Abacus | The real reason governments want to steal our cash
If the crime-fighting explanation for the developed world’s attack on physical money sounds feeble, it is because it is an afterthought, dreamt up to win support for a policy that has a different and altogether less palatable purpose
The cash in our pockets is under attack. We must defend it. Paper currency may have its flaws, but it is one of our last protections against overbearing and untrustworthy governments.
The most spectacular campaign against cash to date has been mounted in India, where in November Prime Minister Narendra Modi announced the cancellation of the country’s ubiquitous 500 rupee (HK$56) and 1,000 rupee banknotes. The demonetisation was woefully mishandled, and the damage it inflicted on businesses and consumer sentiment will weigh heavily on India’s economic growth this year.
With the cost of Modi’s move so high, sceptics in India allege that the real purpose of the prime minister’s move was less to strengthen the country’s economic future than to wipe out the “black money” cash campaign funds accumulated by his political opponents ahead of key state elections next month.
Nevertheless, outside India, many prominent policymakers, bankers and economists in the developed world sympathise with Modi’s desire to create a cashless economy. In recent months figures as influential as former US Treasury secretary Larry Summers, former International Monetary Fund chief economist Ken Rogoff, and former Standard Chartered Bank CEO Peter Sands have all lent their weight to the campaign by calling for the elimination of large denomination banknotes, notably the US$100 bill and the €500 (HK$4,000) note.
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Typically these calls are presented as crime-fighting proposals. In a paper published last February, for example, Sands pointed out that “high denomination notes are the payment instrument of choice for those evading taxes, committing crimes, financing terrorism or giving or receiving bribes”. Getting rid of them, he argued, would disrupt criminals’ business models, severely degrading their ability to traffic in slaves, deal drugs, launder money, evade taxes and finance terrorist outrages.