Financial

The True Costs of a "Cashless Economy"

Both the U.S. and the world are moving toward cashless economies. Economists tout the many benefits of the death of cash. Today we explore the hidden costs of such a move, and find them a lot steeper than you might think…

From Peter Reagan at Birch Gold Group

There is a lot of talk in financial circles about the shift in the U.S. economy toward a “cashless society.”

Naturally, there are both benefits and drawbacks to such a radical change.

Because of the required technological progress, many reports focus on the advantages of an economy that goes cashless. For example, the IMF claims outlawing cash would “increase our economic welfare”:

It is worth mentioning that digitalization, technical improvements, and globalization are positive developments that increase our collective economic welfare.

What replaces old-fashioned currency and coins in a cashless society? Digital currency, of course – which does have some benefits. Here’s a summary from Digipay:

You don’t have to track down a bank or ATM.
Convenient to use and can be done from anywhere.
More efficient, as everything is done online through a smartphone.
Reduced business risks thanks to increased security, speed, and record-keeping.
Easier international transactions.
Cashless payments are faster for customers and employees.

If you’re thinking, I already get all these benefits by using my debit/credit card, you’re absolutely correct! Over 95% of Americans currently have the opportunity to use digital payments any time they want.

Surely, there must be some additional benefits to eliminating cash that we don’t already have?

Economist Kenneth Rogoff addresses this point in his book The Curse of Cash:

Because cash is widely used in underground economic activity, he believes the elimination of large denomination notes would help to significantly diminish such criminal activities as tax evasion, the drug trade, illegal immigration, money laundering, human trafficking, bribery of government officials, and even possibly terrorism.

Fair point! Rogoff seems to be ignoring that criminals would simply find another way to bill and collect for their illicit activities. (For all our anti-money-laundering and know-your-customer and suspicious-activity-reporting legislation, criminal activity hasn’t exactly disappeared.)

Compelling as Rogoff’s anti-crime argument might be, it gives me pause.

Historically, the federal government has relied on fear to advance major economic and cultural power shifts. Criminals, terrorists and spies – we all believe they exist, although we almost never see them ourselves. We all support making ourselves and our nation safer from such threats. Right?

What we don’t consider often enough (and government rarely discusses) are the costs a free society pays. Freedom, we all know, isn’t free. Neither is security.

So what’s the price we pay for a cashless economy?

It’s more expensive than you might think…

Digital dollars are easier to print (and destroy)

Rogoff’s second main argument in favor of eliminating cash is a lot less encouraging:

...enhance macroeconomic stability by giving central banks an unconstrained ability to impose negative interest rates.

“Negative interest rates” is how economists describe a direct tax on public savings. Rather than being paid an APY on your savings account, your balance would be reduced monthly.

The existence of cash makes this sort of “economic stimulus” problematic. If interest rates sink to -2% then, hoarding cash becomes profitable (simply because 0% is greater than -2%).

The U.S. has already experimented with near-zero interest rates over the last two decades. We all know how that worked out.

A cashless society empowers the Federal Reserve to intervene not only in markets but also in your bank account directly. Expanding the money supply (aka “money-printing”) is already just a matter of adding zeroes to a number on a spreadsheet. Outlawing cash gives the Fed the power to directly penalize saving.

After all, saving money doesn’t stimulate the economy. It doesn’t employ anyone. Saving money is selfish. It’s your duty as an American citizen to consume! And don’t let your income limit your spending – follow the government’s example! Together, we can borrow and spend our way to prosperity as a nation!

Yes, that’s intended to be satirical. Although it’s actually very close to the core beliefs of Modern Monetary Theory (MMT).

Penalizing those of us who choose to save money is just another means of attempting to control our economic choices. And far from the only one!

“If you have nothing to fear, you have nothing to hide”

That was the unofficial motto of the “All-Russian Extraordinary Commission for Combating Counter-Revolution, Sabotage and Speculation,” usually abbreviated to Cheka – the first of many Soviet secret-police organizations.

Yes, this is relevant! As Dave Ramsey explained:

Privacy also is a big concern for a CBDC because the government would know how you spend your digital dollars. Yep, Uncle Sam would know if you bought bed bug spray or a Nickelback CD. (Both are pretty embarrassing.)

Along with tracking every single purchase you make at the barcode level, Uncle Sam would also know which political causes you supported. And which parties.

If a government department can track and tally every single penny of your finances, and control the flow of digital money, and deny citizens access to the privacy of physical cash… Jim Rickards summarized exactly how that trouble could play out in a recent article:

Once that is achieved, it will be easy for state power to seize and freeze the wealth, or subject it to constant surveillance, taxation and other forms of digital confiscation like negative interest rates.

They can’t do that as long as you can go to your bank and withdraw your cash.

[...] the government can decide you’re an “enemy of the people” or a “MAGA extremist” as Biden threatened in his infamous Philadelphia speech in September 2022.

Once you’re on the enemies list, CBDCs can be used to freeze your bank accounts. This happened to the Freedom Convoy drivers in Canada in January 2022. It can easily happen here.

We might not even recognize the tool created to destroy our economic freedom at first. It wouldn’t be branded with something obvious like “GovCoin,” but rather something innocuous (like CitiBank’s new "Citi Token Services").

That means we have to stay vigilant. We have to ensure we don’t let the remnants of our privacy and economic freedom slip through our fingers.

The role of untrackable, unhackable physical assets

We’ve covered the finer points of a cashless society back when the Fed introduced its new payment processing tech called FedNow. (Which is a terrible name! It sounds like one of those prepared-meal delivery services.)

That was only a few months ago, in August 2023.

The end of cash seems closer than ever. Your bank will treat you like a criminal if you try to withdraw $5,000 in physical cash. A growing number of small business owners (22%) now anticipate a cashless society in the decade ahead – and, despite what it says on your Federal Reserve Notes, historically there are no laws requiring a business to accept cash in payment.

There may be no stopping this trend. But there is still one option for you to limit its impact on your financial future.

Consider diversifying your savings (cash or retirement funds) with physical precious metals like gold and silver. Both metals have been used as currency for thousands of years. Physical gold and silver don’t live in “the cloud” or on a bank’s spreadsheet – they’re some of the extremely rare financial assets that exist exclusively in the real world. They’re untrackable, unhackable and don’t rely on WiFi (or even electricity!) for their utility. It’s smart to have privacy-ensuring options when it comes to your money.

Want to learn more about the benefits of diversifying with precious metals? Get a copy of the free beginner's guide to gold and silver right here.

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