It’s been a while since we’ve spoken about the war on cash. But make no mistake, it has continued unabated.
This is a war waged by big governments all around the world, no matter East or West. And over in China, cash appears to be losing.
In July 2017, the New York Times reported that “In Urban China, Cash Is Rapidly Becoming Obsolete”. The main reason given is due to the influence of fintech on China; digital payments are accepted almost everywhere in the cities. The smartphone payment apps Tencent’s WeChat and Alibaba’s Alipay are the two main apps which are edging out cash.
The Chinese citizenry appear more than happy with this shift toward a cashless society. A survey by the Beijing Youth Daily newspaper revealed that 70% of internet users polled rated carrying physical cash was “unnecessary”. QR codes are everywhere, with one China-based journalist reporting that they were so ubiquitous that he heard even the homeless were using them to receive handouts. Their payment volumes are even eclipsing the financial stalwarts that are Visa and MasterCard. In 2012, their total payment volume was about $82 billion; in 2016 it was $3 trillion.
The trend in China appears to be clear. In March 2018, the Chinese central bank openly said that cash “may disappear” in China as payments go digital. If this indeed happens, and it looks increasingly plausible it will, the Chinese government will be able to exert even more control over its population. Without the anonymity of cash, even the most intimate habit of each citizen can be probed. Keep in mind that this is a government that recently launched its ‘social credit’ system; taking its Big Brother leanings to the next level.
But just because the Chinese population appear to be at the very least indifferent to this change, doesn’t mean that others should accept this as becoming the new status quo. China is after all an authoritarian society, and the average Chinese citizen enjoys far fewer rights and protections compared to those of us here in the West.
The Lesson to Take From the Chinese Situation
The Chinese shift against cash does prove us with an instructive lesson; the complicity of Big Tech with Big Banks and Big Government. We’ve previously explained why both the big banks and big governments want to eliminate cash. The governments can gain more control, the central banks can execute what the view as more effective monetary policies (e.g. through negative interest rates), while the big banks would benefit from higher deposits and higher profits.
But what about big tech? Well, as big tech gets more and more intertwined and involved with the financial system, their incentives become more and more similar to that of the big banks. This shouldn’t come as surprise; after all, big tech is no less profit driven. There are huge amounts of cash to be made by replacing physical cash with digital alternatives.
Think about the biggest source of revenue for the tech giants of today – advertising. How much less effective would advertising be if consumers had to physically go to the store and pay cash for said items? The desire for instant gratification is a powerful lever to be manipulated; consider the popularity of Amazon’s One-Click button.
Of course, this is not to say that the increased convenience thanks to these digital alternatives are not welcomed; the statistics show otherwise and we ourselves have of course personally used and benefitted from it.
But we should all be aware of the cost that this convenience extracts. There is a real danger that if the use of physical cash drops below a certain threshold, people may start abandoning it altogether. After all, physical cash is expensive to handle; there’s transport, security, storage, and insurance costs. There may come a time where the majority decides that it’s time to simply ‘move on’ from physical cash.
When all money is digital, central control becomes far easier. The rise of cryptocurrencies, digital yet decentralized, is one response to this trend. The other has been used for hundreds of years; hard assets that are also long term stores of value. As fiat currencies become ever easier to manipulate, investors can hedge their bets by diversifying their portfolios into commodities such as gold.
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