This article was originally posted on http://www.absolutedisasters.com/privatisation-of-cash/ and reproduced with permission of the author.
There is a global push towards going cashless. Some, including CapGemini, the technology consulting company, openly refer to it as a ‘war’. For so long waged as a behind-the-scenes guerrilla campaign by those with deep pockets who stand to benefit from the digitisation – and thereby privatisation – of money, the fighting is now taking place in full view, with advertising by the likes of PayPal and Mastercard increasingly visible. News stories about the ‘death of cash’ regularly appear in social media and on the front pages.
Wittingly or unwittingly, international aid agencies have been drawn into the fray. In a tactic worthy of Agamemnon, the payments industry has cleverly used the aid sector as a ruse, a Homeric ‘Trojan Horse’, to gain access to key governmental decision-makers around the world whom they would otherwise find difficult to reach. These contacts have been ruthlessly exploited to pursue their global ambition of a cashless society. The United Nations, including the World Bank, has mistakenly lent legitimacy to this insurgency by, for example, forming groups such as The Better Than Cash Alliance, a group of private and public entities all of whom have a vested interest in the demise of cash.
These entities have not engaged in this battle because they are ignorant or malign but because they feel they have little choice. Facing massive disruption to their traditional business models, they genuinely believe that electronic and digital forms of payment offer the most efficient route to financial inclusion – banking the unbanked – thereby accelerating their dream of global poverty eradication. They also generate funding in the process.
As India’s recent catastrophic experiment with demonetisation so clearly demonstrates – an initiative quietly promoted by the Bill & Melinda Gates Foundation – this is muddle-headed. “What India (and other governments like Nigeria and Mexico) have failed to contend with,” says Dana Kornberg in the online blog The Conversation, “is the adverse effect such severe policies have on the poor, who seldom use banks.” It also ignores many of the fundamental precepts of social transacting, not least that many low-income societies lack the infrastructure and social capital required to make a cashless society work.
Dostoevsky, the troubled Russian author, hit the nail on the head when he said, “Money is coined liberty.” He was writing, of course, in the troubled political and social atmosphere of 19th-century Russia, so was talking more about freedom from tyranny than freedom to consume. Either way, it was a commentary of its time and might yet have something to tell us about where we are heading little more than a hundred years later as digital technology threatens to unleash a so-called ‘cashless revolution’ and while ‘humanitarian cash transfers’ transform the world of aid.
Cash plays a vital role in our modern economy, particularly among the poor. This is because cash is effectively free, and always works. It is better trusted and more popular, universal and reliable than its digital equivalent. But, more than this, it has value far beyond that which its transaction value alone would imply. It fulfils unique needs. Cash is a public good, whose return on investment benefits all of society. Cash provides protection when the lights go out and acts as a guarantor of civil liberties in the event of an administration abusing its powers. It is also more efficient and less expensive than electronic forms of payment, both for society as a whole and for merchants. According to Deutsche Bank and MasterCard, cash incurs a lower cost per transaction than any other form of payment. This perhaps explains why the British Museum thinks cash as being, “one of the greatest inventions known to man.”
Cash is not reliant on electricity or algorithms. It is un-hackable. With the use of smart cassette technology, it is even un-stealable. It plays a crucial role in acting as a contingency means of payment when disaster strikes, and almost always stimulates market recovery in times of crisis. The world would be a poorer place without cash, as cash promotes both social and financial inclusion. According to the World Bank, cash is more cost-effective at reducing poverty that almost all other forms of aid. And it empowers women in developing countries by increasing decision-making authority. What’s more, “cash fosters economic autonomy” according to an analysis conducted by the Overseas Development Institute.” Income multipliers,” they say, “are also larger when aid is transferred in cash form instead of in kind.”
