Does a cashless economy really boost economic growth for all?

Various economists are calling for the strong reduction of cash in order to boost economies and the efficiency levels of central banks. While the arguments make some economic sense, their implementation would come at a high political and democratic price. Must economies be privileged and take the lead on political freedom, at the price of unethical government practices?

It is a well-known fact that paying in cash is a good way of controlling your finances, because the payer has physical and visual control of his or her wealth - and therefore reduces spending.  Germans have long been known for their resorting to cash for most daily operations, and even large ones.  The 2015 payment review by the Bundesbank reports that “Half of customers cannot be swayed in their choice of payment instrument: 33% of respondents state that they always pay with cash, while 17% make use of a cashless option, wherever possible. In principle, a deep-set pattern of behavior can make it difficult for payment innovations to gain ground.
Spurring consumption is one of the main targets of Western central banks, who wish to reinvigorate sluggish economies to avert recessions. A cashless economy would naturally increase levels of spending, by making expenses less tangible, and boosting currency circulation - and the associated tax revenue. Financial expert Sharon Thiruchelvam explains that “Research by the Dutch bank ING shows that in Europe, 10 per cent of those in debt are unaware of how much they owe.” Poor financial planners will therefore continue spending, even when proprietary funds are depleted, with electronic money.
Cash completely eludes any kind of control, once it has left the printing pins, and central banks have difficulty locating it, once it is out on the market. They must therefore make do with whatever money is “visible”, through the banking networks. In the 2010 decade, the ECB pressed interest rates below zero, in an attempt to force consumers to spend their savings (savings accounts were no longer generating interest). Individuals who wish neither to spend their savings nor see them depleted by negative interest rates have cash withdrawals as a last option. A ban on cash would therefore address the “leak”, rendering public finance policies more efficient. But this would come at the price of a serious cutback on public liberties, and systematic spoliation of individuals who wish to save towards financial security.
Suppressing the pain of paying is a way of tricking individuals into spending inconsiderate amounts, and has traditionally led to grave and wide-scale levels of social indebtedness. In 2018, American households reached a new level of indebtedness, in part because spending virtual money is deceivingly easy, as reported by ABC journalist Nataly Pak: “U.S. consumers’ total credit card debt exceeded $1 trillion for the first time, according to a new study by the personal finance website WalletHub. Consumers took on an additional $92.2 billion in debt last year, the highest single-year amount since 2007. The average U.S. household owes $8,600 on credit cards, WalletHub found.
Banks relish at the idea, as it will enable them to bite into large amounts of their customer’s savings, with negative interest rates and no cash route to escape with, and permanently delete the bank-run risk.
A bad economy is bad for all parties: individuals, companies and governments. A cashless reform would not solve the problem of sluggish spending or morose economies, it would simply displace the risk and discomfort of hard times, away from governments (which would greatly increase their available funds) and towards companies and individuals, who would see their financial options reduced and be forced into giving up their savings. Negative interest rates are bad for the economy, and cash is a last resort, economically and in times of crisis. In the case of heavy economic disruptions, cash is the only payment method which can still be used without any form of technical infrastructure, enabling citizens to make do, while the economy recovers. Suppressing this option in the name of economic performance would amount to placing the population in the entire dependence of technical and governmental services, and therefore in harm’s way.
Economies, and economic growth within them, are delicate machines, which must be maintained and improved, only insofar as human lives depend upon them. When economic growth placed in front of the population’s interests, the economy no longer serves society, it enslaves it. And critics fear even the main purpose of a cashless revolution may backfire: “Cash means total financial inclusion, a luxury the better-off take for granted. Without financial inclusion – and there will always be some who, for whatever reason, won’t have it – you are trapped in poverty. So beware the war on cash”, says Dominic Frisby.

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The cashless society from an ethical point of view

The debate about the move towards a cashless society has been at the center of the scene for several years, now. Various angles have been taken by economists, politicians, banking institutions and sociologists. Beyond the technicalities of the debate, lies the question of freedom, of inter-citizen solidarity and of governmental responsibility. The debate cannot remain in the hands of financial specialists, it is first and foremost an ethical, political and societal issue.

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