Ending Ca$h: The Public Benefits of Federal Electronic Currency

That was the title of a book (by David R. Warwick, Copyright 1998) that caught my eye as I was walking the aisles of my local library.

His thesis is that eliminating physical currency (dollar bills and coins) and making all monetary transactions electronic will vastly reduce crime. I’ve found this argument to be very convincing.

Robberies for cash would become a completely pointless exercise. Thieves could choose to steal jewelry and other valuables and try to sell them, but there would always be a record of the transaction that authorities could trace.

Drug dealing would be vastly less lucrative without an anonymous medium of exchange.

There would no longer be any such thing as “under the table” work. Making it easier to crack down on employers that hire illegal immigrants, and to bust tax evaders.

I can think of one good objection: Privacy concerns. I don’t want authorities to be able to go on fishing expeditions, sorting through everybody’s data willy nilly. But as long as they have a search warrant and probable cause (which is good enough to search a house or wiretap a phone) I’m ok with all monetary transaction being recorded.

A cashless society would also enable the Federal Reserve the ability to implement Negative Interest Rates in extreme cases to spur economic activity.

For example, let’s say John Doe has 10,000 dollars in his account. We’re in a recession, and he naturally wants to sit on that money instead of spend it (because he’s uncertain of whether he’ll keep his job, or his business will be able to prosper in the near future). Slap a -3% interest rate on that, so that after a year of sitting on that money he loses 300 dollars. Because physical currency no longer exists, he doesn’t have the option of stuffing that money under the mattress. The incentive to spend or invest money instead of hold on to it would be increased, which is exactly what the economy needs when it is depressed.

It would make small, person-to-person transfers much harder. Now, admittedly, some of those are criminal, but many are not. Example 1: A couple of friends are watching a football game, and place a couple of dollars on the outcome. Now, this could be handled via smartphones, I suppose, but it’s a lot easier to just put a couple of bills on the table, and not everyone has smartphones, anyway.

Example 2: A guy at the office forgot his wallet (or smartphone or whatever) this morning, and needs some money to buy lunch. I know him and know he’s good for it, so I loan him a ten. How do I do that without cash? I could go with him to wherever he’s eating and say “Put us both on my card”, but what if we’re not eating at the same place? Even if I trust him enough, I can’t just let him borrow my card itself over lunch, since I’ll need to buy my own lunch, too.

I don’t think I would label a coercive, punitive measure as “incentive”. I also don’t like the fact that under this scenario, somehow my money wouldn’t truly be mine, to do with as I wish.

I don’t find the lack of robberies convincing. Desperate people will still mug and buglarize, but instead of getting away with money, they get away with jewelry, electronics, etc. Even if you eliminate cash, all it really does is encourage criminal activity to take place through bartering or using funds from other countries. Even if we did manage to get every country on board, you’re talking billions of transactions. Sure, all the information is there, but datamining that to find patterns to potentially track down illegal activities would be an extremely difficult problem.

How does identity theft work into this? Even if we buy the argument that muggings and burglaries will decrease, we’ve also increased the value of identity theft, so it seems like it would mostly just be a shift away from a sort of blue collar crime toward white collar crime.

There are also, of course, privacy concerns. We may have credit cards now, and most may make all of their purchases with them, but that’s a choice we can make, and we can still choose to make some purchases with other methods or other cards. It’s difficult to really go into how much of an issue this would be without seeing a proposed implementation. Would this be done with a government agency? Would credit cards essentially become federalized? Would it be done with cards, with smart phones, with PINs, some combination or something else entirely?

Crime is not spurred so easily.

Cash itself would be a black market item. I doubt we would be given a two week limit to turn in cash. It would be even more valuable and help the criminals.

You can say exactly the same thing about taxation. Basically we’re debating where exactly to draw the line between the interests of the individual and the interests of society. Once you accept that a level of taxation in excess of 0% is acceptable, it’s a matter of degree rather than of kind.

No it wouldn’t. Let’s suppose that Congress declared that by January 1st, 2020, all physical cash must be redeemed or else it has “expired” and is no longer valid legal currency, and furthermore the posession of these expired dollars will be a crime subject to forfeiture.

You and Warwick seem to assume that crime is always bad. I try to keep in mind that many of history’s greatest individuals were criminals, including Socrates, Jesus Christ and his disciples, Saint Francis of Assisi, Gandhi, Dietrich Boenhoffer, Rev. Martin Luther King, and Nelson Mandela. Would the world be a better place if the government had had the ability to shut down all the financial transactions of Rev. King and other civil rights advocates? One might argue that in the United States today we only treat “real” criminals as criminals, but I don’t see it that way. Just consider how many people are in jail for possessing small amounts of substances that can’t hurt anyone except possibly themselves. In the case of marijuana, the substance may actually be medically useful. Would the world be better if the government could shut down all purchases of marijuana?

