Many arguments are being presented, by as many concerned parties, as incentives to move on from cash and turn our societies into cashless economies. Among the most vocal critics of hard currency, banks argue that cash-less is safer and better than cash-full. But Dr Joseph Salerno, economist and professor at the Lubin School of Business and Pace University, suspects hidden motives behind the banks’ agenda.
The slow push of cash towards the cliff
Banks around the world have been advocating for the suppression of cash for many years and have scored a few successes, in various forms. Slow and steady pressure has shifted economic ways and pressed customers to increasingly resort to electronic forms of payments, while simultaneous lobbying efforts with government and tax authorities has gradually tightened the grip on currency. Dr Joseph Salerno has been studying the discreet economic trend, in order to detect where it shows the most vitality, and which hidden motives could be hidden behind it. In 2012, he wrote: “The relentless war against cash payments waged by governments worldwide has perhaps gone furthest in Scandinavia. The ostensible reason given by our rulers for suppressing cash is to keep society safe from terrorists, tax evaders, money launderers, drug cartels and sundry other villains, real or imagined.”
The lobbying method has been detected by other economists and political analysts, such as Guardian reporter Paul Mason, who writes: “Among central bankers, that frown has become a scowl. There is a “war on cash” in the offing – but it has nothing to do with boosting our ease of payment or saving trees”, referring to how banks are making it increasingly difficult to use cash. His colleague Brett Scott describes the strategy: “In behavioral economics this is referred to as “nudging”. If a powerful institution wants to make people choose a certain thing, the best strategy is to make it difficult to choose the alternative.” So far, banks have encountered relative success in several countries, namely Sweden, Denmark, Singapore, India, and France. The amount of energy spent supporting the slow-burning reform has raised Dr Salerno’s suspicions as to which unsaid motives could hide in the back of bankers’ minds.
The loss of earnings
Current bank fees traditionally range between 1 and 3%, according to the transaction volume, on each payment. This type of revenue is the best kind: it is automated (meaning no manpower expenses are behind it, reducing cost of sales to practically zero), it is invisible upon purchase, and the cost is born by the seller. The buyer is therefore unlikely to complain about it, and the seller must accept it, as a condition of his or her own revenue. The increasing use of debit cards over the past decades has therefore created an immense stream of automated revenue for banks, but which has always been capped by the residual share of purchases made in cash. In order to push that limit further, Doctor Salerno suspects banks and financial service providers have been thinking up ways to eradicate cash out of normal behavior, so as to expand profits. Niklas Arvidsson, professor at the KTH Royal Institute of Technology, concurs: “We might end up in a situation [where] a few commercial banks have a lot of power. The counterforce against that is the growth of tech companies, developing services that can compete with banks, and hopefully will get still a very competitive market where we don’t see oligopolistic profit.” The great majority of the world’s money, whichranges in the quadrillions, is already held by banks, with a mere estimated 5 trillion left in cash – a very marginal share, but appetizing to banks.
Locking money into the vault
The recent downfall of interest rates has created a new type of bank run risk, which has banks deeply concerned. Unlike traditional bank runs, in which customers quickly withdraw their funds from a specific bank which they no longer trust, the current threat is that customers no longer have any incentive of leaving their savings in any bank, with such low interest rates. CNBC Yen Nee Lee confirms: “In the financial year ended March 2017, more than half of those banks lost money on that business segment […] Their margins are also squeezed by the Bank of Japan’s long-running negative interest rate policy. Regional lenders, which together account for around 40 percent of Japan’s outstanding loans, have turned to other businesses such as securities trading to boost their bottom lines.”
So why would governments go along with such a blatantly self-serving strategy, from banks? According to Dr Salerno, who writes on the 2015 Louisiana law which makes cash transactions for second-hand goods illegal, “the aim of the bill is not to aid law enforcement in apprehending criminals, none of whom would be ever stupid enough to turn over such information. The real intent is to feed government’s insatiable hunger for tax revenues by completely stripping law-abiding citizens of financial privacy in secondhand transactions, every detail of which is fed directly into police files.” He therefore surmises, like many other experts in the field, that banks have no trouble convincing the State to go along with the push, because both parties would then see their power increase.
Doctor Salerno sees a fundamental difference between the current situation, in which many purchases around the world are made in cash every day, and the banks’ proposed evolution where banknotes would be eliminated. In the current state of affairs, the share of the wealth which is under the form of cash is outside the bank’s radar, making it unprofitable. Moreover, what money is stored within banks can be withdrawn under the form of cash- placing a limit on the bank’s power. If banks manage to persuade governments to stop printing cash, citizens will be locked into the banking system, entirely subjected to their power, with nowhere to go.