Cash has been an important basis for economic transactions between companies and consumers for centuries. Contracts for the purchase or sale of goods and services are concluded and settled via payments. Despite differences in payment behavior, banknotes and coins are a widely used means of payment across continents. As such, cash is a basic prerequisite for economic prosperity. Nevertheless, its continued existence has been called into question for some time by a number of renowned economic players. According to them, abolishing cash would, among other things, reduce organized crime and increase the scope of action of central banks.
Abolishing cash would make people in today's networked society even more transparent and controllable for various companies and states. Bergmann looks at the opportunities and risks of abolishing cash and refers to economists and economic actors such as Peter Bofinger and Kenneth Rogoff in this publication.
Table of Contents
1. Introduction
2. Basics of cash
2.1 Origin of cash
2.2 Definition of book money
2.3 Functions of cash
2.4 Advantages and disadvantages of cash
3. Current worldwide developments
3.1 Current debates in the European Union
3.1.1 Discussion on the abolition of larger banknotes and small coins
3.1.2 Introduction of cash payment caps
3.2 Important information in an international context
4. Opportunities and goals of a cash abolition
4.1 Officially stated reasons
4.1.1 Organised crime (such as terrorism, drug trafficking and money laundering)
4.1.2 Undeclared work and tax evasion
4.1.3 Cost savings
4.1.4 Other Benefits
4.2 Possible unofficial reasons and backgrounds
4.2.1 Enforceability of negative interest rates
4.2.2 Boosting consumption
5. Requirements for a possible abolition of cash
6. Possible risks and side effects of cash abolition
6.1 Emergence of shadow currencies
6.2 Restriction of citizens' freedom
6.3 Security risks of cashless payment systems
6.4 Self-control and consumer behaviour of citizens
7. Alternatives to cash
7.1 Pure bank money - Digital payment systems using the example of mobile payment
7.2 The sovereign money initiative in Switzerland
7.3 Virtual currencies using the example of Bitcoins
8. Future role of cash as a means of payment
Research Objectives and Themes
This paper examines the theoretical and practical feasibility of abolishing cash, analyzing the potential economic and societal impacts of a transition to a fully digital payment system. It investigates whether the stated objectives—such as combatting illegal activities and enhancing monetary policy through negative interest rates—can be achieved, while simultaneously evaluating the significant risks to privacy, personal freedom, and technical security.
- The role of cash in modern economies and its fundamental functions.
- Arguments for and against the abolition of cash, focusing on crime reduction and monetary policy flexibility.
- Technical and political requirements necessary for a successful transition to cashless systems.
- Analysis of innovative digital alternatives, including mobile payment systems and virtual currencies like Bitcoin.
Excerpt from the Book
2.1 Origin of cash
The history of today's means of payment began many thousands of years ago and has always adapted to current circumstances. It all started with commodity or natural money, which was settled by barter transactions. However, the exchange of commodity for commodity severely limited many transactions because suitable barter items were not always available. Multiple exchanges between different people to obtain the matching good lengthened the payment process and thus increased costs. Because of this, by the 18th century, precious metals, primarily gold and silver, but also bronze and copper, had established themselves as the new means of payment. These have the advantage that they are only available in limited quantities, require little storage space, are easily divisible and do not spoil.
With the advent of paper money, however, the importance and distribution of gold and silver coins changed. In 1483, paper bills were used in Spain, the first time in Europe, to replace missing coins. These were based on the confidence that paper was a bill of exchange that could be exchanged at any time for silver coins and later only for gold coins. With the international spread of paper money also began the establishment of various central banks. After the Second World War, an agreement was then concluded between 44 countries, including all the major industrialized nations. In this so-called Bretton Woods Agreement, the gold standard was established internationally. The central banks, as the issuers of the banknotes, had to guarantee to own a corresponding amount of gold. This amount had to be exchanged at the request of the paper money holder, above a certain minimum amount set by law. The reliance on paper money during this period was based on the existence of sufficient gold stocks in central bank vaults. This is why it was also referred to as covered paper money.
Summary of Chapters
1. Introduction: Outlines the theoretical scope of the paper, focusing on the debate regarding the abolition of cash and the exploration of alternatives.
2. Basics of cash: Provides a historical overview of money, from barter to fiat systems, and defines the role of cash versus book money.
3. Current worldwide developments: Reviews the status quo of international payment habits and political debates surrounding banknote abolition and payment caps.
4. Opportunities and goals of a cash abolition: Analyzes the official and unofficial justifications for a cashless society, including crime control and monetary policy stimulation.
5. Requirements for a possible abolition of cash: Details the technical, legal, and infrastructural prerequisites required to successfully eliminate cash.
6. Possible risks and side effects of cash abolition: Explores the dangers of a cashless society, such as increased data transparency, security threats, and potential loss of consumer self-control.
7. Alternatives to cash: Evaluates potential substitutes like digital mobile payments, the Swiss sovereign money initiative, and virtual currencies like Bitcoin.
8. Future role of cash as a means of payment: Concludes that while cash will likely play a diminishing role, its total abolition should remain a voluntary process in a free market economy.
Keywords
Cash, book money, digitalization, payment systems, money laundering, negative interest rates, monetary policy, shadow economy, mobile payment, Bitcoin, virtual currency, consumer behavior, anonymity, financial system, Bretton Woods.
Frequently Asked Questions
What is the core focus of this publication?
The work focuses on the theoretical and practical feasibility of abolishing cash, assessing the arguments for a transition to a purely digital economy and the associated risks.
What are the primary themes discussed?
Key themes include the economic function of cash, political efforts to restrict cash usage, the potential for monetary policy improvement, and the evaluation of digital alternatives.
What is the central research question?
The paper examines whether the abolition of cash is practically possible and under what conditions such a major societal change could be implemented.
Which methodologies are employed in this analysis?
The research relies on an international review of current payment data, economic theory, and case studies of countries that have adopted or are considering digital-first payment strategies.
What is covered in the main body of the text?
The text covers the history of money, the debate on official objectives for cash abolition (e.g., stopping illegal activity), the risks of a cashless world, and specific alternatives like mobile payments and virtual currencies.
Which keywords best describe this study?
The most relevant keywords include: cash, book money, digitalization, payment systems, negative interest rates, monetary policy, and virtual currency.
What role do central banks play in the transition to a cashless society?
Central banks are crucial as they manage monetary policy; however, the transition to a cashless system risks reducing their independence if they become solely dependent on government-allocated funds.
How does the author view the potential of Bitcoin as a replacement for traditional money?
The author views Bitcoin as a prominent virtual currency with technical advantages like decentralization, but notes that its current price volatility and niche usage make it an unsuitable replacement for national currencies at present.
What does the "sovereign money initiative" in Switzerland propose?
It proposes returning the right to create money entirely to the Swiss National Bank, prohibiting commercial banks from creating book money via lending.
- Quote paper
- Sebastian Bergmann (Author), 2016, Cash Abolition. Opportunities and Risks on an International Level, Munich, GRIN Verlag, https://www.grin.com/document/1189862