How would Martin Luther King or Gandhi have been shut down by this? Gandhi’s symbolic march down to the sea to boil seawater to make salt didn’t involve money. Neither did the “sit ins” at restaurants that refused to serve black people.

Civil disobedience would still be possible in a cashless society. Let’s also remember that we live in a country with basic constitutional protections of Free Speech and Assembly, the right to vote, Habeus Corpus, and the right to be free from Unreasonable Searches and seizures. So to compare our situation with dictatorships is not appropriate.

Even if marijuana is beneficial to many people, and is wrongfully being kept out of the hands of people who truly need it, that still has to be weighed against the terror faced by the victims of 300,000+ robberies a year that could be averted.

A cashless society could actually make legalization more likely, IMHO.

Millions of people smoke marijuana. But only a very tiny fraction of those people bother to write to Congress asking for legalization, or donate any money to legalization groups such as NORML or the Marijuana Policy Project. They are complacent, because for the most part they can obtain weed with little fear of detection. I once tried very hard to convince a pot smoking friend to donate just $5 a month towards MPP or NORML (he spent about $80 a month on weed at the time). He refused to do it, because he didn’t see anything in it for him. If the weed supply completely dried up (or he was forced to personally grow it himself), he and others like him might be more willing to agitate for change.

I heard the late* F. Lee Bailey, who knew a lot about crime, argue the same thing once, at a campus lecture in 1986.
*Breathing, but disbarred.

What of the poor who have trouble getting checking accounts because of their poor credit scores? By what mechanism are they going to be able to take advantage of this new cashless society? Will it end up costing them extra as it does for them to get their checks cashed?

Pretty drastic. What you’d be saying is “for all debts public and private” is in fact a fact lie. I see no time limit on that.

Each dollar represents a unit of economic value that you just reneged on, effectively stealing money right out of my pocket. Why I should I trust the monetary system of a lying thief?

Further let’s say I’m doing something that requires small payments, like a kid with a lawn care business, a garagesale, or something. How can payments be made in a way for those kind of transactions to be convenient as cash?

Further everytime you use paytap, a credit card or whatever you’re risking identity theft. Why should I have to risk having my identity stolen just to get a pop from the pop machine?

It would seem that to avoid this, people would buy things that could be easily sold without too much of a loss. So, I’m thinking that there would develop some sort of alternative store of value, much along the lines of how cigarettes are (or used to be?) the currency of prisons. The obvious choices here would be gold and silver since the number of people who would see it as something outside the pesky hands of the government would only increase. Although it could be something else entirely that serves more or less the same purpose. Now, this would be a pain (use your account to buy some gold then see your drug dealer or whoever, use it to buy stuff, then the dealer goes and sells the gold or perhaps keeps some), but I’m sure someone would be able to figure out something a bit easier. Noncriminals would probably do something similar.

I am not an economist, but there seems to be an incentive to this sort of thing with electronic currency.

This isn’t like taxation because you are talking about taking net earnings (which have already been taxed once) not because those net earnings have been used in a transaction, but because it has not been used in a transaction. That’s not like any tax that I know of.

Ghandi, and the Reverend had to eat. Marches had to be organized, promoted, etc.

There was that whole suing black people for not riding the bigoted buses thing too. How might collection on that judgement had gone if it could be done via software?

Much simpler than that. Since everyone is using in ecurrency all you have to do is steal someone’s data (a rogue vending machine, hacked POS terminal, etc.), and then use their name to buy and sell drugs.

So how would this work, some place like a road side vegetable stand?
Right now, I walk up, pick up 6 ears of corn, hand over $2 and walk away.
So instead, I have to pull out a “money card”. Now I assume that the stall owner has to have bought a reader, and I assume some sort of wireless connectivity, to record the transaction.

So now every gumball machine and vegetable stand has to have a wireless connection and a card reader? Some transactions just work better as cash-and-carry.

They’re not thieves, assuming Congress gives us all ample time to redeem physical currency for electronic currency. There’s already precedent for this. Back in 1933 Congress did something similar with Gold Certificates. Cash could not longer be exchanged for gold, and the private possession of gold was outlawed until 1974.

I think 10 years is plenty of time to give people notice to turn in their cash. Anybody who’s not in a coma or living a cave will hear about the mandate, and will still be able to make use of their money just like they did before.

Remember, they can’t just withdraw bills from an ATM and run away to spend their ill gotten gains anonymously anymore. Every time a thief buys so much as a stick of gum with someone else’s hijacked account, there will be a record of it.