Dr. David McGrogan’s piece ‘The Open Conspiracy Against Cash‘ shone a light on a subject which until recently has barely made the finance pages. A combination of lockdown shenanigans around cash and the general cultural drift to hyperbole and coarsening political discourse have brought it to the margins of the culture wars. Branded as a War on Cash and spiced up with conspiracy theories and tales of corporate malfeasance, it is a subject on the march towards the front pages. Given its new exciting status as a full-blown war, I offer this two-part guide to the supporters and enemies of cash. Today we look at what cash is and how its properties make it ideal for crime. In the next article we look at its opponents in the card industry, central banks and eCommerce, and ask whether a libertarian approach could help.
What is cash?
An amazing variety of objects have been used as currency, from giant 12-foot stone discs in Micronesia to ramen noodles in U.S. prisons. For the more inconvenient forms of tender, including gold, the receipt for its safe deposit formed the earliest banknotes. Once everyone had got used to the idea of using notes as currency it was only a matter of time before the gold itself could be sold off, at which point we only had the paper notes and were left with what is known as a fiat currency, the value of which rests on nothing more than social and legal consensus. This is cash and maintaining that legal and social consensus is the job of the Bank of England (BoE).
What is legally cash can be tricky. Take the much misused term ‘legal tender’. It has a narrow technical meaning relating to what is allowed to be used to settle past debts in court. What is allowed isn’t much, only coins of the Royal Mint, so strictly speaking Scottish and Northern Irish banknotes are not legal tender in either Scotland or Northern Ireland. The term legal tender does not apply to ordinary transactions where both parties are free to agree to accept any form of payment according to their wishes. A retailer can refuse to accept your £50 note and it can also refuse to accept cheques, cards or any cash at all.
If notes and coins are not available, not trusted or cannot be spent then other substitutes quickly arise, such as cigarettes or petrol. Given that legally parties can agree to use anything to settle payment, exactly what cash is takes on a subjective nature. Nevertheless, the war on cash is really about notes and coins, their widespread acceptance and their anonymity.
Cash vs the War on Crime
Cash and crime can be roughly split in two. Counterfeiting, which the BoE can influence through fancy counter-forgery technology, and everything else, over which it has no influence whatsoever. Those inventing penalties to deter forgers are not immune to its temptations themselves. Inducing hyperinflation by flooding an economy with counterfeit cash was used as a weapon of economic war by the British Government during the American War of Independence.
The real problem for the BoE is the ‘everything else’ bucket over which it has no influence. From the everyday evasion of VAT by your builder to the trade in nuclear gas centrifuge parts, cash is the lifeblood of crime. Your builder’s financial handywork might seem trivial to the economy but it adds up. Professor Ken Rogoff, author of The Curse of Cash and Professor of Economics at Harvard, calculated that in the U.S. black market cash transactions added up to $700 billion in 2016 alone. It is likely more in countries with higher regimes.
One interesting detail is that almost all cash-based crime is transacted in high denomination notes. In the U.S. there is about $1.4 trillion dollars of cash in circulation, about $4,200 for every American. Almost all of that $1.4tn is denominated in $100 bills. How many ordinary U.S. citizens are hanging on to 42 one-hundred-dollar bills? Quite, so where is it all? Europe has an even larger note, the €500, which became known as the ‘Bin Laden’ because it was so prominent in the funding of terrorism and everyone knew what it looked like but few people had ever seen one. Britain banned them in 2010 after research showed nine out of 10 Bin Ladens were in the hands of organised crime. Since 2019 European banks no-longer issue the €500 note but they are still legal currency, if you can find one. All those $100 bills are still in circulation, somewhere.
Proposals from the likes of Prof. Rogoff to withdraw high denomination notes are part of the war on cash. Rogoff’s opponents say it does not work and point to India’s withdrawal of the ₹2,000 note in 2016 which caused chaos. Rogoff responds that it was the way it was done, overnight rather than over decades and without wide-spread access to retail banking. Although he titled his book The Curse of Cash he does not advocate its elimination.
Serious crime – political corruption, terrorism, drug dealing, extortion and human trafficking – makes use of cash too. But just as running a large legitimate organisation on cash is effectively impossible, the same is true for organisation crime. Criminals need the services of the global banking system for the same reasons as everyone else, not least of which is that when you are working with criminals you don’t want a lot of cash around. Politicians who claim to have solutions to crime therefore do what politicians do and legislate that banks must know their customers (KYC), have procedures for anti-money laundering (AML) and sign up to Combating the Financing of Terrorism (CFT). In practical terms, knowing your customer means being able to identify them, are they really who they say they are, and trying to determine what they are up to. As we have no well-designed, privacy preserving identity system (I do not mean national identity cards) this explains why opening a bank account is a bureaucratic pantomime of utility bills and random Government-issued documents. In terms of knowing their customers’ activities, it is the banks that are frustrated because as I have pointed out before the payment systems run by banks do not know what it is that is being paid for, only the parties involved. The same is true for retailers, which is why they have so-called loyalty schemes, to link a customer to what he or she bought. Even with scant data on each transaction banks are quite ingenious in looking for patterns and anomalies. These days your bank usually spots your cloned or stolen card being used before you do.
