Is Hong Kong a step closer to surrendering personal freedom in a dystopian, cashless society?
Total state control can only be prevented by the population’s access to cash and guns
Last Thursday, the Hong Kong Monetary Authority granted the first batch of licences to five stored value service providers in a major move to regulate the city’s rapidly expanding electronic payment business.
For Hong Kong, this is more of a bureaucratic rather than a technological breakthrough.
It comes far too late when mainland China is already the world’s biggest digital payment and commerce market. China has already become a near cashless society as electronic payment platforms allow people to pay almost every economic and consumer activity without cash.
However, there is a sinister side to a cashless society that few people in China have considered.
While mainland Chinese have taken to using less cash, they could be rushing to convenience like the proverbial lemmings over a cliff, if you examine how much power they are surrendering to government.
A cashless society is a dystopian one, where the government knows everything about your consumption and investment habits.
Cash is the last vestige of personal and economic freedom. It is hard enough to conduct your life without big data snooping on our lives and lifestyles. Take cash away and every minor transaction and movement becomes known to the government.
Cash is intimately familiar to all of us, embedded deeply into our daily lives through our experiences as consumers and businesspeople.
However, a growing chorus of academics and central bankers like Lawrence Summers have argued that governments have let cash supplies get way out of hand, to the benefit of criminals and tax evaders everywhere.
The growing use of negative interest rates in Japan and Europe to jump start economic activity continues to spread into a US$22 trillion asset class of its own.
This radical policy will only work if governments have complete access and control over your bank accounts and cash through the abolishment of paper money. A cashless economic system greases the wheels for negative interest rates.
If negative interest rates don’t worry you, understand that giving the power to see every transaction you make and empowering banks to seize all of your savings, surrenders complete control over your assets. A healthy distrust of government is important to a functional society.
The unintended consequences of disconnecting economic value from some physical store of value is that money will be moved from banks to solid assets, to safe havens that actually have a physical store of value. Ultimately, it leads to the manifest inefficiencies of a barter economy.
We have a perfect example of how cash controls don’t work through the introduction of the Euro. Europeans have practised excessive tax avoidance for decades by using cash. When they were forced to exchange their paper lira, francs, and pesetas, the cash emerged in trunks to buy other cash-yielding assets like real estate.
There is more cash floating outside the US in dollars than in the country.
The US dollar continues to be in the pre-eminent position as the world’s de facto hard currency. It is also the reason why the Fed stores more gold on behalf of foreign governments than any other country.
Many countries including China and Russia would quickly step in to fill the void formed by the absence of large denomination dollar notes. This would cause an important shift of financial and political influence. It might even increase use of other currencies such as the Canadian dollar.
This may sound like paranoia from American conspiracy theorists. Going cashless means you possess unlimited faith in the benevolence of government. It requires blindly trusting your entire well being to the infallibility and benevolence of the banking system.
Individuals will have no monetary power whatsoever except for when the banks allow you to access their proprietary accounts. You may make no transaction or purchase without their consent. Banks will likely charge you even more for the privilege of their services. You will have no option but to pay what they demand. Runs on banks will cease because only they will have complete control over withdrawals and transfers.
Chinese citizens have never experienced self-governance and at best have to depend on a benevolent, authoritarian, one-party state.
Americans have a different political experience and view the government’s attempt at forging a cashless society as a step towards complete government control of all facets of our lives. Total government control can only be prevented by the population’s access to cash and guns.
Peter Guy is a financial writer and former international banker