Your Money Is No Good Here

Written By Ryan Stancil

Posted August 24, 2017

My family and I recently spent a week on a Caribbean cruise which, being large enough to support over 5000 crew and passengers, was more like a small city that floated. Like any small city, it had its fair share of places to spend money, mostly on drinks, souvenirs, restaurants, and more drinks.

If you wanted to buy anything on board, you had to use a card that was tied to either a bank account or a credit card, and then you get an itemized bill and pay the charges once the ship returned home.

No cash was ever used anywhere with the exception the casino, which made my roulette winnings somewhat pointless until we docked somewhere.

Once on land in Aruba, a guy on the port offered us a rental car for US$80, but we talked him down to $65. After a day on the island stretching American money as far as I could, I went back to the ship with a bottle of locally-made rum and a few Aruban florins, the local currency, for my trouble.

Using cash to buy something has always been a personal preference, if only because the physical presence of the cash I have on me means that I won’t be able to spend more than I have immediate access to. I know that many people prefer their cards or, increasingly, their smartphones, but they have the option to use cash if the need arises.

At least, that’s the way it is for now.

Freedom of Choice?

While it’s common for people not to carry cash on them at all out of personal choice, trends around the world have seen governments taking bold steps that end in them making the decision for their citizens.

Most famously, there was the news on November 8th of last year in which the government of India announced that all 500- and 1,000-denomination notes were demonetized.  That was a whopping 86% of the currency in circulation. The notes were phased out in exchange for new notes, but the country’s 1.3 billion citizens had less than two months to exchange what they had for the new notes. This led to long lines at banks, long lines at ATMs (the ones that worked), lack of immediate access to health care because hospitals refused to take the defunct notes, and a hit to the country’s cash-dependent agriculture sector. Among the people who benefited were manufacturers of point of service (POS) card swipe machines and digital transaction solution providers.

In Australia, the federal government has what’s called the Black Economy Taskforce, whose stated purpose is to develop policy that will combat issues that can’t be resolved through normal tax enforcement. If the taskforce’s head, Michael Andrew, has any say, this will be done by putting nanochips in the country’s $50 and $100 notes. Chips that would render the notes useless after a certain day. Like coupons.

More from Andrew:

We intend to examine the merits of consumer focused sanctions, including the loss of consumer protections, warranties and legal rights for people who make cash payments without obtaining a valid receipt. This is not simply of matter of imposing new penalties, but part of a wider cultural change agenda.

That “cultural change” is at the heart of the argument that governments should have tighter control over the possession of paper currency.  In the two cases above, it’s argued that the actions taken and proposed will combat crime and cut back on things like money laundering, drug trafficking, and tax evasion.  

And it’s that last one, I think, that creates more incentive for governments to pursue this than anything else.

Every dollar tracked or eliminated from circulation in favor of a digital alternative is noted by the government and taxed accordingly. This can mean anything from the pack of gum you buy at the convenience store to the second-hand clothes you buy at the yard sale. It all goes on record and the government gets its cut.

This doesn’t just affect spending; it affects saving as well.

You might know someone who keeps their savings in cash in a safe at home. If that money were to suddenly be made useless, their only choice would be to deposit it in a bank. This leads to fees, disclosures, potentially negative interest rates (as is currently the case in Sweden’s cashless economy), and the whims of the markets. This does everything to help the banks and nothing to help the person putting the money in there.

The Tightening Grip

While the trend of governments the world over dictating how their citizens can spend currency hasn’t spread to the U.S. yet, there are those who are beating the drums in the war on cash. Larry Summers, who is an ex-Treasury Secretary and a former economic advisor to President Obama, wrote an op-ed in February of last year calling for the death of the 100-dollar bill by conjuring up the usual specter of crime. The number of 100-dollar bills in circulation is second only to that of the 1-dollar bill, and just barely, according to the Federal Reserve’s website. Give them an inch…

Others are citing that going cashless is something America and other major economies should consider by citing money that could be saved from not having to print, circulate, and store cash.

It’s hard to say how much attention an argument like this would get in the current news cycle, but I guarantee it isn’t one that’s going to go away as long as governments are trying to come up with ways to make more revenue.

Whatever may happen, the prospect of government attempting to control how you spend money means that you’ll need alternatives for storing your wealth. Gold is just one such alternative, but it will probably end up being one of the best ways to maintain your privacy and ensure you still have the freedom to buy and sell as you please.

Keep your eyes open,

Ryan Stancil