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? ›
For instance, using cash instead of credit or debit cards may help keep some people from overspending, because you can see how little is left in your wallet after every purchase. In short, getting rid of cash would impose hardships on society's most vulnerable people and could jeopardize our privacy.
Is the US going cashless? ›
The concept of a cashless society has been around for decades. But with 80% of payments in the US being made digitally in 2022, and four in ten of us ditching change altogether, research suggests that the transition from physical currency could take place sooner than we once thought.
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.
How close are we to a cashless society? ›
The US is moving toward cashless payments, with a substantial increase in the use of mobile wallet apps and contactless cards. A report from the Federal Reserve Bank of San Francisco found that payments made using cash accounted for just 18% of all US payments in 2022.
Why does the government want to get rid of cash? ›
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.
What are 3 disadvantages of using cash? ›
The disadvantages of cash:
- Hygiene concerns. Coins and banknotes exchange hands often. ...
- Risk of loss. Cash can be lost or stolen fairly easily. ...
- Less convenience. ...
- More complicated currency exchanges. ...
- Undeclared money and counterfeiting.
A cashless society runs totally on a government-backed digital currency. And while no societies are 100% cashless at the moment, some countries, like Sweden and China, appear to be headed that way.
What happens if we go cashless? ›
When people are handling less cash, bank robberies, burglaries and corruption drop. Because cash is essentially untraceable, it's a useful tool for criminals, where digital currency is less easy to exploit, and can be shut down quickly if it falls into the wrong hands.
Will we ever live in a cashless society? ›
Though a cashless society may eventually come, it isn't in a huge hurry. The most important step for CFIs right now is to cater to all of the transaction types that their customer demographics prefer in order to provide well-rounded services that address the needs of all customers in the meantime.
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.
What should you not pay with cash? ›
“Basically any electronic purchase should be done with a credit card,” she said. “Not only will you have some purchase protection by doing this, rather than paying with cash, but many credit cards offer extra warranties on top of what a product may come with or what a store will offer.”
Why is it illegal to have too much cash? ›
Even though it is technically not illegal to travel with large amounts of cash, it is definitely suspicious to many law enforcement officers. Carrying a large amount of cash can result in asset forfeiture and seizure, even if you are not arrested for an offense. Welcome to the world of asset forfeiture.
Are banks going cashless? ›
More than half of all bank branches no longer handle cash. Seven out of ten consumers say they can manage without cash, while half of all merchants expect to stop accepting cash by 2025 (Arvidsson, Hedman, and Segendorf 2018).
Why shouldn t the US go cashless? ›
Decreased Monetary Security
When you have cash in hand, you know it's safe from everything except direct robbery or physical destruction. But when your money is in digital form, it's vulnerable to hackers and system malfunctions.
Who would suffer in a cashless society? ›
The elderly members of society are at particular risk, as they are often not confident using digital payment methods or online banking services.
Why is it better to keep cash? ›
Because keeping money in cash is all about stability and liquidity. And if you were to find yourself in a scenario where you need money now — say you lose your job, or have to manage a financial emergency — you want a stash of money in accounts you can quickly and easily access.
Why is cash still necessary? ›
Cash is Public Money
They are the only form of public money available to the general public. They are not linked to private companies and do not incur transaction fees or the exchange of personal data.
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.
What are the arguments to keep cash? ›
Cash allows you to keep closer control of your spending, for example by preventing you from overspending. It's fast. Banknotes and coins settle a payment instantly. It's secure.
