Why Eliminate Cash?
Cash can be used in criminal activities such as money laundering and tax evasion because it is difficult to trace. Digital transactions or electronic money create an audit trail for law enforcement and financial institutions and can aid governments in economic policymaking. Transactions using digital money reduce costs and create transparency in an individual's spending and savings habits.
Key Takeaways
- Cash can play a role in criminal activities such as money laundering and tax evasion.
- Using digital money prevents the transfer of physical money, and all transactions are handled using computers and the internet.
- In the United States, any financial institution that receives a cash deposit of more than $10,000 must report it to the IRS, making tracking and tracing illegal activity easier.
- The Federal Reserve has been exploring the use of a Central Bank Digital Currency (CBDC).
The "War on Cash"
In 2016, the European Central Bank (ECB) eliminated the production of its €500 notes to curb fraud and money laundering. The note was the second-largest denomination across the euro currency zone, and the ECB claimed that it was the banknote of choice among criminals. At the time of the ECB's announcement, the €500 bills in circulation represented one-third of all the euro-denominated cash outstanding.
Since 2016, global policies have been implemented to thwart the use of cash in favor of digital currency transactions. In the United States, any financial institution that receives a cash deposit of more than $10,000 must report it to the IRS, making tracing illegal activity easier.
Promoting and tracking digital transactions amounts to a war on cash. Digital money is instead promoted because it keeps cash from being used. Transactions are handled by computers via the internet rather than passing through anyone's hands. Critics argue that limiting the use of cash and forcing individuals to pay through banks or credit card companies compromise financial privacy, prevent interest accumulation on saved cash, and limit profits of small business owners who often rely on cash sales.
Limiting Cash Savings
Because hoarding cash usinglarge valued notes is easy, a central bank may implement a monetary policy such as a negative interest rate policy (NIRP). A negative interest rate policy (NIRP) occurs when a central bank sets its target nominal interest rate at less than zero percent to discourage cash savings and promote spending. Limiting cash savings may also reduce bank runs during financial turmoil, such as the 2007-2008 financial crisis.
CBDC and Cryptocurrency
In the United States, Federal Reserve notes or physical currency is the money available to the general public. However, to keep up with advancements in blockchain and cryptocurrency, the Fed has been exploring a Central Bank Digital Currency (CBDC). Managed by the Federal Reserve, a CBDC would allow for digital payments and tracking of transactions and provide the safest digital asset available to citizens with no associated credit or liquidity risk.
In 2024, more than 130 countries have explored using a Central Bank Digital Currency.
Governments that introduce a CBDC enable a war on cash and cryptocurrency. Cryptocurrenciesare virtual currencies and individual monetary units, convertible into fiat currency at a variable rate determined by supply and demand, but their use and value are not monitored or guaranteed by any agency.
Will CBDC Replace Cash?
Many countries are researching and developing CBDC programs. Developed nations have already begun transitioning away from physical cash, so it's not unrealistic to believe that CBDCs will soon replace it.
Is CBDC Coming to the US?
The Federal Reserve is researching CBDCs for use in the U.S. but has not announced any intentions to release one.
Is CDBC a Cryptocurrency?
CBDCs use many of the same concepts as cryptocurrency, but they are not cryptocurrencies. A CBDC would be issued by a centralized government agency and recognized by a government as legal tender, while cryptocurrencies are not.
The Bottom Line
A "war on cash" is defined as the use and promotion of digital currency. Cash is often traced to criminal activities such as money laundering and tax evasion. Using digital money creates a data trail as all transactions are handled using computers and the internet. As of April 2024, many countries, including the United States, have been exploring the use of Central Bank Digital Currency (CBDC).
FAQs
Why Eliminate Cash? Cash can be used in criminal activities such as money laundering and tax evasion because it is difficult to trace. Digital transactions or electronic money create an audit trail for law enforcement and financial institutions and can aid governments in economic policymaking.
Why should cash not be eliminated? ›
Eliminating cash would mean giving up some of our financial privacy, as the government and data-hungry companies could more easily snoop on our daily lives.
Why should we be a cashless society? ›
The advantages to cashless societies might include reduced physical crime (since there's no tangible money to steal), lower transaction costs, and the convenience of not needing to carry cash. However, cashless societies have challenges, too.
