Why Cash Is Still King

“The ideal monetary system from a government's perspective is a cashless system where all of your transactions are electronic and therefore traceable directly to you.”

– The War on Cash

Citing security concerns, such as employee theft, and seeking greater efficiency, many businesses are no longer accepting cash for certain services.  From self-service checkouts, parking garages, public transportation, sporting events, and in-flight services, alternative credit or debit cards are now required. 

Certainly, the growing list of electronic transaction options is benefiting the consumer, with many voluntarily opting in.  And as can be expected, cash payments fall with every new cashless innovation.  What many fail to consider, however, is how these new conveniences can lead to concentrated power in the hands of not only a few, but in the hands of the rich and powerful. 

In David McRee’s 2020 book, “The War on Cash”, McRee details the many ways that the government, banking systems, credit card companies, and Fintech services are benefiting from a growing cashless society.  Their windfall is not only in increased customers and profits, but also in their access to data that can manipulate public choices. 

Cash has always been a consumer preference.  In hand and at your disposal, cash is budgetable, manageable, and leaves no paper trail. It is less regulated by outsiders, making it harder to control or monitor.  It is decentralized, not needing a financial institution, once it is in your hands.  It cannot be seized, nor can access be removed.  There are no additional fees when paying with cash.  For a shoestring business, cash allows for low overhead and simpler accounting.  When utilized during economically bad conditions, it is untaxable, allowing for minimal survival. 

In 1969, to reduce the effects of fraud and money laundering, Lyndon B. Johnson’s War on Crime eliminated all bills larger than the $100 bill.  By 1970, banks were required to report cash deposits and withdrawals of $10,000 or more to the federal government under the Bank Secrecy Act to further reduce acts of money laundering. 

At the same time, the automation of global finance began in the mid-1970s with the Automated Clearing House (ACH) network, which began streamlining the movement of money without cash or check, saving money from costly check adjudication.  Unlike credit cards, which began in the 1950s, this was the first time electronic movement was attached to individual bank accounts.  By the late 1970s, direct deposit of paychecks had also become available. 

The digital payment system is run exclusively by banks that profit from both data and fees on digital payments.  An electronic money system is traceable, provides an audit trail, and allows maximum taxation.  Fintech companies like Venmo, PayPal, and Coinbase are also in the business of digital money transfers, including loans and insurance claims, where they work alongside data centers and banks.   Like banks and fintech companies, credit card companies also benefit from the reduction in cash options, as more customers would require cashless options. 

For banks partaking in fractional reserve banking, the elimination of cash would remove the possibility of bank runs and bank crashes, as there would be no cash for customers to remove.  As such, banks and the government collude to remove the cash option from the system to the significant benefit of each.  Unironically, countries with the highest tax rates are actively trying to eliminate the cash option. 

All electronic systems would not only benefit from an increased customer base but also from the data collected through electronic surveillance of your purchases.  Using algorithms to determine buying habits from your personal data and directing future behavior, personal privacy would be greatly diminished.    Along with privacy concerns, the lack of tangible currency in the event of a catastrophic natural event, a power or internet outage, or a system glitch would be devastating.  Also, while cash is indeed susceptible to theft, electronic systems have their own problems.  Hacking, identity theft, and credit card fraud will not go away with the elimination of cash; they will likely become more prevalent. 

Instead of cash, governments may propose a Central Bank Digital Currency, basically paper money made digital for the purpose of creating a money trail for auditing, law enforcement, and governments.  Add to that the cutting of interest rates to stimulate the economy so people spend, rather than save, would only give governments more control over the money supply, not less.

Cash-friendly businesses like mom and pop shops, food trucks, laundromats, convenience stores, and car washes rely on a cash option for their customers.  In fact, fifty percent of purchases under $20 continue to be paid in cash.  With 4.5 percent of Americans currently unbanked, that is, with no checking or savings account, a sole reliance on digital cash is impossible. 

The importance of liquidity proves that cash is indeed king; however, the fundamental freedom of consumer choice may be more consequential.