The idea of a cashless society has long been touted by government and bank officials around the world for a variety of regulatory, financial and political reasons. For one, a cashless society would give governments and banks more power over people’s money. For example, the concept of negative interest rates falls apart if everyone is holding physical cash.
Bloomberg recently published an editorial endorsing the cashless society, and The New York Times has reported 20 percent of payments in Sweden are cash based. Additionally, the European Central Bank may soon axe the 500 euro bill. One only needs to do a search for “cashless society” on Google News to see all of the recent activity on this front.
Why Move Away from Cash?
There are a variety of reasons why some individuals would like to see a move to a cashless society. Some of these have to do with enhancing the ability for a government to control the economy, while others are about nothing more than enabling more efficient payments around the globe. Here are a few recent reasons given for moving away from cash (in no particular order):
- Negative interest rates – Negative interest rates have already been implemented in Japan and a few countries in Europe, and Federal Reserve Chairwoman Janet Yellen recently stated the policy is not off the table in the United States if the economy were to become much weaker. In a cashless society, it would be more difficult for savers to avoid these negative rates, which would be viewed as a positive by central banks around the world.
- More control over the citizenry’s money – There are a variety of other government policies that are only made possible — or at least more practical — by the digitization of money. It’s much easier to pull off a bail-in, enact capital controls, collect taxes and generally control where money goes when it’s all ones and zeros in a centralized ledger.
- Terrorist financing, money laundering and other bad things – The reported use of the 500 euro bill by terrorist organizations and other bad actors is the main reason its existence is currently under review. Physical cash’s anonymous nature makes it attractive for illegal economic interactions. A completely digital monetary system would allow governments to track every fiat-denominated transaction with precision.
- Convenience – Digital payment options are also simply more convenient than cash. The Internet allows individuals to send money across long distances, and swiping a card is less cumbersome than fiddling with nickels and dimes.
- Lower costs – Issuing digital currency also comes with lower costs than printing physical cash.
Bitcoin as Digital Gold
From the average person’s perspective, there are both positive and negative aspects of a cashless society. Loss of privacy and a lack of control over one’s own money are the main concerns, while the lower costs and convenience associated with virtual currencies can be attractive. As a digital asset, Bitcoin has the potential to help individuals fight against the potential downsides of a cashless society.
Without Bitcoin, a cashless society sounds like a rather Orwellian situation. In a world of government-issued digital currencies, governments essentially have the ability to track every transaction, and they can also reverse transactions or reallocate funds whenever they deem it necessary.
Gold is often viewed as a hedge against overreaching governments (usually as a way to avoid the inflation tax); however, gold’s physical form limits its usefulness in a digital age. Bitcoin is often referred to as a form of digital gold, and this role of the cryptocurrency becomes much more obvious in a cashless society. Bitcoin allows individuals to avoid payment censorship, fiat currency devaluations, heavy taxation, bail-ins, capital controls, financial surveillance (once privacy improvements are added), and many other negative aspects of virtual fiat currencies.
Unlike gold, bitcoins can be transferred to anyone else in the world who has access to the Internet in a matter of minutes. Governments also have a tendency to shut down gold-backed virtual currencies, which is one of the reasons Bitcoin was created in the first place. The fact that virtual gold currencies require the backing of a third party is a security hole. In the past, as CypherpunkNick Szabo has explained, Bitcoin is also more secure than gold.
Bitcoin Is Not Without Its Flaws
While Bitcoin has many advantages over gold, it is not without its own flaws. Price volatility and the complexities involved with simply understanding how Bitcoin works are two disadvantages of the system — at least in the eyes of the general public. Having said that, users are willing to move to a new system when it is the best available option. For example, people who did not know about Bitcoin in 2011 learned how to use it because they wanted to shop on the less-censored Silk Road or make a donation to Wikileaks.
As physical cash becomes less prevalent and more of the economy moves to the digital world, Bitcoin could be poised to play a vital role as a hedge against various governments’ economic and monetary policies.
Kyle Torpey is a freelance journalist who has been following Bitcoin since 2011. His work has been featured on VICE Motherboard, Business Insider, RT’s Keiser Report, and many other media outlets. You can follow @kyletorpey on Twitter.