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Cash protects privacy and anonymity

Cash provides an area of freedom, where people can transact and protect their privacy. In a society where big data is leading to the increasing monetisation of personal information, anonymity is becoming scarcer and more valuable.

Anonymity is a specific attribute of cash. Cash does not require the disclosure of personal information between both parties involved in a transaction. This feature has been the subject of a continued debate between those who urge for complete traceability of transactions and the advocates of privacy.

For economist Kenneth Rogoff, “paper currency facilitates making transactions anonymous, helping to conceal activities from the government in a way that might help agents avoid laws, regulations and taxes.”55 This is evidenced, he claims, by the fact that outstanding currency significantly exceeds transaction needs both in the US or the euro-zone. 

On the other hand, in Sweden, which is often considered as a near-cashless society, former Police Chief and Interpol President Björn Eriksson says there are reasons to be cautious: “Little has been said about the major challenges that a cashless society brings. It infringes on people’s privacy. It can make life difficult in sparsely populated areas. It can make a society vulnerable and increasingly open to sophisticated internet crimes.”56 

Yes, banknotes are used by tax evaders and criminals, just as they are used by billions of people all over the world for perfectly legitimate transactions. The reduction of cash in circulation, or even its elimination, would have no impact on crime and tax evasion. Kari Takala57 of the Central Bank of Finland states that the abolition of cash would not stop tax evasion. He estimates that the use of cash in Finland in 2014, represented €18 billion whereas the grey economy amounts to approximately €2 billion. Therefore, assuming it is exclusively cash-based, the grey economy accounts for 10% of cash in circulation, at the most.

Yes, cash enables two parties to carry out a transaction without revealing their identities. But this anonymity is limited by several factors. Regulations restrict the use of cash. A number of countries have imposed caps on cash transactions as illustrated in the chart on page 21. Some countries also prohibit certain types of transactions to be carried out in cash; in France, salaries above €1,500 cannot be paid in cash58. At an international level, the Financial Action Task Force (FATF) recommendations require that countries detect the physical cross-border transportation of currency through a declaration system59. Technology also limits the anonymity of cash. Serial number tracking solutions provide law enforcement agencies with tools to trace banknotes that have been connected to criminal activity. Forensic taggants with unique chemical signatures are used to protect cash; in the event of a robbery, the stolen notes can be traced to the crime60. The physical bulk of currency is also a limit to its anonymity. A million dollars in $100 notes weighs approximately 10kg. 

Yes, cash can be used to avoid taxes and engage in illegal activities. But so can many other instruments. In the 2014 documentary The Price We Pay61, it is estimated that approximately $22,000 billion or 10% to 15% of global financial wealth is held in tax havens. This figure represents around 22 times the value of US currency in circulation. In other words, tax evasion associated with cash is only the visible tip of the iceberg. Crypto-currencies such as Bitcoin are another perfectly anonymous payment instrument. A number of national and international regulators and authorities are still trying to understand their implications and adjust the regulatory framework. Canada has introduced legislation to require crypto-currency exchanges to register and to report suspicious transactions that may be linked to money laundering and terrorist financing62. Regulators in the state of New York are proposing to issue a “Bit License” to protect consumers, prevent money laundering and enforce cyber security. Some countries, like China, have ruled that financial institutions cannot accept any Bitcoin transactions. The FATF suggests a conceptual framework for understanding and addressing the risks that virtual currencies represent to measures that combat money laundering and the financing of terrorism63. Notably, the Chair of the Board of Governors of the Federal Reserve System, Janet Yellen, said at a US Senate banking committee hearing in February 2014: “It’s important to understand that this is a payment innovation that’s happening outside the banking industry. The Federal Reserve simply does not have the authority to regulate Bitcoin in any way.”64 

Yes, cash offers a space of anonymity. And in a society where cybercrime is on the rise, where, social media are transforming consumers’ perception of privacy, where big data is leading to the monetisation of consumer information, the anonymity space is becoming smaller and smaller. In this context, cash is the last frontier for anonymous but controlled transactions. A regulated anonymous payment instrument is essential. Firstly, because some degree of anonymity is perfectly legitimate. Secondly, in the absence of a regulated instrument, there is a risk that consumers could opt for unregulated ones. Lastly, the absence of anonymity could lead consumers to abandon some transactions. The brand consultancy Method conducted an experiment to discover what would happen when people’s private spending habits become public. The participants were challenged to log every purchase using an Instagram picture. It became clear that there was a significant grey area not covered by the Instagram feed, constituting all the purchases that the customers deemed uncomfortable or inappropriate65
 

Where social media is transforming consumers’ perception of privacy, where big data is leading to the monetisation of consumer information, the space for anonymity is becoming smaller and smaller. In this context, cash is the last frontier for anonymous but regulated transactions.