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The Political War on Cash (wsj.com)
55 points by randomname2 on Feb 19, 2016 | hide | past | favorite | 79 comments

This is an alarmist piece on negative interest rates.

The real war on cash is driven by consumer convenience, the IRS, and Anti-(Drug|Terrorism|Vice) government agencies. Government agencies want a paper trail to catch tax evaders and illicit activity.

Whenever I see a very popular business (usually a bar or restaurant) that takes "Cash Only". I think to myself "Tax Evader". Which may or may not be true. Sadly, they are painting a target on their back.

While "cash only" could be an indicator of tax evasion, it's also a way to sidestep credit card fees which can chew up a few percent of your profit margin.

At least here in Sweden I'm seeing more and more places going "card only", leading me to believe that the cost (and risk) of handling cash must be at least as high as the cost and risk of handling cards.

Yeah, cash has to be counted, delivered to a bank to be deposited, can be "misplaced" by employees, the old "sorry, I don't have enough change" issue

Before credit cards became widely used, restaurants used to be common robbery targets. A whole night's takings in cash is a solid score.

That's no longer the case, because you'd mostly just get a pile of worthless credit card receipts for your trouble now.

Does Sweden have a national payment network similar to Canadas Interac? If so they might be paying much less than standard credit card fees.

They're at 1.58% for Visa and 1.73% for Mastercard in Germany if the information I found is correct. To save those fees some companies sometimes use direct debit instead.

Isn't these a basic fee of few cents tackled onto it too?

Around 1.5 cents for MasterCard. But you can cut the above rate in half if you are a somewhat large merchant.

I am instead reminded of the coffee-shop owner in Little Brother, written in 2007:

> I pulled out my debit card to pay and he made a face. "No more debit," he said.

> "Huh? Why not?" I'd paid for my coffee habit on my card for years at the Turk's. He used to hassle me all the time, telling me I was too young to drink the stuff, and he still refused to serve me at all during school hours, convinced that I was skipping class. But over the years, the Turk and me have developed a kind of gruff understanding.

> He shook his head sadly. "You wouldn't understand. Go to school, kid."

> There's no surer way to make me want to understand than to tell me I won't. I wheedled him, demanding that he tell me. He looked like he was going to throw me out, but when I asked him if he thought I wasn't good enough to shop there, he opened up.

> "The security," he said, looking around his little shop with its tubs of dried beans and seeds, its shelves of Turkish groceries. "The government. They monitor it all now, it was in the papers. PATRIOT Act II, the Congress passed it yesterday. Now they can monitor every time you use your card. I say no. I say my shop will not help them spy on my customers."

> My jaw dropped.

> "You think it's no big deal maybe? What is the problem with government knowing when you buy coffee? Because it's one way they know where you are, where you been. Why you think I left Turkey? Where you have government always spying on the people, is no good. I move here twenty years ago for freedom -- I no help them take freedom away."

> "You're going to lose so many sales," I blurted. I wanted to tell him he was a hero and shake his hand, but that was what came out. "Everyone uses debit cards."

> "Maybe not so much anymore. Maybe my customers come here because they know I love freedom too. I am making sign for window. Maybe other stores do the same. I hear the ACLU will sue them for this."

> "You've got all my business from now on," I said. I meant it. I reached into my pocket. "Um, I don't have any cash, though."

> He pursed his lips and nodded. "Many peoples say the same thing. Is OK. You give today's money to the ACLU."

> In two minutes, the Turk and I had exchanged more words than we had in all the time I'd been coming to his shop. I had no idea he had all these passions. I just thought of him as my friendly neighborhood caffeine dealer. Now I shook his hand and when I left his store, I felt like he and I had joined a team. A secret team.

As much as I appreciate the sentiment, this reminds me why I can't ever make it through more than a few pages of Doctorow, with the exception of Down and Out in the Magic Kingdom.

I feel the same way about Doctorow, and I couldn't even get through more than the first chapter of Down and Out in the Magic Kingdom. It had an interesting setting, but was focused on a boring guy with a boring job.

I'm genuinely curious, if any of his fans are reading this, what is his appeal? Is it the political messages and well-drawn near future settings?

I definitely have the same reaction to "cash only", usually preceded by "ugh, that's so inconvenient".

I can also never think of a good enough reason for this, especially in the UK where vendor-expensive Amex cards are far less common, and the majority of people use debit cards. To me, its severely inconveniencing customers - I know personally I've gone elsewhere to a different merchant that will accept my card to make a purchase.

On my case it's actually the opposite, I only pay in cash for almost everything and use the card only when necessary or for a large transfer.

