The War on Cash
corbettreport.com
corbettreport.com
It is possible to create the cashless society without the above problems, but no governments or banks are interested.
There were also no services.
I don't understand the bank hate around here. There are plenty of low/no fee banks. It's a competitive business, and if you're half-way assertive you can get favourable terms on nearly everything they offer. I just received a $100 gift card for sitting down and discussing the potential to be a customer at a major Canadian bank, and I don't do anything but the basics. They want your business.
simple solutions to simple people (almost no pun intended)
(and lets face it, some sometime behave badly, and their missteps can be costly to their customers. but if any bank behaved like for example apple or microsoft did in past, they would be shut down immediately by regulators).
Unless I'm missing the sarcasm, so tell me if I am.
That seems a bit silly, don't you think? As if when presented with two options the executives are going to choose the less profitable one unless otherwise pressured?
They limit what you can do with your own money.
The reason for getting deposits is so that they can loan 10x or 100x (or whatever your country allows) on the deposit and earn interest/fees.
That doesn't benefit me, only them.
The reason I use a bank is so that I can have "security" and "ease" in transfer/payment. They make a lot more off of me than the utility I describe above.
They can loan out 90% of your cash, if that's what you mean. (In the US.)
They give you both security and liquidity as well as payment processing options. If you think they're overcharging, you could always buy government/corporate bonds yourself (or through bond funds, maybe.)
This is because from each $1 you deposit, the bank keeps $0.10 in reserve, then loans out $0.90 to a debtor account. Of that, they keep $0.09 as reserves, and lend $0.81 out to another debtor account. Of that, they keep $0.081 as reserves....
Get it now? As long as the same dollar is present in the vault, it qualifies as reserves for $10 in electronic circulation.
If not, I still don't understand why the existence of a money multiplier is a reason for Bank Hate as indicated before. It's a trivial property of any system which permits lending.
They then, when not stopped by regulation, lend to those who cannot afford to pay back, predation. You can claim amorality, I don't buy it.
Therefore the 'multiplier' rewards/encourages bad behaviour in an arational world.
We can't get mad at the multiplier, only at those who are rewarded by it. Fair and moral reward is the only option, even if it means less reward in the short term.
So go use your money elsewhere. If you do business with a group like Vanguard and meet some modest minimums, you can buy and sell bond funds from a variety of asset classes for free, and you can see exactly how much of your returns they take - for instance, VGSH, which charges 0.10% on a 0.70% yield, or VCIT, which charges the same on a 2.28% yield. Of course, you lose your 100% guaranteed return and the use of that money with checks and ATMs and debit cards, but there you go, that's the stuff you didn't want to pay for.
> the 'multiplier' rewards/encourages bad behaviour in an [irrational] world.
You're blaming a measurement for bad behavior. That's all the multiplier is, just a measurement of lending activity. If you find fault with banks being predatory then any ability for any group to lend any money at all under any circumstances presents the same incentives. If you're upset with the existence of a multiplier you basically want to ban lending.
The real funny part, though, is that even when you seem to think that most of any bank's business is predatory and deserving of hate, you have the chutzpah to turn around complain that you're not getting a big enough cut. Do you have real principles or do you just hate banks? Decide, now.
> Fair and moral reward is the only option
In practice, whenever this statement gets turned into Politics it's basically a call for elected politicians (Bernie Sanders and friends) to decide who deserves to get money -- a paean to central planning, never mind the economic stupor and corruption it ultimately engenders. The sad thing is, it doesn't help. Even payday lenders, everyone's favorite punching-bag and icons of Predatory Lending, earn pathetic rates of return, typically in the neighborhood of 3%. And central planning gives you things that contribute substantially to crises, like when the government had FMAE and FMAC buy up millions of subprime loans without question as part of a program to extend more credit to minorities. But no one pays attention to history, so we're doomed to repeat it.
But I don't hate the banks. I just think they're full of amoral profit-maximizers that will consistently place their own welfare above those of their "customers". If you lower your expectations a bit, you can do business with any bank quite comfortably. It's almost like dealing with Comcast, or AT&T. Expect the worst from them at the outset, and you can only be pleasantly surprised if they do better.