KYC and AML legislation certainly makes banking more bureaucratic and forces it to hold huge amounts of personal data, but it has a more pernicious effect. KYC is explicitly intended to deter criminals from using banks, to make their lives more difficult. The corollary is that if you cannot qualify for a bank account you are in the same situation as a criminal. This puts those who legitimately cannot or do not want to use a bank into that category. If you turn up to your new employer and on being added to the payroll say you do not have a bank account you will have some explaining to do. Also in this category are children, foreign visitors and people with learning difficulties. This is not to say that banks would not like more people to have bank accounts, on the contrary. But when it comes to KYC children cannot be asked for payslips and council tax bills and children are easy prey for coercive adults wanting to open accounts for nefarious aims. Hence the phenomenon of money muling.
It is the anonymity and widespread acceptance of cash that criminals like. Anything with these properties works, it does not have to be cash. As more and more things can be bought online, where cash currently does not work, small-time criminals are increasingly preferring gift vouchers and pre-paid credit cards. Very large payments such as ransom fees demanded by organised crime default to Bitcoin. It has some of the anonymity of cash but is not as easy to spend, so it needs laundering through exchanges. Still, with proceeds of ransomware victims alone around $900 million last year they can afford some exchange fees.
Cash vs its handlers
Defending against cash-induced crime is expensive but those who have to handle it in large quantities, banks, retailers and post offices, have no choice. Cash needs to be kept in safes on insured premises and transported securely. Staff can find themselves working in locked security cages or behind Perspex screens and are at risk of robbery and worse. It is no wonder that retailers are not resisting dwindling cash usage. Advocates of a right to pay with cash don’t have much to say on the corresponding duties imposed on retail businesses and their staff. If the use of cash continues to decline, with increasing numbers of outlets now doing without it entirely, using the law to force every retailer to maintain cash handling paraphernalia could be an expensive, bureaucratic burden, akin to having to offer facilities for anyone choosing to arrive by horse or to pay in gold sovereigns.
To be continued
The case for cash is up against more than just law enforcement. In the next article it faces central bankers, card providers and apathetic politicians.
Stop Press: Trump has announced he will never allow CBDCs at campaign rally in New Hampshire.
Stop Press 2: Test your understanding of the issue by watching Glenn Grenwald interview Saifedean Ammous. How many mistakes and misunderstandings can you spot?
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I have stated more than once on DS that as far as I am concerned once cash goes it is game over. I see no evidence suggesting I am wrong.
I agree with you HP. We are few though and they are many. Unless we have an Ace up our sleeve, we’re goonered. I continue to use cash when I can and luckily most places down where I live take it but go to London and you might as well be handing them flapjacks. The arguments against cash continue to proliferate and the main thrust of these arguments seems to be about the bother of cash, the inconvenience of it in some sort of Orwellian double-take because if the internet is down or the card machine not connecting then cash is the only convenient exchange for goods etc!! Although stamps now appear with Chuckles on them, I haven’t seen any coins with his head on them – this should tell us all we need to know!
Thanks Aethelred. I must admit that I have heard that Chuckles does not have his head on our coinage so that tells a tale.
(I know where I’d like to see his head.)
I always use cash. Fortunately, up here amongst the dark, satanic mills nobody is currently refusing cash. That I know of.
Good to know that cash is still alive out in the sticks.
The less I see Chuckles’ head the better I think! Better not think too much about his head actually, especially in view of his ancestral namesake!
Sorry to disabuse you both – King Chuck’s head is now on coinage, I got some from the post office the other day. Although both the PO chap & me said that after so many decades of Queenie, somehow it was just wrong….
Chuckles on a coin with a WEF background!
100% agree that it’s massively important.
“ask whether a libertarian approach could help”
I’ve got strong libertarian tendencies, but expecting a large powerful state to have such tendencies is pie in the sky and historically hasn’t been the case. Recent events suggest to me that liberty is most effectively preserved by making tyrannical measures logistically hard to enforce, and by the mass of citizens simply refusing to comply.
I think we’re well aware here on this forum, because we are not stupid (which “anonymous IT reporter” seems to think we are), that cash facilitates crime. Lots of things that make liberty safer also make criminals life easier, but I am more worried about the government committing crimes than I am about small increases in crime. Perhaps improving detection and much longer, punitive prison sentences might be a better approach.
My view on cash crimes, which after all tend to centre on tax avoidance, have certainly become more liberalised shall we say, these last four years.
Crimes with biggest financial impact all done by corporates and governments without cash.
