In May, FT Weekend had a long article on the increase in the number of payments being made electronically and asked, “Does cash have a future?” The subheadline read: “Electronic payment is quick, convenient, germ-free and can deter crime, from tax evasion to terrorism. So why are we so reluctant to give up on coins and notes.”1
The pluses of cash-free transactions are many. For businesses, more cash-free transactions mean lower costs. There are fewer break-ins by people looking for money. Not having to handle cash is cheaper: you don’t have to count it; and you don’t have to physically take it to the bank.
Terrorism and terrorists also use/need cash. The last thing terrorist groups want to do is to transfer money electronically. Electronic transfers can be traced – and cut off. Cash, on the other hand, doesn’t leave a trail. It’s much the same with drug trafficking. Peter Sands, a former banker now at Harvard, says, “Drug trafficking always ends up in cash at some point in the chain.”
With this in mind, the EU has decided to phase out the €500 note. Notes of bigger denominations are easier for criminals and terrorists to use. You only need one-fifth as many €500 notes as €100 notes to make a payment. For regular people, however, Mr. Sands says, “Large denomination notes are completely unnecessary for modern life.”
The FT Weekend article does list a couple of potential problems of a cashless society. What happens if the system goes down, either “naturally” or because of a crisis or war? This recently happened in Britain, where the Visa-run debit system went down for six hours. Even with some transactions going through, and the cards still working at ATMs, the inconvenience was big.
While the problem was apparently a technical glitch, as opposed to the work of a hacker or cyber warfare, if a technical issue could cause this big of a problem, what could a serious attack do? When we were in England last year, hospitals all over the country were shut down by a cyberattack looking for ransom. Doctors visits were cancelled. Operations had to be postponed.
In the past, countries have produced counterfeit US$100 notes. North Korea, for example, did it in the 1990s. Why wouldn’t hackers try to break into a cashless system and create money for themselves? It would seem to be easier to make counterfeit money on a computer than on a printing press.
The FT Weekend also notes the question of whether people would spend more in a cashless society. There is research showing that people spend more when they pay electronically (especially with credit cards) than when they pay with cash. Would the same tendency apply in a cashless society?
But let me suggest a bigger concern, one FT Weekend did not mention. The cover of the June 2, 2018 issue of The Economist read: “The surveillance state: Perfected in China, a threat in the West.” According to The Economist:
“They’re watching you. When you walk to work, CCTV cameras film you and, increasingly, recognise your face. Drive out of town, and number-plate-reading cameras capture your journey. The smartphone in your pocket leaves a constant digital trail. Browse the web in the privacy of your home, and your actions are logged and analysed. The resulting data can be crunched to create a minute-by-minute record of your life.
Under an authoritarian government such as China’s, digital monitoring is turning a nasty police state into a terrifying, all-knowing one. Especially in the western region of Xinjiang, China is applying artificial intelligence and mass surveillance to create a 21st-century panopticon and impose total control over millions of Uighurs, a Turkic-language Muslim minority. …
When East Germany collapsed in 1989, people marvelled at the store of information the Stasi security service had garnered on them, and the vast network of informants it took to compile it. Since then the digital revolution has transformed surveillance, as it has so much else, by making it possible to collect and analyse data on an unprecedented scale. … Technologies that once seemed a friend of freedom … now look more Orwellian, letting autocrats watch people even more closely than the Stasi did.”
The Economist focuses on how China is using its technology to create a racist police state In Xinjiang focusing on the Uighurs. But racism isn’t the biggest issue. The police state is. China is developing a “social credit” system for use all across China. An article in The Wall Street Journal explained the idea:
“Swiping her son’s half-fare student card through the turnstile here one Monday afternoon, Chen Li earned herself a $6 fine and a reprimand from a subway-station inspector for not paying the adult fare.
A notice on a post nearby suggested more-dire consequences. It warned that infractors could be docked points in the city’s ‘personal credit information system.’ A decline in Ms. Chen’s credit score, according to official pronouncements, could affect her daily life, including securing loans, jobs and her son’s school admission. …
More than three dozen local governments across China are beginning to compile digital records of social and financial behavior to rate creditworthiness. A person can incur black marks for infractions such as fare cheating, jaywalking and violating family-planning rules. The effort echoes the dang’an, a system of dossiers the Communist party keeps on urban workers’ behavior.
In time, Beijing expects to draw on bigger, combined data pools, including a person’s internet activity, according to interviews with some architects of the system and a review of government documents. Algorithms would use a range of data to calculate a citizen’s rating, which would then be used to determine all manner of activities, such as who gets loans, or faster treatment at government offices or access to luxury hotels.”
While The Economist said that “[r]epressing an easily identified minority is easier than ensuring absolute control over populations,” that doesn’t mean the latter can’t be done. Computing power isn’t the issue. It grows and grows. The key is to think of what the Stasi could have done with the China’s national computer system.
But let me suggest one more step. China’s social credit system is already being used to stop “untrustworthy” people from buying airline tickets. When a man presented his national identity card to buy a ticket, he was not allowed to do so, because his name was on a list of people deemed to be untrustworthy because he had not complied with a court order.2
Also, under the system used by Zhima Credit in China to calculate credit scores, who your friends are can affect your credit. To get a higher score, it helps to have more friends with high scores and fewer friends with low scores. If (when?) the social credit system incorporates this idea, too, would people be able to increase their social credit score by dumping friends or not contacting people the state considers to be “untrustworthy”? A system like that could make South Africa’s Apartheid-era banning orders look like a Sunday School picnic.
Ultimately, consider the possibility of combining a fully developed social credit system with a cashless society. If you can only buy things with some form of electronic payment, what would stop the state from deciding that certain people with a low social credit score should not be allowed to use their electronic payment card to buy “X” or “Y”? What if it’s not just an airline ticket, but something more basic, like buying food or paying rent?3 Could the government even freeze your card entirely? If there’s no cash, and you can’t use your electronic payment card (because you are “untrustworthy”), what do you do?
We have seen totalitarian societies in the past, but combining China’s social credit system with the idea of a cashless society takes government control to a completely new level. A cashless society may have pluses, but cash protects freedom. It’s not something we should give up.
1 FT Weekend, May 12, 2018. These quotes are from the print edition. The article is probably behind the Financial Times' paywall.
2 The man thought he had complied, but the court never told him that the apology he was told to write was rejected as being insincere. But that fact isn’t really relevant to the question of government power.
3 This could be particularly effective in enforcing the rules about where people can live.
UPDATE (6/19/18 2:08 pm): Added a couple of links