The source of the Bank Hate, as you put it, is that the depositors, the source of the reserves, are offered 0.5% interest rates on the savings account, whereas all the loans, totaling nine times the size of the deposit, are earning 4% or more.
You deposit $100, and get $0.50 in interest. The bank loans out $900 and gets at least $36 in interest. Since this would not be legally possible without the actual deposit, one may wonder why the depositors are not offered greater incentives to increase their deposits. And the answer is often, "F U, that's why. Have another $5 fee just for asking, and now we're going to play games with funds availability on your deposited checks and incoming transfers."
Legal or not, it offends the primate sense of fairness. It is very likely that the sense of fairness would be satisfied simply by making the interest rates on savings accounts equal to the interest rate on 30-year mortgages for lowest-risk borrowers. You get $4 for your $100, and the bank still gets at least $36, minus default risk.
Just use a Credit Union.
The few times that trust was lost, we have a historical records of a bank crisis where people rushed to the bank to get back their deposited money. A bank today can just declare a maximum withdraw limit and act as if it is normal operation (most banks in Sweden have today a continuously maximum of $1500 limit per week on cash withdraws).
Wait, what? Are you seriously saying that if you want to pay cash for a $3,000 notebook computer, you have to make 2 different withdrawals a week apart to do that? How is that workable? What happens when you have an emergency and need more cash than that all at once? I mean, it doesn't come up frequently, but it comes up from time to time. Does writing a large check count? Or only physically withdrawing the money at a teller?
You also don't get the cash immediately, but have to wait a minimum of several bank days. Also, as regulation against money laundry require, you must tell the bank as to the purpose of the withdraw and they are permitted to deny it.
Its much more than just "stop someone who steals your bank card".
So yes, in Sweden it is seriously not possible to get your hands on large amounts of cash on short notice.
Cash is used for small everyday purchases, but everything else is expected to be digital - bank accounts and debit/credit cards - I mean, if you're buying something big, wiring the money is free or almost free and fast, but getting that amount of cash requires significant fees and hassle; exactly the opposite of how it's in USA.
You could withdraw thousands of euros in cash and buy large things that way, but it would look strange because it is strange, as most people in the same situation would not do it and there seems to be no obvious reason why someone would want to do it that way as for (almost) everybody all their income is in the "banking world" and all the large amounts of physical cash exist only in some social niches that "the average person" meets only rarely or not at all.
Why would you want to pay for a notebook computer in cash? Sounds like quite an odd scenario.
Why is that? Tax evasion?
No cash means no anonymity No cash allows banks to charge negative interest rates
Even nowadays, rumors of a new "confisco" are enough for some people to take all their money out of their bank accounts (even though constitutional amendment 32, written a decade later, contains a clause specifically designed to prevent another "confisco").
Cliff's notes is that quantitative easing is really money printing used to finance government spending, and is really just another form of taxation, although it goes through a slightly convoluted process to get there.
If 10 citizens each have $10, then there are $100 in the money supply. Now the government prints $10. If no actual value was created with that $10, then the value of the dollar has to drop. Now all the citizens have $9.1 (real value) and the government has $9.1 (real value). This is the same as a 10% tax on wealth.
And inflation allows the government to make money off of any asset you hold, too. Let's say you buy a brick of gold (or equities or real estate - doesn't matter) worth $100. In a non-inflationary environment, you sell you brick for $100 ten years later and... nothing.
In an inflationary environment, you sell your brick ten years later for $1000. From the government's perspective $900 of that is profit for which you'll have to pay income taxes, even though the purchasing power of $1000 is the same as it was when you bought the gold. If your tax rate is 30% that's a $270 tax payment, and the government has managed, through inflation, to take 27% of the value of your gold brick.
Inflation is a wealth tax. Always.
The bit explicitly mentioned that US$1M fits neatly inside one briefcase when using US$100 bills, but it would take three briefcases with US$20 bills.
This may be true, but I'm a little wary of the argument now, as the drug trade, counterfeiting, and money laundering line was used when the US$1000 and CAN$1000 notes were retired, and they are worth less now than they were then. Loss of high denomination banknotes has not impeded the business of the underworld, but loss of cash transactions means that everyone in legit business now has to pay a tax to Visa and Mastercard for acting as an intermediary in payments processing.
