Perhaps everybody knows the feeling. You are in a shop with
your purchases, walking to the cashdesk where the point-of-sale terminal is.
And then you wonder:"Will I have enough
money on my current account to pay my purchases or not?!"
The feelings of embarrassment
when the terminal responds: “You have
reached your spending limit for this period. Please try to pay differently”, and
you have to tell the cashier that you can’t pay for your purchases, are enough
to thoroughly ruin your day... Or even longer when you have to wait a few days before your paycheck / salary transfer comes in.
Another precarious situation is when you spent money that you had
reserved for other things – the rent, the electricity bill, the holiday or the mortgage repayment –
because you were unaware of how much money you already spent from your bank account that month and
you didn’t have online, real time insights in your current account at the time that you needed it most.
A third risk of having a non-cash money system is that one off-invoices and bills are being sent and collected
exclusively through digital services (internet banking and email), so without a version on paper. That is very
convenient for companies and the (local) government bureaus as it strongly
reduces their mail and banking expenses, but not for people who always relied on the
mailman for bringing their bills and invoices: elderly folks and computer
haters / digital illiterates.
All these situations are the inevitable result of the fact that you
nowadays pay electronically mostly, via internet
banking and point of sale terminals – at least in The Netherlands – and not in
hard cash or through paper transaction forms anymore. Cash, that you collected at your bank, where you also dropped your money transaction forms, or ATM once a week.
In those earlier times it was easy: you collected enough
cash for a few days or a week and when it finally ran out, it was simply gone: you knew exactly how much you spent that week. You did your all your regular
payments (i.e. mortgage, rent, electricity, doctor's bills and all else) via transaction forms or cash payments too. Except for an early credit
card, it was impossible to spend more money than you carried, except for
regular shops where they knew your name and your face and they trusted you to
pay your dues in time.
These days many people totally lose track of their
spendings, as they don’t check out their bank account every day and don’t carry
cash anymore, but use their bankcard for everything. And for some, mostly older people, internet banking is a hurdle that they
hardly can take. Only at the moment that they discover that there was too much
month in their salary or benefit payment, the alarm bells ring: often in a
supermarket or a shop, or when their invoice payments start to bounce.
The latter was the subject of an
article in De Telegraaf: the largest daily paper in The Netherlands:
Increasing numbers of
Dutch people have a hard time to maintain grip on their spendings, due to the
mounting digitization of payment services.
As a consequence these
consuments lose track and give up on it. Consequence: they fail in applying for benefit / allowance money for which they are entitled and also run a risk of getting into financial
trouble.
From the annual report
of Humanitas, a large volunteers organization in The Netherlands, it became clear that last year 13.832 people came in for help with their home administration, a 13%
increase year on year. Budget information bureau Nibud also speaks of a growing
problem, hitting youngsters as well as elderly people.
According to Humanitas
this is a consequence of the growing complexity of financial services in The
Netherlands. “Many elders have minimal computer skills. Due to the digitization
of financial services and the termination of paper invoices and accompanying information by
many institutions and authorities, they lost track of what money comes in and
gets out”, according to a spokespreson of the organization.
But also many
youngsters are clueless about their finances and the digitization of payment services,
according to Nibud: ”Many of them don’t know how to apply for allowances and
benefits at the governmental digital portals. Or they have problems with ticking the right boxes,
when it comes to the electronic application for for instance their study benefit”, according
to a spokesperson for the organization.
The consequences are
quite clear, according to Roeland van Geuns, lecturer Poverty and Participation
at the vocational college ‘Hogeschool van Amsterdam’. “In many cases such people don’t receive and use public benefits for which they are fully entitled, due to lacking
digital skills. They don’t apply for a healthcare benefit, as they didn’t even know they
were entitled to. And when they do know, they are still clueless upon how to apply
for it anyway.”
This particular article was focusing on the problems of people who
don’t know how to wrangle their computer and use internet banking. But as I tried
to explain in the first part of the article, this problem of disconnection between
people and their financial situation is broader.
This is particularly worrisome and important, as more and more pundits and
government officials advocate a strong reduction in the global amount of paper
cash (Euros and Dollars), in order to hamper and counterattack the large
circuits of black, criminal money that are crossing the world nowadays. Money that is used for the
funding of crime and terrorist attacks or for the bribery of government
officials around the globe.
One of those pundits, Kenneth Rogoff, advocated a moratorium
on the usage of large banknotes: €100, €200 and €500 or their dollar and yen pendants,
in an
op-ed in Het Financieele Dagblad:
The $100 bill is
accounting for 80% of the staggering cash amount of $4,200 per capita in the
United States. In Japan, the ¥10,000 (roughly $100) is responsible for roughly
90% of the Japanese cash amount. The cash possession per capita is almost $7000
overthere. All this money is enabling growth of the underground economy; not
the official one.
I don’t advocate a
cashless society, as this will neither be feasible nor desirable for the time
being. Nevertheless, a cashless society would be fairer and more secure. With
the increasing usage of bank cards, electronic money transfers and mobile
payments, the usage of cash in the legal economy has decreased, especially for
middle and large-scale payment transactions. Research learned that only a small
percentage of the large banknotes is held and used for payments by common
people and SME companies.
Cash makes crimes, corruption and terrorism easier, as it is anonymous, and large bills are especially problematic as they are so easy to carry and hide. A
million dollar in $100 bills fits in a small attache briefcase and a million in
$500 dollar bills even fits in a lady’s purse.
Fair enough: there are other ways to bribe an official or to evade taxes or to carry out other forms of financial crime. But
most of them have very high transaction costs (for instance uncut, unpolished
diamonds) or carry a more than average risk for disclosure (bank transfers and credit
card payments).
Admitted, Rogoff builds a strong case for the cashless
society, but as he pointed out himself, it is not feasible and desirable for
everybody yet, especially the elderly.
And there is one big drawback to electronic money alone,
that cannot be mitigated easily. What happens with your non-cash money when the
bank, where it resides, turns out to be not safe. That happened to my wife, who
had a bank account at the Russian Sberbank in the Nineties of last century:
However, this is not
the only thing that is haunting this former Soviet statebank. In 1997, when the
Russian ruble collapsed, countless Russians (among whom my wife) lost the lion
share of their life savings, stashed at the Sberbank: sometimes for thousands
of dollars per person in savings.
All these people
received the crisp message from their local Sberbank: “We’re sorry, your money
is gone! It has vanished! Next customer, please!”
It will probably still
take a few decades, before Sberbank loses this image of a bank which lost
billions in embezzled money, as a consequencey of massive fraud and corruption.
As it is like John Goldsmith stated in his wonderful book “Bullion”: “money
does not vaporize, it just gets another owner”.
This example shows in a sourish way, that eventually the only party that knows that you own a certain amount of electronic money, is the bank that keeps it for you. When this bank (especially in less safe countries with a much weaker central bank and/or central administration) is gone, so is your money. This is an undeniable risk of electronic money that is not true for cash money, in particular when it is stashed in a safe or deposit box that can be reached at all times.
So please be careful before you declare cash money a thing
of the past, by totally moving all money transactions on behalf of the goverment
and (SME) companies to cyberspace. For many people cash money is
still a tangible tool for taking control of their expenses and keeping their
financial health in order. It is also a tangible proof that they really own their
money: money that cannot be simply taken away by a plummeting bank or a
cash-strapped government in a thorougly corrupted country.
Corruption – the killer of honesty, the economy and national stability in
countries all over the world – must be dealt with fiercely, but that is a (supra-)national
government job. Not a thing that one can simply blame on the sheer existence of cash
money. That would be too easy for the people in charge.
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