Australians must resist the international war on cash.
Across the world, a major effort is underway, led by international financial institutions, to reduce the ability of citizens holding large denominations of physical currency notes thereby encouraging them to hold money in digital accounts.
To date, several governments have begun taking steps to limit the issuance and use of physical cash within their countries.
This includes the Indian Government which in November abolished almost 90 per cent of all physical cash as legal tender within India and the Swedish Government which has limited the quantum of physical cash within Sweden to just 2 per cent of gross domestic product.
Moreover, across Europe, several countries have begun to place limitations on cash transactions including France and Italy who have banned cash transactions over 1000 euros or Spain who has banned cash transactions over 2,500 euros.
Australians are not immune from these developments.
Following recent calls by multinational finance companies, UBS and HSBC, for the Australian Government to abolish the Australian hundred dollar note, the Turnbull Government will announced as part of MYEFO next week the establishment of a taskforce to examine this issue and whether to implement a ban on cash transactions above a certain limit.
UBS’ rationale for their proposal is that removing the hundred dollar note would reduce crime and fraud in Australia, allow banks to hold more deposits and increase taxation revenue collected by the federal government through greater transparency and a reduction in the ‘black market economy’.
However, these explanations do not provide the full story.
According to the International Center for Monetary and Banking Studies’ 2016 Geneva Report, the drive towards a cashless society is to provide central banks greater flexibility to operate with negative interest rates.
As is currently the case in Europe, negative interest rates imposed by the European Central Bank effectively require depositors to pay financial institutions a fee to keep their money as deposits. This punishes depositors and pushes them to often acquire inflated and risky assets in order to avoid their savings being consumed by their bank.
Europeans who are avoiding this trap are doing so by withdrawing their money from the banking system and hoarding physical cash, thus rendering negative interest rates as an ineffective policy tool.
Alternatively, contrarian economists have warned that the war on cash is designed to deny depositors from having access to their money in a financial crisis, thus allowing financial institutions to use depositors’ money to recapitalise when under financial stress or what is referred to as a ‘bail‑in’.
Such economists point to the 2012 Cyprus banking crisis in which, as a result of a run on the Bank of Cyprus, 47.5 per cent of uninsured deposits above 100,000 euros were confiscated by the bank and mandatorily converted into equity through a banking restructure.
Citizens who are not able to access physical cash in times of systemic financial stress will be susceptible to such manoeuvres.
There may be significant unintended consequences if the Turnbull Government were to follow Australia’s international counterparts by abolishing the hundred dollar note or placing restrictions on cash transactions.
Doing so could prove to be counterproductive as it may reduce confidence in the banking system leading to Australians either hoarding Australian dollars of smaller denominations, foreign currency or even precious metals such as gold or silver to preserve their wealth.
It may also reduce confidence in government institutions who may have the legal power to access all electronically recorded financial transactions of individuals who become a person of interest whether appropriate or not.
The international drive towards a cashless society is well underway.
Australians must remain vigilant against any attempts to limit their economic freedom and privacy through a transfer of economic power to an already powerful international financial sector and an ever-intrusive government.
John Adams is a former Coalition Advisor. This op-ed first appeared in the Daily Telegraph.