Would It Make Sense to Kill Cash?

Cash, bills, coinage, notes, greenbacks, dough—cha-ching! Our government is printing more Cash than ever. Should we be ditching cash? We love to fill our tub with bills and roll in it as much as the next person, but cash actually enables crime. That’s right. Bribery, tax evasion, drug dealing, and plain-old theft are easier with cash involved; which makes sense, you just hadn’t thought about it (hopefully). So why (when other countries are discouraging the printed bill) is the U.S. printing more money than ever? Because the issue is more complex than it seems on the surface, and you are selling your privacy for the convenience of digital money.

“In 1976, the U.S. saw about $80 billion of currency in circulation. Today there’s roughly $1.5 trillion in circulation, nearly 20 times as much, which, on the one hand, would seem to make sense — inflation, right? But on the other hand, why is there so much cash floating around when we’ve got so many other ways to pay for things? And here’s what’s even stranger: back in 1976, about 25 percent of U.S. cash was in $100 bills. And now? Around 80 percent! (Freakonomics: Why Are We Still Using Cash?)”

Do you use big bills to make purchases? Then why such a great demand for bigger bills? Um hum, that’s where we’re going with this. If so many big bills are being used for unseemly transactions i.e. crime, why not just quit making them or even ban them? Or even get rid of cash altogether? One big reason is because the government makes money by making money—literally.

To simplify, the Fed prints money and offers it to central banks that are owned by the Treasury. If the government prints bills and coins to settle its debts, rather than issuing bonds, it does not add to its snowballing debt obligations.  Think about it. It makes the Fed look like a big profit center, but it’s a total illusion. We’ve written a lot about what’s called fiat money; or creating money from thin air. Read more in our blogs called How To Better Understand The Premise Of Money and A Quick Look At The Fed And How It Impacts You.

Regardless of the government’s benefitting from cash, the issue needs to be carefully debated. Serious privacy consequences and unintended consequences (like a possible black market for cash users) are important concerns for those who oppose going digital. People on both sides of the issue of trading in cash for cards (or other biometric ways of paying—like with your fingerprint) have strong opinions. Let’s look at the pros and cons for the average Joe (or Josephine).

What people who support going cash-free say:

• • “It will lower crime and make it harder to commit tax evasion.”
• • “It’s convenient and promotes the free flow of money, and that stimulates the economy.”
• • “Digital money offers security. It’s easy to shut down my accounts if my wallet is lost or stolen.”
• • “When I use my credit card I get ‘cash back’ on purchases.”
• • “Money is really dirty. Seriously, who knows where it’s been?”

What people who oppose going cash-free say:

• • “I don’t want anyone to know how I spend my money. The day we go cashless the government will know your every move.”
• • “I don’t trust computers to keep track of my money. And banks could crash. And hackers.”
• • “I’ve heard about this somewhere in Sunday school—the mark of the beast, right?”
• • “If I can’t touch it is it really my money?”
• • “How would we spontaneously help those who are down on their luck? What about the poor who don’t have access to the banking system?”

For now the dollar bill is still central to our economy, and any drastic plan for a less-cash society would need to be carefully thought out and gradually implemented, because with all its benefits, a cashless society comes with hefty costs in privacy and potential economic impacts.

Where do you weigh in?

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Reference: http://freakonomics.com/podcast/still-using-cash/

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