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In this commentary prepared for RCW Financial, economist Dr. Scott Sumner discusses why governments and banks may be eager to discourage the use of cash, and the resulting potential loss of anonymity and future negative interest rates.
(Irvine, California) — Many governments and banks are discouraging the use of cash, but a problem with a cashless society is a loss of privacy, explains Dr. Scott Sumner, Professor Emeritus of Economics at Bentley University in Waltham, Massachusetts. He points out that Sweden already is moving toward eliminating all coins and paper money, and Italy and Canada are beginning to discourage the use of cash.
Sumner predicts the elimination of cash would make it easier for governments to impose negative interest rates and could lead to increases in values for gold and alternative currency, such as the Bitcoin.
In a commentary prepared on behalf of RCW Financial of Irvine, California, titled, “Why Governments and Banks Want to Eliminate Your Cash,” Sumner wrote about the irony of the push for a cashless society at a time when billions of U.S. dollars are in circulation.
“Surprisingly, despite the increasing use of credit cards, cash holdings are about 8% of gross domestic product, which is actually a larger share of the U.S. economy than a decade ago, indeed even larger than 90 years ago. The amount of cash in circulation (paper currency and coins) is roughly $4,500 for every man, women and child in America. It is believed that roughly half that total is held overseas, but even $2,000 per person would be a surprisingly large figure, far higher than people admit to in government surveys. Ironically, it is this increasing popularity of cash holdings that helps explain why governments are so anxious to discourage the use of cash,” wrote Sumner.
He pointed out that until a few years ago, most economists thought negative interest rates were virtually impossible, but that now is reality in some European countries and Japan.
Another implication of a cashless society is the loss of privacy. “The anonymity of cash is what makes it appealing to many people, but it’s also what makes it increasingly unpopular with governments. They see cash as a way of evading taxes, as well as facilitating drug dealing and other nefarious activities such as terrorism. . . But regardless of how you feel about privacy, this seems to be the direction the world is moving,” Sumner stated.
“The removal of cash would not have a major impact on the overall economy. It would slightly increase the government’s ability to collect taxes, and it would somewhat increase the effectiveness of monetary policy during recessions. Banks would benefit from increased use of credit cards. For investors, it might lead to an increased demand for cash substitutes, such as Bitcoin and precious metals, pushing their price higher.”
Sumner studied economics at the University of Wisconsin and received a PhD from the University of Chicago. He has done extensive research on the role of the gold standard in the Great Depression and is Professor Emeritus of Economics at Bentley University in Waltham, Massachusetts, where he has taught since 1982. Dr. Sumner received national recognition in 2012 as one of the “Top 100 Global Thinkers” by ForeignPolicy.com and was named “The Blogger Who Saved the Economy” by The Atlantic magazine.