Zlatkova 1

Simona Zlatkova
Prof. Steven Sullivan
ECO 212 Money and Banking
31 October 2016
The article Emptying the tills makes a few arguments supporting the establishment
of a cashless society. Nowadays, the topic about the ban of currency and coins promotes a
heated debate dividing the general public in two opposing groups: cash-lovers and cashaverse. The article Why our looming cashless society will come at a devastating cost does
not refute that cashless forms of payment have some advantages, but it stimulates the reader
to look beyond the luster surface where a few disadvantages, inherent in cashless society,
may turn into big problems (Taylor).
The Economists article points out that technologically oriented countries are more
likely to abandon currency and coins. Moreover, in regions where the population density is
low, cashless forms of payment offer a convenient alternative to the conventional way of
payment. For example, in Canada the average density is 4 people per sq. km
(data.worldbank.org). The last Canadian census, conducted in 2014, shows that 18.35 percent
of total population live in rural areas (tradingeconomics.com). For these people establishment
of cashless society will decrease many explicit and implicit costs incurred by the use of cash.
Moreover, Emptying the tills shows that the managing of cash incurs many costs ranging
from its counting to its guarding. According to the article, around 0.5-1% of GDP a year is
allocated to this activity. The author extends his argument against cash stating that it
supplements tax evasion and illicit activities. However, nobody can guarantee that
cryptocurrencies may not have the same function. Because they are not issued by a central
authority, their anonymous feature makes them a perfect host for illicit activities such as tax
evasion and money laundering. Moreover, cryptocurrencies are susceptible to hacking. For

Zlatkova 2
instance, Bitcoin has been a victim to over 40 thefts, some of which exceeded $1 million
(Cryptocurrency, investopedia.com)
The Herald Suns article asserts that we are moving at lightning speed towards a
cashless society but the consequences will at once be brilliant and grave. For instance,
cashless forms of payment such as tap-and-go card systems are faster than an exchange of
currency and coins. Moreover, every time we click, tap, or slide to buy something we expose
personal information which may turn into a powerful weapon in the greedy hands of banks.
Suppose that you want to buy health insurance and you are looking for the most profitable
healthcare plan. You do not have any health problems. Nevertheless, recently you have
started to smoke two packs of cigarettes a day. Probably, in the long run this habit will result
in serious health problems. However, at this point in time you are entirely healthy. Because
you are cash-averse, you usually pay with your credit card. Every time you slide it through
the machine, you give information about your habits to the bank. Large commercial banks
have millions of customers which means information about the preferences and habits of
millions of people. For you, it may not be essential to know what your colleague or neighbor
eats or likes but for big corporations such kind of information is pivotal for the use of price
discrimination. If the company knows more about your preferences, it will charge you with
higher prices for your preferable goods, increasing its profit tremendously. Because of this
fact, corporations may pay millions of dollars to banks to supply them with information about
the purchases of their clientele. So if your bank decides to do this and sell personal
information to health insurance companies, you may receive higher price for the chosen
health program because the insurance company has information about your relatively new
habit which may turn into an economic loss for it in the long run. However, if you used notes
and coins, neither the bank nor the insurance company would have information about your
habits, probably resulting in a lower price charged for the same health program.

Zlatkova 3
The author of Why our looming cashless society will come at a devastating cost
points out that the abandonment of cash system by decree yields the biggest economic
advantage for the banks. They will no longer need staff, space, equipment, and infrastructure
to manage the cash. However, the mass dismissal of employee is likely to result in structural
unemployment which will incur many additional costs to the government (social benefits,
etc.). Their effect will offset the benefit of the saved 0.5-1% of GDP, used for the cash
management.
The Herald Suns article makes the point that cashless society will supplement the
adoption of negative interest rate policy (NIRP). NIRP has increased its popularity since 2008
when many central bankers realized that once the interest rate is close to zero their options for
further actions are limited. Due to this fact, they started to see negative interest rate as a
possible remedy to cure the economy. NIRP is beneficial for borrowers because their
payments accrue to less than the original debt while savers deposits shrink. The aim of
negative interest rate is to stimulate consumption and borrowing in the same way like
conventional monetary policy tools. However, the existence of cash dilutes its effect. Suppose
that you are saver and the interest rate falls below zero. In this case, you will withdraw your
funds and convert them into cash. Most of the savers will take the same action as you because
nobody will watch how their deposits shrink. A huge amount of sums might be withdrawn,
making it difficult for banks to issue loans. As a result, NIRP is entirely defeated.
Nevertheless, in one cashless society savers will be unable to withdraw their funds. Without
notes and coins, savers will be free to move their money between banks but not away from
them. Central banks increase their arsenal of monetary policy tools at the savers expense.
Moreover, in practice NIRP has proven to be inefficient. For example, the Bank of Japan set a
negative interest rate in January, 2016. Nevertheless, six months later, the Japanese economy
showed no signs of growth. Conditions aggravated so much that in June 2016 the Japan's

Zlatkova 4
largest private bank announced its exit from the Japanese bond markets because the Bank of
Japans interference made them unstable (Sean Ross, Why Negative Interest Rates Are Still
Not Working in Japan, investopedia.com). The lack of cash may stop savers to withdraw
their money but it cant stop the banks.
The establishment of cashless society without any notes and coins sounds too
unrealistic. Paper money can be used at any point in time. On the other hand, the money in an
account balance can come into use only when the transaction is approved by the financial
institution. However, there is no guarantee that all transactions will receive approval. For
example, political organizations against the government may not have an easy access to their
funds. Before the implementation of entirely cashless society by decree, aspects like these
should be taken into consideration because in many cases the complete dependence on
financial institutions puts our freedom at risk. In the dystopia without cash, our saving may
shrink instantaneously and some transactions may not be permitted if they go against the
interests of central authorities. For Hayek socialism was the road to serfdom, but in the
modern world the establishment of entirely cashless society may be this road (The Road to
Serfdom).

Zlatkova 5

Works Cited
"Cryptocurrency." Investopedia. 2013. Web. 29 Oct. 2016.
Hayek, Friedrich A. Von. The Road to Serfdom. Chicago, IL: U of Chicago, 1944. Print.
"Negative Interest Rate Policy (NIRP)." Investopedia. 2016. Web. 29 Oct. 2016.
"Population Density (people per Sq. Km of Land Area)." Data. Web. 29 Oct. 2016.
Ross, Sean. "Why Negative Interest Rates Are Still Not Working in Japan." Investopedia. 7
Aug. 2016. Web. 29 Oct. 2016.
"RURAL POPULATION (% OF TOTAL POPULATION) IN CANADA." RURAL
POPULATION (% OF TOTAL POPULATION) IN CANADA. Web. 29 Oct. 2016.
Taylor, Peter. "Why Australias Looming Cashless Society Will Come at a devastating cost"
Herald Sun. 1 Aug. 2016. Web. 29 Oct. 2016.