Throughout history, there have been two forms of payment systems, the first being systems chosen by the free market such as barter, gold, silver or wheat and those imposed on the public by the government via a fiat order, which involve paper currency with no intrinsic value such as The U.S dollar, The Euro, The Japanese Yen etc.
We have been using credit cards and ATM machines since the 1950’s and pundits have been predicting the demise of cash and the emergence of a cashless society. Although certain payment cards are growing at a much faster rate than paper instruments, we still pay with cash and checks. Individuals and firms use or accept various payment instruments. Some have also considered whether economic welfare would be improved if certain payment instruments displaced others, such as if electronic instruments displaced paper-based instruments.
The regulators claim that payment card systems charge “unjustifiably high” fees to merchants for payment cards while the banks issuing payment cards provide consumers with below-cost services and loyalty rewards.
The credit card is new in its legal implications. Credit cards originated as credit coins, small pieces of metal with the holder’s account number engraved on them which served as identification of charge customers in large department stores. In the 1920’s oil companies began issuing courtesy cards which were honored by their dealers.
The founding Diners Club in 1950 began a new credit card era. Unlike its predecessors, Diners Club sells no goods.
By not charging consumers the full marginal cost imposed by their card use, the regulators assert that payment card systems encourage consumers to overuse payment cards, which they can afford to do profitably because merchants shoulder the cost.
Let’s try to position ourselves in a world without payment cards, or electronic payment methods.
We know for sure that:
a) The net cost of using the new alternative on a per-transaction basis is by no doubt cheaper than the net cost of using the old method.
b) There would be net benefits not only because the transactions that were already taking place would be conducted at a lower cost, but also because transactions that were not happening before would now take place.
c) For all practical purposes, the bridge has been constructed already – payment cards and electronic payment instruments more generally, are pervasive.
d) Payment cards and electronic instruments more generally, have been replacing paper instruments for many years.
In an Interview to “The Independent”, Peter Ayliffe, chief executive of Visa Europe said that "paying for goods with notes and coins could be consigned to history within five years". He also stated that "some retailers could soon start surcharging customers if they choose to buy products with cash, because of the greater cost of processing these payments". (Full story HERE)
But what about central planners/ bankers? A cashless society is a regime in which currency issued by the central bank has ceased to exist! All the money is private money issued by banks in the form of deposits, or some fancier e-money issued by institutions that are not necessarily banks.
Imagine a country where the only form of money is demand deposits issued by private banks and Currency has disappeared from circulation. Is there central bank issuing money? Can the central bank in a future cashless society assume its present role of “stabilizing” the price level and impoverishing the middle class, and how?
In a cashless pure cashless society, the central bank does not impose reserve requirements and banks and other institutions issuing money do not hold reserves at the central bank. In that scenario the central bank will lose both its traditional instruments of monetary policy and the largest part of its revenues! It therefore risks becoming very much dependent on the Treasury, both as a means to strengthen the use of its traditional instruments of policy and as a means to obtain revenue.
In a cashless society the central bank will have to expand its supervisory control of any money issuance, independently of its type or origin. It will then be possible to implement a system where the central bank certifies the quality of the issue of private money. The central bank will perform a rating activity, which will give legal tender characteristics to private money, including e-money.
The central bank will risk losing its traditional instruments of monetary policy and standing facilities and open market operations will become ineffective as instruments to control the interest rate and the money stock. This leads to two possible avenues for the future role of the central bank:
a) The central bank becomes very dependent on the Treasury, both as a means to obtain revenues and as a way to maintain some effectiveness.
b) Redefining the role of the central bank and strengthening of the role of the monetary authority. (As if it is not strong enough.)
So if the central will be able to gain more power, and the government will gain more control of our lives how is it that we are not there yet?
Madison County pastor Glenn Guest, right, has written a book titled "Steps toward the Mark of the Beast." In an interview to "Online Athens" he stated:
"Technology has progressed to the point where (becoming paperless) it can be implemented, and I believe it is being implemented… “
“… In a system like this, it's possible to control everyone by controlling their finances. If all our money is just zeroes and ones in a computer, we'll have to get permission to use our own money. If those who control the money don't like someone, they can deny their purchases, making them an economic non-entity…”
“…"There will be an inventory of everything that everybody owns," said Guest. "That virtually eliminates a black market."
Will a cashless society eliminate the black market- I don’t think so!
Cash is the currency of the black market, which is estimated to account for more than 15% of world GDP; maybe the authorities would like undermine the black market by destroying this form of payment.
In a world of electronic cash, money laundering will be much more difficult. One would always be able to tell how much was debited from or credited to a particular bank account.
If one can get paid in cash for doing a particular job, then this individual can easily not claim this as income on their annual tax return and by having electronic cash, we government can have all transactions recorded, thereby not having the case of tax evasion.
If the central planners of this world think they will eliminate the black market they are simply crazy. The black market is a necessity of an economy which is over regulated and controlled by incompetent politicians.
The black market is too strong and powerful to simply disappear. Will people stop avoiding ridiculous taxes? Will people stop gambling our going to sexual services where it is not allowed? Will people stop buying drugs that are prohibited by law? Wouldn’t people want to make transactions without the government (or their wife) knowing about it? Wouldn’t they find a way?
The absence of cash will encourage the barter system, and as every well educated human being knows the natural evolution of a barter system results in a commodity based currency which eventually will be gold and/or silver! Once people will get used to using gold and silver as mediums of exchange the demand for the precious metals will skyrocket and their price will go through the roof, and that is before people will start to look at them as a store of value. A cashless society will kill the fiat paper system
Interesting article, especially your point about the black market. Perhaps society will try to find a material that can be bartered, such as paper or wood and use it instead of cash for those shady deals.
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