A pile of $100 bills is $100/g, or $45400/lb. $50 bills are $50/g, or $22700/lb. A $20 bill is about $20/g, or $9080/lb. Gold is $38.82/g, or $17607.88/lb. Clearly, if you eliminate the US$100, cash movers switch to the US$50. If you eliminate that, they switch to gold, not the US$20.
US$1M in $100 bills is 22 pounds (10 kg) of cash. In US$50 bills, it is 44 pounds (20 kg). In gold, it is 57 pounds (26 kg). In US$20 bills, it is 110 pounds (50 kg).
Someone in the monetary bureaucracy might want to reconsider the unintended consequences of the black market drug trade switching to gold as its preferred currency rather than paper money.
"The Serious Organised Crime Agency claimed that "90% of all €500 notes sold in the UK are in the hands of organised crime", revealed during an eight-month analysis." [1]
€500 weighs 1.12g, but is worth $1.11, so US$1M in €500s is 2kg. A very decent saving.
Of course, the UK doesn't use the Euro, so it would be interesting to see the same analysis done in several different Eurozone countries.
- Could they flag certain transactions? - There's also IRS requirements for banks to report many small transactions which are used to skirt the $10k reporting requirements. How would this work for small businesses that legitimately need to do this?
You can't (or don't want to) accept bribes, buy votes or hire hookers/strippers with traceable payment methods.
* The typical bribe is, you do something in your role as a government official, and later you legally get a high-paying job, or they pay you $100K-$200K/hour in speaking fees (the low number is Bush Jr's and the high number is Hillary's, AFAIK), etc. Works great with legal electronic payments.
* "Buying votes" usually means, either you promise government money to a group of voters, or you promise a donor to do something when you get elected. Either way, you're buying votes with the government's money so no need for cash. If by buying votes you mean that you're Trump and you're paying for your campaign, again, nothing illegal there, I doubt he travels with stacks of cash.
* "Hookers/strippers"... I dunno, whatever the problem with electronic payments there... I think a politician is in the best position to find a workaround, certainly in a better position than the average customer. In particular, if the workaround involves getting someone else to pay for it electronically, a politician is in a great position to reward that someone.
There are other countries (Iceland springs to mind, but I know there are others) where electronic payment methods are so dominant that someone can get along fine without having any cash.
Europe can't always be nicely generalized. There are plenty of differences between individual European countries.
Yeah, sadly. It seems like a lot of Germans associate card payments with having no spending control and going in debt.
At least credit card acceptance has improved since the fees were cut by the European Union. I'm still voting with my wallet and putting most merchants without card acceptance on my "ban" list.
>that someone can get along fine without having any cash.
UK probably as well, especially with contactless payments.
- http://qz.com/262595/why-germans-pay-cash-for-almost-everyth... - http://www.swissinfo.ch/eng/coming-clean_switzerland-tighten...
Even sticking to the richest countries, Germany has 61%, Ireland 69%, Italy 86%.
http://en.finance.sia-partners.com/wpfiles/2012/12/Illustrat...
There is a popular domestic EFTPOS scheme used in Germany. A lot of small shops (especially restaurants) don't use it though because it leaves a papertrail (ie. you have to pay taxes on it). Often Maestro/VPay will be accepted though.
In terms of card payments in general: A lot of people associate (credit) cards with being poor, in debt and having no control on how you are spending your money. Cash on the other hand is associated with having control on how much you are spending. I've even seen people apologizing at the register, because they are paying a "small amount" ($5+) with card.
Almost all big stores accept credit cards now though after the European union cut the fees.
[0]http://www.huffingtonpost.com/2008/03/10/emperors-club-all-a...
Once services have been rendered, it's illegal for someone to not accept cash as payment.
My parents lived through the hyperinflation in Yugoslavia in the 90's. The stories they tell are ... fun. Ideally you exchanged everything into deutsche marks as soon as you got it.
New denominations were being printed every few weeks because the currency was losing value etc.
Hell, even when we became Slovenia I remember that at first, the highest bill was 1,000. Just ten years later, the highest had to be 10,000 because the thousand one just wasn't cutting it anymore. It was too impractical for the prices.
For a more drastic example: in pre-war Germany it was more common to get mugged for bread than for cash. Wads of cash just weren't worth enough to bother.
