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Presented by: Texas Precious Metals

The Global War on Cash

The Global War on Cash

The Money Project is an ongoing collaboration between Visual Capitalist and Texas Precious Metals that seeks to use intuitive visualizations to explore the origins, nature, and use of money.

There is a global push by lawmakers to eliminate the use of physical cash around the world. This movement is often referred to as “The War on Cash”, and there are three major players involved:

1. The Initiators
Who?
Governments, central banks.
Why?
The elimination of cash will make it easier to track all types of transactions – including those made by criminals.

2. The Enemy
Who?
Criminals, terrorists
Why?
Large denominations of bank notes make illegal transactions easier to perform, and increase anonymity.

3. The Crossfire
Who?
Citizens
Why?
The coercive elimination of physical cash will have potential repercussions on the economy and social liberties.

Is Cash Still King?

Cash has always been king – but starting in the late 1990s, the convenience of new technologies have helped make non-cash transactions to become more viable:

  • Online banking
  • Smartphones
  • Payment technologies
  • Encryption

By 2015, there were 426 billion cashless transactions worldwide – a 50% increase from five years before.

Year# of cashless transactions
2010285.2 billion
2015426.3 billion

And today, there are multiple ways to pay digitally, including:

  • Online banking (Visa, Mastercard, Interac)
  • Smartphones (Apple Pay)
  • Intermediaries ( Paypal , Square)
  • Cryptocurrencies (Bitcoin)

The First Shots Fired

The success of these new technologies have prompted lawmakers to posit that all transactions should now be digital.

Here is their case for a cashless society:

Removing high denominations of bills from circulation makes it harder for terrorists, drug dealers, money launderers, and tax evaders.

  • $1 million in $100 bills weighs only one kilogram (2.2 lbs).
  • Criminals move $2 trillion per year around the world each year.
  • The U.S. $100 bill is the most popular note in the world, with 10 billion of them in circulation.

This also gives regulators more control over the economy.

  • More traceable money means higher tax revenues.
  • It means there is a third-party for all transactions.
  • Central banks can dictate interest rates that encourage (or discourage) spending to try to manage inflation. This includes ZIRP or NIRP policies.

Cashless transactions are faster and more efficient.

  • Banks would incur less costs by not having to handle cash.
  • It also makes compliance and reporting easier.
  • The “burden” of cash can be up to 1.5% of GDP, according to some experts.

But for this to be possible, they say that cash – especially large denomination bills – must be eliminated. After all, cash is still used for about 85% of all transactions worldwide.

A Declaration of War

Governments and central banks have moved swiftly in dozens of countries to start eliminating cash.

Some key examples of this? Australia, Singapore, Venezuela, the U.S., and the European Central Bank have all eliminated (or have proposed to eliminate) high denomination notes. Other countries like France, Sweden and Greece have targeted adding restrictions on the size of cash transactions, reducing the amount of ATMs in the countryside, or limiting the amount of cash that can be held outside of the banking system. Finally, some countries have taken things a full step further – South Korea aims to eliminate paper currency in its entirety by 2020.

But right now, the “War on Cash” can’t be mentioned without invoking images of day-long lineups in India. In November 2016, Indian Prime Minister Narendra Modi demonetized 500 and 1000 rupee notes, eliminating 86% of the country’s notes overnight. While Indians could theoretically exchange 500 and 1,000 rupee notes for higher denominations, it was only up to a limit of 4,000 rupees per person. Sums above that had to be routed through a bank account in a country where only 50% of Indians have such access.

The Hindu has reported that there have now been 112 reported deaths associated with the Indian demonetization. Some people have committed suicide, but most deaths come from elderly people waiting in bank queues for hours or days to exchange money.

Caught in the Crossfire

The shots fired by governments to fight its war on cash may have several unintended casualties:

1. Privacy

  • Cashless transactions would always include some intermediary or third-party.
  • Increased government access to personal transactions and records.
  • Certain types of transactions (gambling, etc.) could be barred or frozen by governments.
  • Decentralized cryptocurrency could be an alternative for such transactions

2. Savings

  • Savers could no longer have the individual freedom to store wealth “outside” of the system.
  • Eliminating cash makes negative interest rates (NIRP) a feasible option for policymakers.
  • A cashless society also means all savers would be “on the hook” for bank bail-in scenarios.
  • Savers would have limited abilities to react to extreme monetary events like deflation or inflation.

