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Should we be banning cashless businesses?

Three years ago I wrote about how I was one step closer to not only going cashless — I had pretty much already done that — but also going walletless. (That’s one of the things about writing a daily blog — there’s a public record.) I still carry a wallet in most cases, but I couldn’t tell you the last time I paid for something using cash here in Toronto. It was probably at a Vietnamese restaurant.

I did, however, notice on my trip last month that Germany and Austria are still quite reliant on cash. Many places only accepted cash and many places wouldn’t accept credit cards under a certain minimum spend. Fewer opportunities to just tap as well. I had forgotten how annoying it was to carry around lots of coins. You really need a change purse.

Still, a paradigm shift has taken place. And because of this shift, there’s a growing movement in cities toward banning cash-free businesses. Philadelphia, Chicago, San Francisco, New York City, and Washington, DC are all working on policy. The concern is that not accepting cash discriminates against lower-income patrons.

According to the Federal Deposit Insurance Corporation (FIDC), approximately 8.4 million US households (6.5% of all households) were “unbanked” in 2017. This means that no one in the household had either a checking or savings account.

An additional 24.2 million US households (additional 18.7% of all households) are estimated to be “underbanked”, meaning they have at least one account at an insured institution, but they also rely on outside financial products — such as payday loans.

When surveyed, somewhere around half tend to cite “not having enough money” as one of the reasons for being “unbanked.” But the good news is that the percentage of people without a bank account seems to be declining (see above chart).

This is important because we all know where things are headed. And banning cashless businesses isn’t going to stop that march. There are deeper issues that need to be addressed. Here is an excerpt from a recent CityLab article on the topic:

“I certainly don’t think [this bill] is the right long-term solution,” said Rogoff. “The future does not lie in this direction. The future lies in giving people free debit cards and financial inclusion.” He cited the case of India. The country launched a program to decrease the number of unbanked and saw the percentage decrease from 47 percent of adults in 2014 to 20 percent unbanked in 2017 according to the World Bank Global Findex Report. “If India can manage to give people free debit cards, so can the U.S.” Rogoff said.

Kenneth Rogoff is a professor of public policy at Harvard University, the former chief economist of the IMF, and author of The Curse of Cash. If you’re interested in this topic, his book may be a good one to check out.

6 Comments

  1. Kevin in WI

    You mention the social angle (helping the unbanked), but you don’t mention the libertarian angle, which is that some folks don’t want everything they do, regardless of how insignificant, to be traceable through a transaction log. Cash, as a transportable asset, also means independence and freedom.

    Liked by 2 people

  2. Rita Brooks

    If you look at who’s pushing this “paradigm shift” from cash towards digital transactions, you find a who’s who from the World Economic Forum (eg: Gates/Ford Foundation, Citi, Visa, MasterCard, Google, McKinsey, Boston Consulting Group) backed by some heavy hitters in the US financial sector (PayPal, Visa, MasterCard, Citi, eBay) who stand to profit from the mark up on digital payments.

    A recent report on the digitalization of the Indian payment system, Norbert Haring (economist, business writer) noted that Boston Consulting Group and Google urged payment providers to “Mine customer data to build additional revenue streams.” They promise that mining customer data will help them to manipulate consumers into buying more. “Payments will drive consumption – and not the other way around.”

    In other words, “Control digital payments (and remove cash), you can control and monitor everything a country and its citizens do and pay for.”

    It’s weird that Rogof used India as the answer because it was not a “success” story, at least not for the people it was supposed to help:
    “Securing payments that accrue from each digital transaction would of course be very financially lucrative for the financial institutions pushing for a cashless world. However, for a low income country such as India, which runs on cash, the outcomes so far have been catastrophic for hundreds of millions of people, especially those who don’t have a bank account (almost half the population) or do not even have easy access to a bank.”

    The sharp increase in penetration of accounts notwithstanding, the worrying aspect for India, as per the report, is that the country has among the highest rates of dormant accounts in the world – that is, no deposit or withdrawal in the past 12 months – this means not only that their account had no cash deposits or withdrawals, but also that it had no electronic wage deposits and no electronic payments or purchases.

    Demonetisation used the Indian population as a collective guinea pig to see how far the interests of international finance capital could be secured. The ultimate aim seems to be to displace the informal (i.e. cash-based and self-organised) economy with Western corporations and with supply chains controlled by them.”
    [Indian Independence: Forged in Washington? By Colin Todhunter, Demonetisation and International Capital]

    The thing is, for a lot of poor people, cash is a very accessible, reliable and cheap technology and if it’s taken from them, as happened in India, they will be worse off. The payment providers however will benefit.

    Like

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