Peter Taylor, the business editor of the Herald Sun in Australia, has written an important article about how moving to a cashless economy could end up costing individuals money and privacy. He acknowledges that the cashless economy seems to be an unstoppable train, but identifies how in a world of negative interest rates, the costs of no cash could add up quickly.
In Britain, Royal Bank of Scotland and offshoot NatWest last week warned that if the cash rate were to fall, they might charge interest on deposits from business customers. Consumers, of course, are next in line.
The interest rate arc across the developed world over the past generation suggests that this is our fate: be it two years or 20, negative interest rates beckon for Australia too.
Negative interest rates seem like an intangible concept for most, but Taylor imagines what would happen when there is no cash and negative rates. Cash is a hedge against those rates.
Unless there were no longer notes and coins to withdraw, and they were confined to a digital ecosystem, free to move their money between banks but not away from them.
They might, of course, look to the fringe world of cryptocurrencies and stores of wealth in the black market. Or they might try their luck in gold or other asset classes.
But in “cash”, they would have no choice other than paying the bank for the privilege of minding their money, watching their funds eroded for having the gall to save rather than spend.
Taylor notes this could have consequences that could reverberate through the economy. For example, people trying to save for a home would be unable to do so if their savings are being drained away by negative interest rates. Retirees would have a problem managing their money for the future as well.
This is an important article about an often overlooked drawback of the cashless society. The benefits of getting rid of cash are much larger for governments and corporations than individuals.
Overview by Ben Jackson, Director, Prepaid Advisory Service at Mercator Advisory Group
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