1. VISA Offers Select Retailers $10,000 to Stop Taking Cash
2. More Details on the War On Cash & a Cashless Society
3. Fighting Crime, Terrorism, Counterfeiting & Black Markets
4. Eliminating Large Denomination Currency Notes ($100 Bills)
- End Of Lower Interest Rates In Europe Begins
- Searching For Yield? Better To Look For Humility And Patience
On July 12, credit card giant VISA announced that it will soon offer selected retailers $10,000 to stop accepting cash. No one seemed to pay much attention. The announcement received relatively little coverage in the press. Should it have? Yes!
What most people don’t realize is there is a broad movement in many parts of the world to reduce or eliminate the use of cash. This is for real – it’s not some conspiracy theory. Sweden, for example, is in the process of eliminating the use of cash, and today only 2-3% of transactions there are conducted in cash. Other countries are headed in that same direction to varying degrees.
The truth is, most governments and central bankers around the world believe it is important to gradually eliminate the use of cash in the years ahead. They claim the absence of cash would help reduce crime and terrorism, expedite monetary policy and help the global economy. Yet in my opinion, the potential benefits they claim would be minimal and their motives are dubious at best.
The real reason they want to rid the world of cash is so that all of our transactions would be recorded in one form or another and therefore be more traceable. This gives authorities more control, expedites tax collection and lets Big Brother keep a closer watch on all of us.
While the War On Cash and the Cashless Society are not near-term threats to Americans, it is important to keep an eye on this troubling trend. That’s what I’ll focus on today. I’ll start with VISA’s latest offer to pay selected retailers $10,000 to stop accepting cash, and then we’ll move on to the bigger picture implications down the road.
Before I get to that discussion, let me briefly mention last Friday’s initial 2Q GDP report which came in, as expected, at a 2.6% annual rate, following growth of only 1.2% in the 1Q. While the 2Q increase to 2.6% was good news, it remains to be seen what the economy will do in the second half of this year.
VISA Offers Select Retailers $10,000 to Stop Taking Cash
In a move that should have gotten more attention, VISA announced on July 12 that it will soon begin offering select retailers $10,000 to stop accepting cash. VISA said it is planning to give $10,000 apiece to selected restaurants and food vendors to upgrade their payment technology, as long as the businesses agree to stop accepting cash.
Consumers at retailers which take the VISA deal would be able to pay for goods or services only with debit or credit cards or with their cellphone apps such as Apple Pay. For the record, I don’t expect this “no cash” trend to become widespread in America anytime soon.
In case you’re wondering, VISA and other credit card companies consider payment in cash as their chief competitor. If they can get more consumers to pay by credit and debit cards, instead of cash, their profits could rise significantly. VISA’s CEO, Al Kelly, recently admitted: “We’re focused on putting cash out of business,” adding that converting checks and cash to digital and electronic payments is the company’s “number-one growth lever.”
VISA processes credit and debit card payments on behalf of banks and merchants. The company makes money when consumers use their VISA-branded cards. An increase in transactions and payments volume over its network results in rising revenues.
Interestingly, VISA accounted for 59% of total purchase volume on US general purpose credit and debit cards last year, compared with rival Mastercard’s 25% market share, according to the Nilson Report, a trade publication. I had no idea that VISA is more than twice as large as Mastercard, did you?
Still, cash remains a formidable competitor. Check and cash transactions totaled $17 trillion worldwide in 2016, up about 2% from a year ago, according to VISA. Credit cards have made a dent in cash in the US, but cash remains a widely used payment form among Americans -- accounting for 32% of all consumer transactions in 2015, compared with 27% for debit cards and 21% for credit cards, according to the Federal Reserve.
The bottom line is that credit card companies like VISA, Mastercard, American Express, etc. have a vested interest in the War On Cash. As it increases, it improves their bottom lines.
More Details on the War On Cash & a “Cashless Society”
Many around the world, and especially in the US, are unaware that there is a real War On Cash. Much of the ongoing debate of late has been focused on a report earlier this year from the International Monetary Fund (IMF) entitled “The Macroeconomics of De-Cashing.” The dubious central conclusions of the report were:
- A cashless payment system would make the monetary policy transmission mechanism more efficient, as there would be very little or no cash available anymore. In particular, it would become possible to implement negative interest rates on a broad front, in order to boost consumption.
- Since a decline in cash holdings would go hand in hand with an increase in demand deposits at banks, the banking sector would be able to extend more loans. That would lower the level of interest rates and boost economic growth.
- A sudden increase in the demand for cash is a sign of an imminently impending financial crisis. Shortly before the collapse of Lehman Brothers in September 2008, demand for cash currency increased significantly. That was a sign that bank customers had increasingly lost confidence in the solvency and liquidity of commercial banks. This warning signal would no longer be available if cash were abolished.
- A cashless economy makes tax collection easier, as the example of Sweden illustrates.
I couldn’t disagree with most of these conclusions more. Let’s examine them more closely. In bullet point #1, the IMF claims that a cashless society would “make monetary policy transmission more efficient.” When has monetary policy transmission ever been efficient, I ask? The answer is, rarely.
Then in that same bullet point, the IMF raises the issue of “negative interest rates on a broad front.” This is an important point because it appears in almost every article about the War On Cash. It took me awhile to figure this out, but here’s what it really means.
In the War On Cash, banks would penalize citizens who insist on keeping cash. The IMF’s thinking is that banks would be encouraged to offer negative interest rates on checking and savings accounts. In other words, they would charge you to hold such accounts. The IMF believes this would motivate us to spend all of our cash rather than hold onto it, and that would be good for