'Cash doesn't crash'

In 2018, Sweden’s central bank released a paper, “If Crisis or War Comes”, encouraging citizens to hold physical cash to handle contingencies like war with Russia, or catastrophic weather. Since Sweden is the world’s most cashless nation, the advocacy was a surprise but the Riksbank was pointing out situations digital cash cannot handle.

In making a passionate case for retention of physical cash, Cloud Money deploys that argument of crisis/war, and adds others. Parts of the book read like an anarchist manifesto. But it is worth stepping past knee-jerk prejudices to consider the underlying rationality of some of the arguments.

The author is a white South African born just before Apartheid was dismantled. He enjoys the privilege of being part of the highly-digitised top decile of an economy that also has high cash-usage. He has an anthropology degree from Cambridge and a background as a derivatives trader, and in cryptocurrency, handling exotic instruments. So he brings training in behavioural sciences and experience in the digital economy to bear.

The drive towards cashlessness is supported by banks, credit card issuers, fintech service providers, giant digital businesses and central banks. Many governments have also regulated upper limits for cash transactions. Some economists also prefer cashlessness on theoretical grounds. Tools such as negative interest rates become easier to implement. Every advocate of cashlessness has something to gain. Cashless transactions generate huge data, which is most powerfully value-enhancing. Cashlessness also allows for cost-cutting, since ATMs, physical bank branches and printed notes are more expensive than digital cash. It promotes commerce — there’s ample evidence consumers spend more using cashless instruments.

Governments, especially authoritarian governments, love the cashless paradigm. A highly digitised economy makes mass surveillance easier; every citizen must willy-nilly generate revealing data. It is easier to strangle anti-government initiatives, by cutting digital access to funding. In geopolitics too, cashlessness makes it easier to impose sanctions against Iran, Russia, North Korea, et al.

Cashlessness doesn’t actually limit crime but it does limit access to the levers required to commit large white-collar crimes. Vast amounts of money-laundering occur in the global banking system, with large sums being moved across borders. But only a sophisticated hacker, a rich individual, or corporation, or a government can carry out the necessary banking manipulations. Ordinary citizens cannot. “Grey” activities such as alcohol consumption (in places with Prohibition), marijuana consumption in North America (before it was legitimised in multiple states), or sex-work, are more difficult in cashless regimes. So states can more easily rein in the activities it wishes to curtail. The average citizen’s “choice” in terms of using cash versus digital tokens, is, therefore, being increasingly limited by social, commercial and regulatory pressures. The analogy the book uses is that of people who work in certain professions “choosing” to wear suits — anything else would make them stick out like sore thumbs. Data generation and analysis of data is of course, a huge force-multiplier for cashless regimes. Computerised data-mining makes it cost-effective for many types of business to offer products or services to people at the lower end of the income pyramid.

This does mean more in the way of inclusion. It also means more in the way of everyday, normalised surveillance, and aids in the creation of 360-degree profiles of pretty much everyone. Again, authoritarian governments love this. China has built a cashless social credit system; citizens who “misbehave” are prohibited from travelling, and publicly shamed. There is some degree of pushback against the drive to achieve cashlessness. Germany and Japan despite being extremely low-crime nations have large cash usages, due to privacy concerns. India has seen cash usage bounce back to pre-demonetisation levels despite much-touted digitisation efforts. The US sees huge spikes in cash use, whenever there’s a storm alert. Indonesians are always braced to use cash due to the prevalence of tsunamis and volcanic eruptions. Cryptocurrency usage has also risen, due to privacy-related concerns. Indeed, digital rebels and libertarians worried about government surveillance and control of fiat, created and adopted cryptos — the author is an early adopter who also has misgivings about cryptos. The book mentions two apparently contradictory trends that occurred in the pandemic. There was a jump in cash withdrawals, as lockdowns started. There was also a jump in digital transactions. Citizens hoarded cash against emergencies, even as they initiated more digital transactions. (By the way, you’re more likely to be infected by Covid-19 using cards in machines with multiple users, than in handling physical notes).

As the slogan goes, “Cash doesn’t crash”. Given climate change and events like the Ukraine War, there are indeed powerful drivers for retaining physical cash — the Swedes may be prescient in this regard. Extreme weather leads to disruptions of power, and the Internet. India of course has a habit of shutting down the Net given the least excuse, and people in Kashmir, Chhattisgarh and Manipur use cash all the time.

Going beyond all the rational arguments, Mr Scott signs off with a plea for choice — the choice to be “dirty and physical” as he puts it. This book is written in a highly accessible style — indeed, there are too many simplistic analogies used for my taste. It provides food for thought despite the obvious and upfront biases.