Facilitates crime is a red herring. All so-called human or basic rights limit what government is allowed to do. As they’re universal, this necessarily means all criminals have them, too. And because they’re criminals, they might end up using them for criminal purposes. But since nobody, including the government, has a priori knowledge of which people are criminals and which actions will turn out to be criminal, this simply can’t be helped. Either people have rights. Then, criminals will have them, too. Or people have no rights. Then, everything becomes a lot easier for government, including dealing with criminals. Says the government, at least. Honi soit qui mal y pense.
Minority Report!
What is your evidence you are right?
CBDC’s will be part one of…
‘You will own nothing…’
Once the kinks and bumps are ironed out slavery is inevitable. It doesn’t take any intellectual prowess to work that out.
Yes the removal of cash per se doesn’t perhaps lead to disaster – it’s what comes after which is the replacement of money handled by private banks with a CDBC where all transactions go through (eventually) World Government. It’s another “utopian” solution that will lead to the opposite of utopia. I’m rather afraid that “Anonymous IT Reporter” is a closet utopianist who still has some misplaced faith in human nature.
Maybe we will end up trading in other items, out of ‘the system’ if you like. I am just being optimistic, it is Friday after all.
Yup check out Redacted on Rumble, look for the WEF video where they interview Whitney Webb on CBDCs for the latest on their push to eliminate cash. Whitney is a proper journalist, you wouldn’t get Peston or any BBC journalist asking the real questions that she does.
Thanks Ron.
Thanks for the link, Ron. I’ve watched it now & it is truly disturbing. We are certainly heading for the precipice like lemmings but we are being kept in the dark by the MSM except for forums like this.
Completely pointless article.
As I wrote in a past comment, most so-called ‘crimes’ involving cash transactions are more properly described as financial transactions the government doesn’t agree with, either because of tax evasion or because of violations of government rules on trades of goods, eg, buying illegal drugs. The government has an obvious interest in making such transactions impossible by assuming that every transaction is principally meant to violate some law unless proven otherwise, ie, forcing all economical transactions under blanket government surveillance and enabling the government to deny those it doesn’t like.
When everybody has the right and the ability to engage in economic activity without prior government approval, ‘criminals’ will obviously have it, too. But that’s similar to approaching people in the street: Absent Corona rules, that’s usually allowed. Hence, criminals can do it, too. Corona measures must thus urgently be reintroduced to fight crime. Says an anonymous IT reporter. And the answer is “Get stuffed!”. Emphatically.
Brilliant demolition of nonsense arguments.
I think the people who can get a bank account but don’t want one, should get together with those who can’t and want one.
Maybe betwixt the two groups something can be worked out?
The problem in Britain – and it is a problem – is thanks to welfare statism, many believe services are free. But every activity has a cost and that includes banking.
The banks made a rod for their own backs by offering free banking, the concept being the cash-float the bank would have in current accounts could be invested, cover operating costs and yield a return.
As so many expenses have increased over the years, this model doesn’t work anymore. Instead of introducing bank charges – the way it used to be – they have reduced services.
The answer is to introduce charges, so non-profitable accounts aren’t a loss, and those who prefer cash, which is expensive to handle, can pay an extra fee for this with banks and retailers.
There is plenty of shoplifting going on and it ain’t just cash. food, jewellery etc. I bought a car for cash yesterday, just over 2k….The first I’ve ever had delivered before viewing because Billy no mates has nobody to drive him to the garage! Because I don’t do online banking and the trader didn’t have a card machine, I just said I’d pay extra for the delivery providing the car is the condition that was claimed. So I had to drive 20 miles to my nearest Bank branch and because I know the girl who counted my money she asked “buying anything nice”….So I told her. Come to think of it, I wonder if she was obliged to ask because you hear a lot of stories of Banks asking what you’re doing with your own money.
CASH IS KING USE IT OR LOSE IT!
When I first started working I was paid weekly in cash. It was only since the 1980s that employers started insisting employees have bank accounts. And of course there’s been no non cash financial crime committed since that happened has there!
I am Treasurer of a small Not For Profit which, for very old legal reasons which we can’t change, is a Limited Company.
I recently tried to switch our bank account to Lloyds for various very legitimate reasons but without success. The application can only be made online and if you cannot comply with their requirements/enter data TO THE LETTER the application will be automatically rejected.
We can’t comply TO THE LETTER – not least because they require exactly 100% of Shares to be allocated and the Shareholder identified – and we have 19 Shares. 19 into 100 works out at 5.26 and about 8 other decimal places% each …… and they only permit 2 decimal places ….. so we will never be able to honestly comply with their requirements!
Another problem which couldn’t be overcome was their requirement for every Shareholder’s email address and mobile phone number to be entered. A number of Shareholders are very elderly and have neither …. so they couldn’t be entered.
Despite several conversations with several “the-computer-says-no” so-called customer service personnel the impasse could not be overcome.
In my personal life, I am using cash as much as I possibly can. I am part of the “awkward squad” which is doing its level best to prevent the imposition of CBDCs and a social credit system. I ditched my Nectar card several years ago, the only store card I’ve ever had: my data is not for sale for a penny or two off my shopping.