....on the chained payment system.
- Tax collection improvements. More money picked up by tax authorities, as fraudulent transaction would be reduced dramatically. Impacting positively on public deficits.
- Reduction on informal economy practices. It would be more complex to trade over black markets and underground economies, as all operations are recorded on data bases. Although, we have to consider loads of transactions regarding human or drug trafficking are being done by "bitcoins" worldwide, as bitcoins are not controlled or issued by any central bank.
- Streamlining accounting practices. As Financial Times article says, VAT returns may be done automatically, speeding up accounting closed-ends, and improving VAT collections to Tax authorities, and payment methods...
- Transparency. From an entrepreneurial point of view, financial statements and data bases will be more reliable, as balances and figures would be completely verifiable from other data sources. Consistency would be applied to the whole economic system, and accounting audits would be more streamlined and realistic.
- Money creation expenditure. Cash has to be created and printing money is not free at all. Through electronic money creation, this expenditure would be nearly zero.
- Delinquency reduction. No chance to rob a wallet, or stealing any valueable and selling it out afterward, as it would not be feasible on black markets anymore. Delinquency, as we know it, will disappear, but other delinquent approach will come up, fitting with the new economic model, as hacking IT payments softwares, or similar approaches.
CONTRAS:
- Transactions traffic. The volume of transactions would be increased exponentially. Tiny payments are actually done by cash, therefore, all those should be processed electronically, increasing payments traffic worldwide, and increasing the likelihood of technical problems on those systems.
- Technological dependence. Cash flows globally should be done by electronic systems. Strong dependence to this system which may be hacked, collapsed or coming down. If that happens. it would be impossible to buy any basic good or service, like water, food, or getting on a bus, or any other routine activity...
It would be like all the money disappears from the earth suddenly.
- Lay-offs. Dismissals would arise on commercial banks, and other jobs involved in cash management.
- Control over population. If all payments around the world would be made electronically, Governments, Banks and Data-bases management agencies could be getting full access to all info involved in "your payments". Analysing historical data, they would be able to know about your likes, priorities, personal tendencies, and other sensitive information. Great tool to "Big Data" for instance, but damaging your intimacy.
- Social impact. Homeless and poor people would be totally dependant to NGO's and Government benefits, rather than tipping on streets, which would reduce their incomes. Simply, they would be poorer.
- Illegal immigration. Immigrants who are working and receiving their salaries on an illegal way, would be completely gone from the society and the economic system, as they could not receive their "cash in hand" wages anymore. No chance to buy groceries, basic goods, etc....It would be like taking off the oxygen to breath to all of them. The impact on countries which are harbouring illegal immigration, would be enormous and dramatic from a social point of view. Phenomenons like hunger, riots, social imbalance, or lack of public safety would take place. Also, immigrants might come back to their countries or other legal environment, where they probably won't get jobs to receive their salaries by electronic money. What that means, poverty will rise up, and subsequently further wealth imbalance. Special mention to drugs addicts who won't able to pay for their "stuff" by cash anymore. No chance to "feed the monkey" by MasterCard, Visa or American Express. That means more social instability.
- Disable and elderly people. The world health organisation estimates about 285 millions of people suffering blindness, or visual impairments. Any blind person may distinguish bank notes easily to the touch. Something absolutely impossible, if cash would disappear from the global economy.
Also, elderly people would be on trouble to carry out their domestic economies, as they are not normally familiarised to new technologies.
They are my conclusions about this fictional scenario. Probably, if i would be thinking further, more potential consequences will come up.
Anyway, coming through this analysis, my corollary is "better off if cash remains as it is. It would be more costly, taking it off from the market in terms of social and economic perspective, rather than doing the otherwise".
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