- War On Cash Goes Global â India, Australia and Citibank
- India shock cancellation of nation’s two highest-denomination notes
- India effectively invalidates & removes 86% of cash from circulation
- India sees âruns on banksâ & severe financial difficulties
- Citi to makes all Australian branches cashless
- Australian pilot programme restricts 80% of payments on card
- UBS proposes Australia eliminates $100 and $50 bills
- What can we do about this?
In a world of ultra low and negative interest rates, bail-ins and increasing corporate and government surveillance, the war on cash will be damaging to savings and wealth protection, it will primarily benefit governments and banks.
These were the primary conclusions we came to in our recent research note on theÂ ‘Cashless Society’. Within the article we touched on several points that we felt were of concern in the growing war on cash.
Going cashless meant greater risk to your wealth, control of your assets and even personal information. We cited a number of examples where the ‘war on cash’ and indeed the push for a cashless society is set to intensify andÂ rapidly escalate.
However, we could not have known that within aÂ monthÂ of that article being published Prime Minister Modhi of India shockedÂ his country (and the rest of the world) by suddenly declaringÂ âa surprise cancellation of the nation’s two highest-denomination notes, effectively invalidating 86 percent of total currency in circulationâ as reported by Bloomberg.
This was, argued the government, a move to combat the ‘black money’ market, tax avoidance, fighting counterfeiting and terrorism financing. All noble aims that we would all support.
This was followed by an announcement from Citi Bank that it’s Australian branches will be going cashless (with near-immediate effect), telling customers that it ‘will no longer handle notes and coins in branches because of a lack of demand.’
Neither move has been done for what are seen as unorthodox reasons. Most are ‘on message’ in the ‘echo chamber’ that these latest moves towards a cashless society is good for economies and indeed citizens.
Tell that to people in Indian who could not buy food, water, medicine or medical services since the shock move. Tell that to small and medium size businesses who are struggling and some may go bankrupt due to the radical and some would say extreme move.
Indian elite sees cash as criminal
Modhi’s announcement to remove two large denomination notes meant about 86% of the cash in circulation would no longer be legal tender. Despite this the Indian government had no qualms about suddenly announcing and enacting this draconian measure,Â with no notice and giving the public and businesses in India no time to prepare.
The decision to act in this way was based on a widely peddled belief (across the globe) that if you are holding cash then you are potential involved in illicit activities,Â evading tax or worse you are a terrorist.
Therefore, why should you be given notice, or the right to hold your money and savings in your preferred medium.
As the Times reported
âMuch of the wealth that India has accumulated since economic reforms began in the 1990s has never been taxed or accounted for, parked instead in real estate, gold, foreign investments and, in some cases, bundles of cash sitting at home.
It is those stacks of bills that Modi, who took office 2Â½ years ago on promises to curb corruption, aimed to bring into the open. Supporters of the prime minister’s plan said those holding cash stockpiles would have to deposit them at banks, where huge amounts would draw the scrutiny of tax authorities, or allow their value to evaporate.â
Unlike in Australia, cash still plays a major role in the Indian economy for both day-to-day transactions and savings. Estimates of how much payments are cash based range between 70 and 85%. So rare is it to be completely without cash that the BBC reported on one village in the western state of Gujarat that went cashless a year ago.
Reports circulated about women queuing throughout the night to bank decades’ worth of savings they had been keeping as personal security and their life savings due to a lack of trust in Indian banks and the Indian banking system.
Small shops were unable to manage cashflow, and medical travellers across the country unable to prove the source of funds in order to bank the cash they had brought, and then continue with treatment.
Huge financial inconvenience, disruption and chaosÂ created. Indeed, arguably the move will make Indians less trusting of the banking system and government and more likely to opt for the age old store of value in India â gold.
Indeed, demand for gold in India has not suprisingly soared since the ban.
Australia was going cashless anyway.
The move by Citi in Australia is nowhere near as dramatic as Modhi’s announcement. However, it shows that the move to go cashless by western banks is quietly gathering pace.
Australia, like many Western countries has been using less and less cash. 53% of payments currently made in Australia are cashless, according to a 2015 Westpac Survey. The same survey found 79% of Australian smartphone users agree making payments via a smartphone will soon become the norm and that the country is expected to become a cashless society by 2022.
Citi bank is saying that the move to go cashless is due to falling levels of cash usage with Citi’s customers. The bankÂ says thatÂ less than 4% of customers have made cash transactions in branch, in the last year.
‘This move to cashless branches reflects Citi’s commitment to digital banking and we are investing in the channels our customers prefer to use,â stated Janine Copelin, head of retail banking at Citi.
Cashless is something that is being introduced and pushed for by governments as well as by the banks in Australia and internationally.
The Australian government are taking on those who are perhaps not so concerned about a possible deposit bail-in but those on welfare. In Ceduna, on the South West Australian coast, a 12-month pilot programme is testing a cashless welfare card. 80% of payments on the card are restricted in order to prevent spending on gambling, alcohol or abusive substances.
Why the push for cashless?
This is one potential positive of a cashless society. However, most of the risks are being ignored.
A government that has the power to restrict welfare payments to citizens, is a government that could restrict payments to citizens who it decrees should not be paid â whether they be social justice campaigners, anti austerity or anti war protesters or indeed simply supporters of Donald Trump or any opposition political party or movement.
This tool in the wrong hands could be damaging to civil rights and personal freedom. Totalitarian states and leaders dream of such powers.
Decisions like this, by banks, cannot always be attributed to customers ‘going digital’. In 2015 Citi introduced a new policy in the US that prevented customers from using cash in their credit card and mortgage repayments.
In our recent cashless piece we highlighted the controls that are now in place within banks, when you deposit what they perceive to be a large amount of cash.
Since the Citi announcement UBS has proposed that eliminating $100 and $50 bills would be âgood for the