I too have caught myself choosing retailers that I know will accept Apple Pay with an Amex. The convenience is almost as great as the cashback points incentive.

Whenever I see a very popular business (usually a bar or restaurant) that takes "Cash Only". I think to myself "Tax Evader". Which may or may not be true

If you want to be friendly with your bartender and other people with similar businesses, pay with cash and tip with cash. I almost always do.

In the US they are more likely trying to evade the "credit card company tax". For a small business that has transactions in the single digit dollar range those are quite substantial.

IIRC there's a minimum processing fee. That's why lots of places have signs like "$5 minimum card transaction"

You can still buy gold (and if they try to ban that, they'd have to ban jewellery also, so good luck trying that). Gold isn't actually that dense - in terms of currency it's about as dense as $50 bills[1]. Platinum or palladium maybe?

[1] Assuming this site: http://1000000-euro.de/how-much-does-a-million-dollars-weigh... is correct.

Edit: Of course I'm confusing density with mass. Anyone want to work out the volume?

> and if they try to ban that, they'd have to ban jewellery also, so good luck trying that

But they did ban gold in the US in 1933 without banning jewellery[0]. The ban doesn't have to be perfect to be useful to a government.

[0] https://en.wikipedia.org/wiki/Executive_Order_6102


When it's legal it's not tax evasion, by definition. The corporations will push the letter of the law as far as they can, which is their right - it's up to us to get the tax laws right.

The first step on getting it right is not having the highest corporate tax rate in the world. Let's incentivize the corporations to repatriate their money.

Civil disobedience matters. Use cash and cryptocurrencies only.

Italy's limit has been raised from 999.99 to 2999.99 at the beginning of the year. It means you couldn't pay 1000 in cash, now it's 3000.

Any banknote larger than 50 Euro is very uncommon here. ATMs don't give them. Anecdote: I was sure the 200 one is green and when I googled for the 100 note I discovered that it's the 100 which is green; the 200 is yellow. I remembered correctly that the 500 is pink.

Doing without the 100 USD bill would be problematic for tourists in those countries with very minimal credit card penetration and that insist to accept only pristine very recent bills, the ones that in the West would be looked at with suspicion. Example: former USSR central Asia countries.

> Any banknote larger than 50 Euro is very uncommon here. ATMs don't give them

Very uncommon yes, but I've gotten 100€ notes from ATMs when withdrawing ~250€.

Regardless of credit card penetration (and/or fees that might be applied) it's a good idea to take some money, and if your currency is not very popular you buy Euros or Dollars in the country you're coming from

And despite all this, the EU still issues one of the world's largest banknotes, the €500 note.

I've never seen one in the wild, and only ever actually seen one in person when I. Was in school - they had one to show us what it looks like

You see them on occasion (but not commonly) in Austria & Germany. I commonly see 100 euro bills and 200 are not that rare either.

I believe that once when paying the security deposit for an apartment in Vienna I used a 500 euro bill & it phased no one.

Having no high denomination bills is also very problematic.

I witnessed it firsthand in Argentina until very recently, and in Venezuela and other hyper-inflation countries it's still a huge burden.

Spanish-language links:


Translated quote: "Not having higher denomination bills leads to very high costs in transportation and storage because of the large volumes handled and because bills don't fit in small safes."

Other curious facts: Singapore has a 10.000 dollar bill (U$ 7.500), and Switzerland has a 1000 CHF bill (U$ 1070).

However, the Singapore bill won't be printed anymore, for the same issues (money laundering concerns).


Random aside, but:

I was once next in line at a bank in Singapore, and I watched the lady in front of me withdraw around 10 x $10,000 bills in cash. (They're golden yellow and very distinctive: http://www.singaporemint.com/images/facts/port10000.gif) She counted them carefully, then she put them in her purse and walked away.

Now Singapore's a pretty safe place to be, but how many other people watching were tempted to follow her and see if they could get their hands on US$75,000, in cool, untraceable cash at that?

Japan has similar behaviour. For example, it's common practice to pay cash for new cars. (Or at least it used to be not very long ago).

I'm not registering to read full article but the other mainstream articles list curbing terrorism & crime as the main reasons. None mention the possibility of cash withdrawl in a negative rate environment. (Can anyone verify?) But I find it hard to believe we'll go negative since it would destroy the money markets, & possibly pensions.

That's starting already:


Man can you imagine getting a letter like this when you're 75 ? What are these people to do ?

Having worked in a trading company for some time, investing in anything not backed by a government, especially a retirement money, seems as a bit of a reckless idea to me.

I don't want huge denominations, but assuming inflation over the last 50 years, seems to me that we should have a $500US note.

