In the first part of this guide I looked at the properties of cash that associate it with crime. Today I look at negative interest rates, credit card providers and politicians.
Cash vs economic meddlers
In times of recession, governments and central banks would prefer people not to have their money sitting around as deposits but instead to spend it. It doesn’t have to become cash; they just want it on the move. Reducing interest rates is the lever they pull but when rates are already low or zero, they contemplate negative interest rates. In other words, penalising you for keeping money in the bank. In a negative interest rate scenario, your £100 deposit would diminish to, say, £90 after a year. Dressed up in financial jargon, negative interest rates are expropriation: the taking of private property by the state for public use. For the Left this is a good thing, not so much on the libertarian Right.
States such as Sweden and Japan have tried negative rates but whether it worked as intended is moot, there are so many cofounding variables. Advocates of sound, non-fiat currencies would argue that inflation gives the same expropriating outcome because if you measure the value of your deposit by the goods and services it can purchase when you deposit it, then after a year of inflation it buys fewer goods and less services. Your deposit has effectively reduced in value without being reduced by an expropriating negative interest charge. Advocates of negative interest rate policies argue that they could be the fastest way out of a deep inflation induced recession, therefore reducing the total expropriation. The problem they have is that with all that cash in circulation and therefore immune from interest rates, their interest manipulation is less effective. This, then, is commonly seen as the real motivation behind the drive to eliminate cash, so central bankers can penalise savers for being in a recession.
Cash vs card providers
Economists might argue for less cash in society but credit card companies want to go the whole hog and eliminate it entirely. As a consumer you don’t see it but the card companies take a fee on every transaction. Card companies therefore want as many of the world’s transactions as possible to flow through their businesses. Visa has a stated aim of “putting cash out of business” and it has been caught offering retailers incentives to not take cash.
For the banks and card companies, they cannot see why anyone would not want to be their customer. Without cash we would have no choice, unless CBDCs get going. If the companies stuck to their job then that might be reasonable but like everything else in the corporate world they are all going woke. This can make being a customer of theirs annoying, or in the case of Nigel Farage, impossible. Deprecating cash boosts banks’ revenue but makes life very difficult for the unbanked, as I discussed the previous article.
Cash vs apathy
Who is speaking up for cash? Its producer, the Bank of England (BoE), shows all the arrogance and apathy of a public sector monopolist. Compare the marketing approaches of the BoE with Visa or PayPal. There are industry bodies such as the International Currency Association, but its heart doesn’t seem to be in it. Its X account currently contains zero tweets. Such apathy and imbalance in marketing between the BoE and the private sector alternatives has led to a loss of control of the narrative, leaving a void for conspiracy theorists. Take cashisfreedom.uk, distributing leaflets on high streets and renting billboard space. It is mainly animated through an ignorance of CBDCs, but if you would like to support it you can head over to its website, where you will find it does not take payment in cash.
Cash vs the internet
Cash does not work online. Sending cash by post might work for purchasers but it does not scale for the retailers. The Daily Sceptic is not going to offer cash remittances any time soon and Substack would not be possible in a world solely run on cash. Solving the problem of sending payments to remote retailers and service providers kicked off the eCommerce industry over 40 years ago. It has grown to a $6.3 trillion industry and is still growing at 10% per year. That is $6.3tn of commerce that could not happen with cash, so those arguing that electronic payments encourage economic growth have a point.
Why has cash not kept up? If newspapers, retailers or politicians had not embraced the online world they would all be out of business. Cash, or rather its public sector custodians, appear to think the internet and e-commerce is either a passing fad or is something other people do. When the BoE admits that there is a “need” for CBDCs, this is what it is referring to. This should be more than an issue for obscure lobbyists but there is barely a politics of online cash. Could any political party point to a policy? Farage’s recent pronouncements on GB News have him siding with the CBDC critics who suspect foul play. The House of Lords Economic Affairs Committee shows its disconnection from reality with reports such as ‘CBDCs: A solution in search of a problem?‘ Parliament’s Treasury Committee managed to say “it is likely that the digital pound will be needed in the future”, and urged the BoE to proceed with caution. MPs show an uncharacteristically anti-technocratic streak when they have to look at what the BoE is doing. This from the Chair of the Treasury Committee:
We must also keep a close eye on ensuring that any retail digital pound does not worsen financial exclusion for those reliant on physical cash. The digitisation of money can’t, in any way, leave those people behind. … While we support the BoE’s plan to continue working on the design of a potential retail digital pound, I would urge them to proceed with caution and maintain a genuinely open mind as to whether one is actually needed.
There is similar apathy in the U.S. Opponents of CBDCs might as well take the next 10 years off. The rest of us are at the mercy of PayPal and NatWest Group, who now openly prosecute their enemies, I mean customers. Living solely on cash is increasingly difficult, but a million U.K. citizens have to do it and are treated like criminals for their efforts. For businesses it is impossible, the banks have completely taken over. Banking services such as direct debits could be mirrored in a digital equivalent of cash. The BoE has been sloppy in its communications calling these features “programmable cash”, which the critics have leapt on as proof that CBDCs will be something like a physical device with embedded software implementing social credit scores and Net Zero, when in fact they just allow the owner to schedule or trigger payments, just as we do with direct debits or standing orders.
The more likely threat from CBDCs is that their regulation becomes a casualty of the Social Value Act and goes woke along with the banks it is meant to offer an escape from. This all needs working out and unfortunately it is politicians and civil servants who have to do it. What would a libertarian do?
Can Austrian economics save cash?
In theory we could have a market of competing currencies. There have been local currencies but they either do not get past the proposal stage, such as the Cardiff Pound or the Oxford Pound, or they launch but fizzle out shortly after, such as the Stroud Pound, the Totnes Pound and the Bristol Pound, all now defunct.
The arrival of crypto currencies saw an explosion in new coins, over 20,000 and counting, but the vast majority see few or no transactions. Bitcoin and Ether, while their names are familiar to most, are still niche, have a wildly fluctuating value and are hard to spend in a retail context. If you struggle with the online world or new-fangled smartphones, Bitcoin is not for you. There were proposals for private crypto offerings such as Libra (Facebook’s ‘facebuck’) but it went the same way as the Bristol Pound.
In practice, competing currencies do not seem to work, at least at anything less than a national level. This implies that governments, central banks and multinational corporates will be running them, with all the problems that entails.
Has an Austrian or libertarian version of money been demonstrated to work anywhere? If not we are stuck with state and central bank backed currencies for now.
Cash is not as simple as it first appears. Its defenders need to understand the full gamut of what they are up against and its custodians need to start putting up a fight. My aspiration is to get a debate going at a level somewhere, anywhere, above baseless conspiracy theories. Although it requires a rudimentary understanding of economics, business and technology, it is ultimately a political issue. The mainstream politicians have yet to weigh in so this is an area where sceptical debate could lead rather than react. What do you say?