"Money, it’s a gas ... Grab that cash with both hands and make a stash." — "Money," as performed by Pink Floyd
If you’ve gone a month without using cash, you might be amenable to a cashless society.
Going “cashless,” or at least reducing large denominations from circulation, is an increasingly popular policy push in certain economic circles. Crime and corruption supposedly suffer in a cashless world. Few criminals are likely to pay someone to burn down a building or smuggle illegal goods using a check or credit card as payment. As Kenneth Rogoff writes in the Wall Street Journal, "In the underground economy, cash plays a big, well-established role for which there is no remotely perfect substitute in terms of liquidity and universal acceptance."
Some argue that nefarious activities will continue even in a cashless society, because criminals would simply draw law-abiding businesses into their web. Criminals could theoretically coerce a business, through threats or intimidation, into writing them a check for supposedly legitimate services, if cash were unavailable. While certainly possible, this strikes me as more problematic than paying with a suitcase stuffed with greenbacks. India, which recently removed large denomination rupee notes from circulation, is a fertile testing ground for these theories. While the jury’s out as to the effects on crime, corruption certainly hasn’t stalled out; instead of cash, now land, houses and luxury watches are the preferred bribery currency.
Why are governments around the world so interested in reducing cash transactions? Because they would like to tax those transactions. When people and businesses deal completely in cash, it's difficult for the government to know if any tax is due, much less the amount to be collected. And in many developing countries, where tax compliance is low and cash usage is high, taxes lost to legal but unreported transactions represent the single most important fiscal issue.
While the argument for a cashless society might make sense for many emerging economies, it’s less relevant here in the United States. Apart from the fact that Americans are among the most honest taxpayers in the world, some 7 percent of our nation's adults have no bank account and conduct all financial activities using cash. Going cashless might dramatically impair lower income and on-the-brink Americans’ ability to get by. Farm workers, for example, are often paid in cash and many times purchase all their services, including paying their rent, with those same dollars.
Additionally, some folks just want privacy when they buy something. The purchases or expenditures may be completely legitimate, but they simply would rather keep the transaction to themselves. In any case, if we do end up cashless, we might have to rethink the phrase “paper trail.”
Margaret R. McDowell, ChFC, AIF, author of the syndicated economic column "Arbor Outlook," is the founder of Arbor Wealth Management, LLC, (850-608-6121 — www.arborwealth.net), a “fee-only” registered investment advisory firm located near Sandestin.