3. Human Rights

  • Rapid demonetization has violated people’s rights to life and food.
  • In India, removing the 500 and 1,000 rupee notes has caused multiple human tragedies, including patients being denied treatment and people not being able to afford food.
  • Demonetization also hurts people and small businesses that make their livelihoods in the informal sectors of the economy.

4. Cybersecurity

  • With all wealth stored digitally, the potential risk and impact of cybercrime increases.
  • Hacking or identity theft could destroy people’s entire life savings.
  • The cost of online data breaches is already expected to reach $2.1 trillion by 2019, according to Juniper Research.

As the War on Cash accelerates, many shots will be fired. The question is: who will take the majority of the damage?

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how-much-money-share

The Money Project is an ongoing collaboration between Visual Capitalist and Texas Precious Metals that seeks to use intuitive visualizations to explore the origins, nature, and use of money.

How Much Money Have Humans Created?

The dollar amounts are so staggering, that simply telling you how much money humans have created probably wouldn’t convey the magnitude.

However, by using data visualization in this video, we can relate numbers in the millions, billions, and trillions to create the context to make it more understandable.

Starting With Context

The median U.S. household income of $54,000 is a number that most people can relate to. It’s enough money to save up to buy a car, or maybe even a house depending on where you live.

Multiply that income by eight, and that number is now big enough to count as being in the top 1% of earners. People in the “one percent” make at least $430,000 per year.

Famous celebrities and businesspeople have fortunes that dwarf those of many “one percenters”. Actor George Clooney, for example, has a net worth of $180 million. Meanwhile, author J.K. Rowling is estimated to have a net worth of roughly $1 billion according to Forbes.

Zuckerberg takes things to a whole new level. His net worth worth is $53 billion, thanks to the value of Facebook stock. Lastly, Bill Gates regularly tops the “richest people” lists with a wealth of $75 billion – though lately that number has been a little higher based on stock fluctuations.

However, even the wealth of the richest human on Earth is not enough to get up to our unit of measurement that we use in the video: each square is equal to $100 billion.

The World’s Money

Some of the world’s biggest companies take up just a few squares with our unit of measurement. ExxonMobil for example has a market capitalization of about $350 billion, and the world’s largest public company by market capitalization, Apple, is at about $600 billion.

The total of the world’s physical currency – all coins and bills denominated in dollars, euros, yen, and other currencies – is about $5 trillion.

Meanwhile, if we add checking accounts to the equation, the number for the amount of money in the world goes up to $28.6 trillion according to the CIA World Factbook. This is called “narrow money”.

Add all money market, savings, and time deposits, and the number jumps up to $80.9 trillion – or “broad money”.

But that’s nothing compared to the world of Wall Street.

Wall Street

All stock markets added together are worth $70 trillion, and global debt is $199 trillion.

That’s all impressive, but the derivatives market takes the cake. Derivatives are contracts between parties that derive value from the performance of underlying assets, indices, or entities. On the low end, the notional value of the derivatives market is estimated to be a whopping $630 trillion according to the Bank of International Settlements.

However, that only accounts for OTC (over-the-counter) derivatives, and the truth is that no one actually knows the size of the derivatives market. It’s been estimated by some that it could be as high as $1.2 quadrillion, and others estimate it could be even higher.

There are many financial critics who worry about the risk that these contracts pile onto the global financial system. With the sheer size of the derivative market dwarfing all others, it’s understandable why business mogul Warren Buffett has called derivatives “financial weapons of mass destruction”.

About the Money Project

The Money Project aims to use intuitive visualizations to explore ideas around the very concept of money itself. Founded in 2015 by Visual Capitalist and Texas Precious Metals, the Money Project will look at the evolving nature of money, and will try to answer the difficult questions that prevent us from truly understanding the role that money plays in finance, investments, and accumulating wealth.