Or is there a mechanism I don't know about that can lower nominal numbers in untouched bank accounts?
It would with negative interest rates.
If by "nominal value" you mean "printed face value", then perhaps not (though there are plenty of time or environment-sensitive printing technologies that would allow that to change, even if there might be all kinds of good arguments against using them on currency.)
If, instead, by "nominal value" you mean "official exchange/redemption value in the units of account in which the cash is denominated", sure it can; in fact, cash that does that has been suggested and, IIRC, used in some cases -- this is done by making the nominal value (that is, the official value in current units of account) equal to the face value at the time of issue, but decreasing over time based on the duration between the issue date on the cash and the current date, so that cash held longer is worth less, even in nominal terms, as a tool to increase the velocity of money.
http://www.amazon.com/Three-Felonies-Day-Target-Innocent/dp/...
Edit: At least in Europe you usually pump before paying by card/cash in the store. I guess it differs from the US because of the high crime rate there.
I actually didn't realize pay-first for cash transactions had become the standard until recently as I made the swap shortly after 'pay at the pump' became common and never really looked back. How does it work? You just estimate how much you need, and the pump cuts off at that point? If you can't hold that much you go back for a refund?
They can however place signs visible in their store or write it on their menu that they don't accept $100 bills.
*Fastfood / food trucks are different as you pay before reviving the food.
PS: Though they can ban you from coming back after this. And the payment needs to be reasonable. 10$ for a 9.50$ meal is reasonable a 100$ bill is not.
By ordering, you are implicitly agreeing to that condition.
These are all examples where payment is being offered before service is rendered. OP is referring to instances where payment is being collected for services already rendered (i.e. debts).
That's actually incorrect. "Legal tender" has a much more subtle effect; what it means is that an attempt to pay in cash meeting the other legal requirements for a tender of payment has an effect on whether and how much damages may be collected if the creditor later sues the debtor for the debt.
That doesn't mean that it is illegal not to accept cash, it does mean that not accepting cash for a debt already incurred may, under certain circumstances, negatively impact the availability of legal recourse to collect the debt.
As someone who lived in Northern Sweden, freezing your fingers off is another — albeit negligible.
More seriously, I doubt that rampant inflation was the tool Argentinian government used to force a technologically unimaginable solution on its citizen.
I'm not very interested in using Bitcoin at the moment, but I like how its design could enable me to have some representation of electronic currency that could give some of the decentralized flexibility of cash. Perhaps a cashless society could employ structures such as those.
In Economic Action Plan 2012, the Government announced it would phase out the penny from Canada's coinage system. The decision to phase out the penny was due to its excessive and rising cost of production relative to face value, the increased accumulation of pennies by Canadians in their households, environmental considerations, and the significant handling costs the penny imposes on retailers, financial institutions and the economy in general.
(Source - http://www.mint.ca/store/mint/about-the-mint/phasing-out-the...)
Thanks for the link!
http://www.marketwatch.com/story/why-larry-summers-wants-to-...
Also, on volatility: As market cap rises, the volatility will necessarily decrease. The "wild 10% swings in a day" phase is just a phase, I wouldn't expect BTC to be more volatile in the future than, say, gold, or any national currency like the Yen (which itself has swung 10% in value in the past 2 weeks). This is because as the market cap rises, it takes more and more capital to influence the price significantly. Right now, any random person with $10,000,000 can cause a swing, whereas if the market cap was 10x higher, it would require ~$100,000,000 to have the same effect in terms of percentage.
But as of today, I don't get paid in BTC, I can't pay for any of my 'standard' expenses (mortgage, utilities, etc.) in BTC, so if I owe my friend $50 and want to cover that electronically, if I use BTC, it's likely he'll end up with something more like $48 (or whatever) if he wants to actually buy something with it, which seems to be approximately the same situation as a "Visa tax", but with less predictability. Your Yen example is a good analog, actually. I also don't pay him in Yen for the same reasons. I don't get paid in it, he can't buy most things with it, and doing so would effectively reduce the amount of money due to conversions.
Frankly, when I'm owed money in the $0-100 range, I generally just ask for an electronic Amazon gift card. It's basically instant, there's no fee or conversion penalty, and we buy enough there that in those sorts of amounts, it's about as liquid an asset as there is. I understand this doesn't further any sort of advance, and perhaps even reverses it, but it's certainly pretty painless. That being said, it's not something I'd want to accept large amounts of with any frequency.