A society without cash would be no society at all. For a start, it would be less secure. Contrary to popular mythology – and statements put out by lobbyists on behalf of the payments industry – cash and crime is not connected. “Abolishing cash will not eliminate crime,” says a report by Deutsche Bank published in November 2016, “as cash is neither the motivation for crime nor the only way to transfer illicit funds.” This is because other means of storing and transferring illegally obtained assets without leaving much of a trace are already in use, including via alternative transfer systems such as Hawala and virtual currency schemes such as Bitcoin. In addition, the experience of the Euro – where the damage caused by card fraud amounted to €430 million in 2013 versus €32 million’s worth of counterfeit Euro banknotes in circulation – demonstrates that cash is much safer to use than debit cards. Cyber-fraud increases out of all proportion to the cash circulating in society when payments go digital. In this sense, cash is a bulwark against cyber-criminality.
Moving to a so-called ‘cashless’ society poses other risks, too. For the most part, these are political and economic and hinge around the democratisation and privatisation of money.
The most serious of these risks is the threat posed by a digital-only payments system to democracy. Citing cases like M-Pesa in Kenya, the digital lobby argue that mobile technology enables millions of people who would otherwise remain unbanked to benefit from being able to access financial services. What doesn’t get mentioned much is that this same financial inclusion gives the state the power to freeze access to digital money by any person or group it dislikes. This poses a clear and present threat to the social contract between those who govern and their citizens. If you think this a bit alarmist, consider the fate of the Rohingya in Myanmar or the Kurds in Iraq and Turkey.
Electronic payments are also less equitable. Electronic money is private money. Its use generates private revenue through the imposition of user-fees and hidden interchange charges levied by all those involved in the payments cycle. Unlike with cash, which circulates through local markets, digital transactions are one-time and generate fees and surcharges each and every time they are used. A cashless society, in other words, favours a few at the expense of the many.
And finally, there is the loss of privacy connected with digital transacting. This is not a small thing. Anonymity is lost with digital money. The most robust data protection is provided by cash. We have a right to preserve our personal privacy. In today’s digital world, personal data often allows those who can access and analyse our transaction information deep insights into our private lives. Data has become an economic good for which we, the unwitting provider, are not compensated, and which commercial interests are quick to exploit.
Overall, it appears that the significance of physical currency runs deeper than we sometimes assume. It touches upon the relationship between citizen and the state, between those who have and those who have not. The shift to transparent and traceable electronic transacting, with no easily available option left to pay anonymously, can — and already has — opened the door to data abuse and infringement of civil rights. Given the real or perceived importance of cash for civil liberties, any limitation or abolition of cash would need to be justified by tangible public benefits accrued elsewhere. Only then will trust between “we, the people” and those that govern remain intact. Limiting the use of cash risks eroding this trust.
Once these observations have been given due consideration, it is hard to escape the conclusion that the imposition of a cashless society would not just be inequitable, but would be economically and socially backward, even counter-productive.
In response, everyone should have the freedom to decide their own priorities and choose their own financial solutions. By providing freedom of choice, cash instils a sense of dignity, autonomy, and self-worth. Just ask any refugee from Syria, anyone fleeing persecution in northern Nigeria, and the people of Nepal trying to put their lives back together after the earthquakes of 2015.
The world of ‘Big Aid’ should not take the ‘cashless’ lobby for granted. Anybody involved in humanitarian cash transfer programming, social protection, or the drafting of pro-poor financial inclusion policies should be absolutely sure that all payments options are, and always will be, on the table. After all, the price of any ill-thought-through, headlong rush to electronic-only forms of payment will be born by the very people cash payments are designed to help, the poorest in society as it is they that will bear the economic brunt when cash is privatised.
With the ‘cashless society’ fast becoming the new economic frontier, the effects of UN and NGO-led ‘better than cash’ digital transfer policies on low-income and cash-dependent economies need deeper and wider consideration before being indiscriminately introduced through the ‘Trojan Horse’ of humanitarian aid. It is time all parts of the private sector’s ‘cash management industry’, not just electronic payments providers, played a wider role in informing such discussions.