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Cash is a pain. If you are a retailer, you have to go to the bank and get change every business day, count the cash drawer at every teller change and at the end of the day, and secure the cash until you get it back to the bank. In the meantime, you have to be concerned about it being stolen, or accepting counterfeit bills. After all, if you accept a counterfeit bill, you have lost that money.

Paper money does need to be laundered: it is filthy. A 2002 report found pathogens on 94% of the dollar bills tested, and paper money can and will transfer disease from a previous handler to you. Paper money can transport a live flu virus for two weeks, and one report found that a majority of US bills are contaminated by cocaine, directly from the coke-covered hands of drug makers and traffickers, and further distributed by the rollers in ATMs. Restaurants should have signs saying “employees must wash hands after handling cash,” and it is a good rule for everyone.

If you are a government, you like cash even less. You have to design money that is hard to counterfeit, securely manufacture it, distribute it to the Federal Reserve banks and branches (in the US), and they have to release them to the commercial banking system. This is all very expensive. Then you have to have a large infrastructure to investigate and prevent counterfeiting; in the US that is the Secret Service. Just the process of deciding how much money to print is an expensive effort. Worse, cash is untraceable. The government does not know how much is really still in circulation, and can only monitor transactions that are done through a commercial bank, and currently the US only monitors transactions of $10,000 or more.

As an aside, the day that President Abraham Lincoln established the Secret Service, July 5, 1865, was the day that he was assassinated. Congress immediately began to think about adding Presidential Protection to the list of Secret Service duties, and after only two more Presidents were assassinated (Garfield in 1881 and McKinley in 1901) Congress did actually add that protection.

Think how much easier it would be to handle sales and income taxes if all transactions went through financial institutions. The taxes could be automatically taken at the time of the transaction. Tax filing would be a breeze; in fact you really would not need to file anything. The government would send you a summary of all of your contributions to its good works. A federal, state or local taxing authority could change tax rates at any time and have them take effect immediately. Tax evasion becomes much more difficult. Countries like Greece and Italy with huge tax evasion problems might consider this approach. Governments will like these improvements in their cash flow.

Sweden is moving quickly to a cash-free future. More than half of the branches of the country’s leading banks no longer accept or dispense cash. Banks are dismantling ATM’s by the hundreds.

While largely a bottom up phenomenon in this very tech-savvy country, the government is not at all trying to stem the trend or even slow it down. Nonetheless, the Riksbank (Sweden’s central bank) predicts that some cash will still be circulating in 20 years. Cash now represents just 2% of Sweden’s economy, compared with almost 8% in the US and 10% in the Euro Zone. The amount of cash in Sweden’s bank vaults dropped from 8.7 billion kronor in 2010 to 3.6 billion kronor in 2014, a decline of over 60%.

KollektomatEven street beggars accept credit cards or SMS donations in Sweden. At a Filadelfia Stockholm church service, worshipers use cellphones to tithe through a Swedish bank app called Swish to a bank account projected on a huge screen, or line up at a Kollektomat card machine in the church. Last year, only 15% of their donations came in cash.

All of this only works with the Cloud, with all of the “works from anywhere at anytime” benefits and potential security issues.

However, there may be some bad side effects to this cashless society.

  • Older adults or others who are not tech savvy may be at a disadvantage, finding it difficult to ride public transportation or even buy newspapers or food.
  • When you can’t see the cash flowing out of your pocket, it is much easier to fall into a debt hole. It is a lot harder, I think, to pull a $100 bill out of your pocket then swipe a little piece of plastic or click a box on your smart phone.
  • Of course, the cybercriminals are paying attention. The number of financial cybercrime cases has more than doubled in the last ten years in Sweden.

But the biggest social change that will accompany the cash-less world will be in the rise of other forms of anonymous and non-traceable tradable items. Bitcoin is one such decentralized virtual currency, and identified as such by the US Treasury Department. Like most currencies, the value of a bitcoin can vary, but its value is not under the control of any government. Unlike regulated transactions, bitcoin transactions are not protected by any laws.

Some of the earliest adopters of bitcoin were criminals who found it a convenient and “safe” online marketplace for contraband. Allegedly ISIS is using bitcoin to help fund its activities.

The next step will be the expansion of “smart contracts.” A smart contract uses software to monitor and manage a contract, replacing third-party humans like lawyers, and allowing two parties that may not trust each other to have a contract that will “pay off” when and if something happens. This could be something as common as the transfer of real property, or criminal acts including cybercriminal activity or even physical acts including murder. Usually based around bitcoin, payment is anonymous and untraceable.

Criminals and law-abiding citizens will find ways to get around what they perceive as an overpowering or overly intrusive government.

The last word:

I wish you all a happy, peaceful and prosperous 2016. Remember that the world is fair; it just does not care about you.

Comments solicited.

Keep your sense of humor.

Walt.

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