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John Howland Cochrane, economist and professor at Berkeley: "The ability to transact with anonymity and privacy has been a central freedom for hundreds of years."


Economist John Howland Cochrane addressed the question of new cryptocurrencies, cashless societies and the future of tax evasion. At the heart of his concerns, lies the question of privacy.




Governments, to contain tax evasion, are favorable to the war on cash, and considering using a blockchain-currency of their own. To be fair, it was initially the banking sector’s idea, but governments had similar and compatible interests in acquiring more economic visibility - something cash does not provide. Whichever the medium used, the idea is to make all payments appear on radars of banks and the governments they serve under. A near 200-billion dollars are estimated to go missing each year from public accounts, on account of tax evasion. But experts doubt killing cash would do anything to curb tax evasion, as tax dodgers have long turned to new systems to discreetly funnel their money abroad. A recent embarrassing example provided by Russian State-owned bank Sberbank seems to confirm they are right. Bloomberg reporter Andrey Biryukov writes that “State-controlled Sberbank PJSC last year handled about 1 trillion rubles ($17 billion) in person-to-person online transfers that represented frequent payments from numerous clients to a small number of accounts, which could be linked to commercial activity, according to Mikhail Matovnikov, a senior managing director and chief analyst at Russia’s largest lender. Although no detailed breakdown is available, that’s also an indication the funds partly went to service the “informal sector” of the economy.” In other words, undeclared transactions espoused the digital world, and dropped cash, a long time ago. Additionally, these experts fear a major breach of privacy, thus returning in agreement with J. H. Cochrane. But a failed attempt at controlling the underground economy isn’t what worries John Cochrane, it’s the dangerous imbalance of powers, between State and citizen.
 
With all moneys turned electronic, such as in the bank’s plans, or even changed to cryptocurrency, as in the WSJ’s OpEd, the State then acquires an unprecedented level of power. John Cochrane explains : “Yet the centralization of banking under this system would also create a Leviathan with the power to monitor and control the personal finances of every citizen in the country. This is one of the chief reasons why many are loath to give up on hard currency. With digital money, the government could view any financial transaction and obtain a flow of information about personal spending that could be used against an individual in a whole host of scenarios.” This fear of an economic Orwellian age is shared by many, and wouldn’t need to wait for the State to issue only cryptocurrency (a distant dream, for the moment). Even all-digital economies (a not so distant one, if banks have their way) would place each and every citizen in danger, according to watchdogs and whistleblowers .
 
John Cochrane fears the “falsely good idea” which an all-online economy would represent. It would be implemented as the final solution to problems which have pestered administrations for centuries (crime and tax evasion) but would surely reveal its terrible nature as soon as it were implemented: “Indeed creating this Leviathan is a danger, to the economy, and to our political freedom. Our government likes to pass aspirational laws that we don't really mean to enforce. Rigorous enforcement of all transactions would not only stop your kids lemonade stand and babysitting business, it would wipe out most of the employment opportunities for lower-income America. Many businesses would come to a halt”, he says . As unpleasant as the idea might be, the “possibility” of acting unlawfully with cash cannot be separated from the freedom which cash gives us and must be maintained. “The anonymity of cash makes it enduringly popular -- cash holdings are up, not down in the digital age”, he adds.
 
The question of balance between security has been central in modern democracies. While debate over the question has never been settled, most agree that the pointer should stay away from extremes: a fully free society would be anarchy, whereas a fully secure world would be tyranny. The cashless attempt to increase security would probably miss its mark, while severely damaging liberties.
 
John Howland Cochrane is an economist, specialized in macroeconomics, from the University of California at Berkeley. He focuses on the link between macroeconomics and finance, and more specifically on the influence citizens and companies influence the market and can preserve their liberties on it. John Cochrane is the author of bestseller Asset Pricing, for which he received the Paul Samuelson award.
 










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.

The cashless society from an ethical point of view









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