Are you talking about paying merchants or individuals? Have you checked out Dwolla?
Barter (including exchange of services as well as goods).
Organized crime hawaladars will back a Bitcoin-like electronic transfer system, because actually moving around the physical gold too often is a pain in the ass, and exposes the shipments to additional risks.
The crime talk is just a distraction.
The idea that the US would do away with FRNs has so many outcomes/levels associated with it, I can't get my head around it.
The selected links contain plenty of anecdotes but few balanced studies or statistics about why these changes are happening.
There's an interesting element of truth here: the world is moving to new systems of payment and cash use is declining, but the author is trying to frame this as dangerous without deriving a strong argument and is not clearly framing the status of cash. 1 stars for an interesting premise and a weak execution.
There's some interesting discussion to be had in this space, but any source that unironically uses the word "bankster" doesn't belong here.
Edit: admitedelly bit
Corruption and tax evasion are a big problem in Austria (as presumably in most parts of the world), and cash payments make them so much easier.
I just don't see a legal reason why I'd want to pay for a large purchase in cash. Almost all large purchases require some kind of paper trail anyway, so it's not like giving up cash means giving up your anonymity.
Am I missing something obvious?
Also, you are playing against privacy because some corrupt people use cash, sounds a similar argument than prohibiting cryptography.
Larry Summers: "The fact that... in certain circles the 500 euro note is known as the “Bin Laden” confirms the arguments against it."
https://www.washingtonpost.com/news/wonk/wp/2016/02/16/its-t...
I haven't heard of any definitive results in driving down corruption and the grey market either though.
The real threat however is they could simply ban the sale of any good or service by flip of a bit. Let alone the surveillance possibilities, everything you buy would be logged and could be used against you at a later date and not just by government officials but in any court of law or hacker. They could impose fees or penalties and there would be no escape from it. You could not simply pull your money out of the bank because there is no physical representation to hold.
Cash is freedom. Freedom to associate and support whom you want without trace. That is not a freedom we should ever give up lightly.
Because every true banker salivates at the thought of giving you a savings account that earns -1%.
Or business partner. Advertisement agency see that you have recently bought some personal item and they now show you ads for related items. Show you recently paid for a funeral and show you ads for 'saving their memory'. Shows you recently cream from a personal medical issue and show you ads for all related material... hope a friend isn't looking at the screen.
A few interesting concepts: Cost of carriage: a fistful of cash is easy to carry, but a truck full of benjamins is not.
Should it be possible to make recordless transactions? What kinds of transactions? Are there exceptions?
Who should profit from containers for cash? (Visa network fees, the cost of a leather wallet, the cost of computation for BitCoin, the bank)
I've run out of time to keep whiteboarding ideas before I catch my bus, but, to summarize, I sympathize with your desire to do good in the world but there are a lot of ways cash is used that you might consider as you work on this idea.
Freedom
Or perhaps the more famous one... a lot of crime that hurts a lot of people is made so much easier by privacy. Since the government can already invade that privacy anyways (either illegally without penalty or legally by getting a court order), I just don't see a legal reason why you'd demand so much privacy from the government. If you haven't done anything wrong, you don't have any reason to hide.
The core problem with all of these is simply put: I do not need to justify why I have a freedom, you need to justify why I should lose it. And 'making crime easier' is not a valid justification.
If you believe entirely in the wholesomeness of the intermediary, it's great. But becoming dependent upon the intermediary makes you beholden to it.
Tax authorities found myriad ways to catch and prosecute tax-evaders in past, where cash transactions were the rule.
Also, many Amish people don't use banks and pay for heavy farming equipment with stacks of cash.
The big fish have a bunch of "fake" companies, they pay little tax and are still very corrupt. And they system in such countries helps them. Yet for normal people, cash means freedom. No one can control or spy on what you do with your own cash money. People with higher education would never trade cash for convinient and bullshit bingo.
And that's fine. Don't use cash. But just because you don't see a reason to pay for a large purchase in cash doesn't mean other people don't.
The correct answer to someone who asks "Why should you be allowed to pay for something with cash?" is "Because I want to, and beyond that it's nobody's business."