Will the US ever become a cashless society? ›
Similar rates have been recorded across other Scandinavian nations, while Hong Kong predicts cash will account for only 1.6% of point-of-sale (POS) transactions by 2024. But despite this global shift away from tangible currency, the US isn't likely to transition officially any time soon.
What are the cons of getting rid of cash? ›
The downsides of going cashless include less privacy, greater exposure to hacking, technological dependency, magnifying economic inequality, and more. Credit and debit cards, electronic payment apps, mobile payment services, and virtual currencies in use today could pave the way to a fully cashless society.
What are the pros and cons of getting rid of cash? ›
People with low income or debt tend to find cash easier to manage too. Another potential disadvantage concerns security. Although abandoning cash helps to reduce theft and fraud, for many consumers, data and cybersecurity issues are a worry — with justification.
Why is cashless bad? ›
With no cash system to fall back on, these kinds of security threats could potentially be devastating in a cashless society. The risk of other crimes such as identity theft, account takeovers, and fraudulent transactions will also increase when digital payments become the only option.
Is cashless good or bad? ›
Saves Money and Time
A cashless transaction involves no paperwork or manual labour and hence cuts salary costs and unnecessary paperwork. Cashless transactions include wire money transfers, online payment channel payments and the use of debit and credit cards at retail outlets or e-commerce portals.
Is America trying to go cashless? ›
It might be said that the US is headed toward a cashless society. Some small businesses have even put up signs saying that they no longer accept cash, another factor that's driving this change. Cash payments can take longer, limit potential sales, and open up businesses to the possibility of an audit.
Why are people angry about cashless? ›
Businesses that ask for cashless payments are facing backlash and boycotts from a section of the community that believes refusing to take cash is an infringement of their personal rights.
Poor people who rely on cash to ensure that they budget properly. Anyone in an abusive relationship who may lose financial independence without access to cash. People with physical or mental health problems who find using digital services difficult.
What would happen if the US went cashless? ›
While a cashless system would likely make it easier to track the transactions and freeze the accounts of certain criminals, the lack of an easy, cash alternative would likely push many larger criminal organizations into offshore banking, Bitcoin-style currencies, and other sophisticated digital tricks that would make ...
Is China now a cashless society? ›
“China is one of the top countries for using cashless payment systems, but penetration is not 100%,” says Sara Hsu, an associate professor at the University of Tennessee, specialising in supply chain management. “Elderly Chinese still often prefer to pay with cash and some struggle with using mobile payments.”
Is it bad to keep cash at home? ›
While it's perfectly OK to keep some cash at home, storing a large amount of funds in your house has two significant disadvantages: The money can be lost or stolen. Hiding cash under the mattress, behind a picture frame or anywhere in your house always carries the risk of it being misplaced, damaged or stolen.
Why is it illegal to have too much cash? ›
Having large amounts of cash is not illegal, but it can easily lead to trouble. Law enforcement officers can seize the cash and try to keep it by filing a forfeiture action, claiming that the cash is proceeds of illegal activity. And criminal charges for the federal crime of “structuring” are becoming more common.
Will digital currency replace cash? ›
Will a U.S. CBDC replace cash or paper currency? The Federal Reserve is committed to ensuring the continued safety and availability of cash and is considering a CBDC as a means to expand safe payment options, not to reduce or replace them.
Why is cash still necessary? ›
Cash can be used by all and accepted by all. It is inclusive. It does not require a bank account or a device by either party to a transaction.
Why should we still use cash? ›
It ensures your freedom and autonomy. Banknotes and coins are the only form of money that people can keep without involving a third party. You don't need access to equipment, the internet or electricity to pay with cash, meaning it can be used when the power is down or if you lose your card. It's legal tender.
Is there any reason to keep cash? ›
Reasons people keep cash at home include emergency preparedness, financial privacy concerns and mistrust of banks.
Why you should always carry cash? ›
Cash allows you to purchase essential items like food, water, and medical supplies when electronic means of payment are unavailable. Cash can also serve as a backup in instances of identity theft or fraud, offering an alternative means of payment while resolving any issues that may arise.
