Reducing cash transaction limits is a proposition that many governments around the world have been seriously considering in recent times. In fact, a number of countries—such as France, Spain, and Italy—have already imposed a lower maximum cash transaction size over the past few years.
In Australia, the Coalition government’s introduction of the Currency (Restrictions on the Use of Cash) Bill 2019 has been the center of much discussion recently. The proposed law seeks to limit the use of cash to $10,000 for payments made or accepted by Australian businesses for goods and services, with penalties for breaching the limit potentially including two-year prison sentences and fines of as much as $25,000.
Whilst the bill is far from an outright ban on cash, its tabling by the Australian government has challenged many to think about the implications of a would-be cashless society. Does this have everything to do with governments’ aim of destroying their respective country’s cash-centric black market? Or are there other motives incentivising them to continue advancing toward a cashless world?
TIMING IS EVERYTHING
A big reason why governments such as Australia’s may be pressing for a lower cash transaction limit is to ensure monetary policy doesn’t lose its ability to affect the economy. Indeed, central banks all over the world are dealing with historically low levels of interest rates. With global economic growth decelerating, policymakers know that their ability to stimulate the economy—achieved predominantly by cutting interest rates—may soon not be as effective as it once was. Why? Because of cash.
You see, cash can be thought of as an interest rate floor. That is to say, if central bankers were to cut rates to the zero-lower bound, then the effectiveness of monetary policy would become severely hampered. Think about it: if the Reserve Bank of Australia, for instance, came out and slashed the cash rate to sub-zero levels—with retail banks fully passing on those cuts—everyday Aussies would become financially incentivised to take their money out of their bank account(s) in the form of cash. Afterall, if you flock to cash, you don’t have to pay your bank for holding your money.
This is a big problem for governments and central bankers all across the world right now. In fact, the International Monetary Fund (IMF) devoted a blog post—Cashing In: How to Make Negative Interest Rates Work—to this very issue back toward the start of 2019. “Without cash,” the authors explain, “depositors would have to pay the negative interest rate to keep their money with the bank, making consumption and investment more attractive.”
Aside from curbing the extent to which cash can hinder central banks’ capacity to stimulate the economy, many are suggesting that there is perhaps a far more insidious reason why governments are striving to phase out cash: to increase their surveillance of, and thus control over, citizens.
By forcing people to join the digital economy, governments that eliminate cash would be robbing its citizens of various individual freedoms. In addition to tracking the financial activity of each and every one of its citizens, governments will likely have the capacity to exert significantly more control over the behaviour of its citizens. In more extreme cases, this could result in a number of Orwellian societies in which the behaviours and actions of citizens are influenced by the government’s use of mass surveillance tools and big data analysis technology.
Of course, countries such as Australia are by no means an Orwellian dystopia at present. Moreover, the reduction to a country’s cash transaction limit doesn’t mean law enforcement agencies will all of a sudden start interrogating you on why, for example, you spent [x] amount of dollars on [y]. Know this, though: when it comes to the hot-button issue of phasing out of cash, it’s worth considering points beyond just those related to tax evasion, money laundering, and black market activity.
“If we go to a world where digital cash is the only cash that exists, if we eradicate cash—as so many governments are trying to do—if we eradicate the ability to transact anonymously individual to individual, every government that controls that system could turn off your economic life by flipping one bit. You went to the wrong protest. You voted for the wrong party. You talked to the wrong person on the internet. You no longer exist. You have no income. You can’t buy food. You can’t travel on the trains. You can’t take a plane.” – Andreas Antonopoulos (June 7, 2019)