Do you smell the smokey scent of burning paper? That's the beginning of the impending War On Cash.
A recent editorial that appeared on Bloomberg Business today boldly declares, "Bring On the Cashless Future." In reference to the growing push for fully digital currencies to replace other forms of money, the editorial staff extols the potential benefits of what amounts to virtualizing the money supply.
Benefits for whom? you may ask. The answer, of course, is the monetary authorities (central banks) themselves. Hence, the War On Cash.
Idea Behind Digital Currency
The notion of digital currencies has been gaining popularity over the last several years, especially as a way to conduct business outside of the traditional financial system. This is where cryptocurrencies like Bitcoin have thrived: People see these new private, peer-to-peer currencies as a way to circumvent unwanted oversight and interference by the government.
Some of the advantages of digital money in general are obvious. They cut costs when it comes to creating, distributing, and exchanging money. They are more convenient, and can be accessed or move around instantly. They also greatly eliminate the need for items such as wallets, safes, and vaults for storing all that cash.
Concerns about the security and safety of such currencies are their primary drawbacks. How does one save or protect money that's only stored on a computer? How is it kept out of the hands of sophisticated computer hackers?
Also: Would there be competing currencies? Some have suggested that there could be different digital currencies for different functions—one for retail commerce, one for paying taxes, one for savings. How would such a system work? These are just some of the unanswered questions surrounding digital currency, but that hasn't dampened the pursuit of the War On Cash.
War On Cash: Imagining a Cashless System
In some ways, we already use digital currencies when we use electronic forms of payment. However, this differs from a real digital currency because it still represents "real dollars" rather than something entirely abstract. It is still directly in line with the value of the paper cash or coins you can hold in your hand, and is only represented digitally on the screen.
Yet a government-issued digital currency is another animal entirely. It would not be decentralized and (necessarily) peer-to-peer like Bitcoin is. Any digital currencies issued by governments would still be fiat currencies, nonetheless. Ultimately, it would give central banks even more control over our money.
It would make it eminently easier for governments to collect taxes by any means they deem appropriate. Moneyweek's John Stepek puts it like this:
"The idea of forcing people to pay what they 'should' rather than constructing a tax system that actually works might appeal to certain types of government. And it becomes a lot easier to enforce when you have wealth largely stored in an entirely digital, traceable currency that can be stopped or confiscated at source by the government." [emphasis added]
Each and every transaction would be tracked and, theoretically, funds could be drawn down from your account automatically in a snap. Banks technically have the capability to drain your electronic account balance already today, but there's no rule preventing you from keeping some of your money elsewhere. In a truly cashless society, the alternative of holding hard cash would be effectively eliminated.
The War On Cash is essentially a move toward greater centralization of power over our money into the hands of bankers. (Not to be confused with the Currency Wars, which are fought between different economies.) However, one thing is certain: If we are rapidly headed toward a cashless society, holding tangible assets with intrinsic value (like precious metals) will become an even more imperative way to back up one's wealth.
It gives new meaning to the phrase uttered by American business magnate J.P. Morgan: "Gold is money; everything else is credit."
The opinions and forecasts herein are provided solely for informational purposes, and should not be used or construed as an offer, solicitation, or recommendation to buy or sell any product.