Yes, I understand if LE had their way we'd be paying with 5-spots, but convenience has to mean something also. Let's bring back the $500 bill and then index the entire thing to inflation such that there isn't more than a dozen or so steps between the smallest and largest monetary units.

I don't think this is a political discussion/argument we need to have constantly. Fix it once and then leave it alone. I'm also completely opposed to eliminating all currency and going totally electronic, which sounds like an even more dystopian state than the current one our betters have created for us over the last decade or two.

Considering Europe's experience with high denomination notes, I strongly think this is a bad idea. In fact, Europe is considering eliminating €200 and €500 notes, since they're mostly used for illegal activities. Example: 75% of the cash in Spain is in €500 bills[1]. Considering me and most people I've known have only taken a glimpse at those (and usually, when getting paid under the table), this roughly means €45B in cash, used for corruption, illegal enterprises and tax evasion (really, few other practical cases exist for such high value notes) is flowing through our economy.

[1] http://www.abc.es/economia/abci-75-por-ciento-efectivo-circu...

If you look carefully, there's no evidence it's used for "criminal activities". In fact the article says there is only "growing concern" that they may be being used for criminal activities. Where is the evidence? They just know its not moving through the system, so there for it must be criminals.

A large portion of this I see as people moving their transactions outside of the banking system. The main reasons are a loss in faith is the financial system (especially in Europe). The banking system is very expensive, and very shaky. Just look at Deutsche Bank at the moment. And the Europeans all remember the situation that unfolded near them in Cyprus.

Over time there will be more and more of the general economic transactions happening outside of the banking sector as the banking sector seeks to extract more wealth to pay off their bad debts and improve their solvency with haircuts, negative interest rates, bank holidays, bail ins, bail outs or capital controls.

It's an extremely dangerous option to try, though, as it could lead to people losing faith with the system even more and shows how desperate they are. Things might be worse behind the scenes than they look on the surface.

As an investor in Spain I've seen a lot of it used for not very legal activities. They used to have something called 'B money' on probably most property sales where you paid one amount say 170,000 euro officially and maybe 20,000 in cash B money so as to avoid the government stamp duty on the sale price. It was kind of tolerated and legally a bit grey. It would be more hassle to do if you had to count out 200 bank notes rather than 20. There also used to be a lot of property bought for cash with drug money which was of course illegal but went on a fair bit.

There's "illegal" and then there's "shady"

We see a lot of that in the states. You'll buy a car for $1500. Both of you call the "official" price $500. The seller pays less sales tax. You pay less property tax.

Yes, illegal. But drug-running it's not.

It's one thing to want to make things tough on drug dealers or terrorists. It's something else entirely to want to be able to observe and control every instance of money moving through the economy. We have to ask ourselves what the real goal is here. Or maybe a better question is: where are we going to end up?

I know in the states we've seen a lot of drastic action around organized crime, mobs, and drugs. We had the RICO statute, then various laws around money movement. All passed because of severe and dangerous threats. But now? All of that heavy firepower we passed to prevent severe threats is applied to the average citizen. The effects are not pleasant to observe.

I'm okay with that. I just think we should solve this once, instead of continuing to turn the screws with less and less denominations. That was the thrust of my post. Pick an answer, index it, and let's just move on. Otherwise your argument will always hold true, no matter what notes are in circulation.

Having said that, I notice that we might be moving towards an environment of negative interest rates. If that's the case? Then it makes sense for everybody to warehouse cash, not just drug lords and terrorists. Having larger denominations could be tremendously useful to tons of legitimate organizations.

Downfall Hitler spoof video related to negative interest rates I was watching yesterday: https://vimeo.com/65679960

The denomination has nothing to do with it. one 500EUR bill or five 100EUR bills, the extra weight of this transaction will not stop alleged criminal activities.

I vote for a 1000EUR bill!

All cash transactions will now have to be done in coin. Have a weighty day.

In the unfolding of this agenda, when they invariably claim only criminals use these notes, remember what they mean by "criminal". It is anyone who holds wealth outside of the mainstream financial system where they, the government and banks, could confiscate it with negative interest rates.

Negative interest rates will never "work" without also having capital controls.

I think this signals the end of our version of capitalism at least considering that each attempt to restart the growth of the mid-20th century hasn't been successful in any way. Eventually, we'll just have to accept two basic truths: you can't get ROI in excess of the factors of production & that squeezing labor only leads to unemployed under-consuming pops. Just my weird thoughts on the matter.

Not sure how negative interest rates confiscate money? The value of money is hollowed by inflation, and central banks use negative interest rates as a tool to try to increase inflation. If there is zero or near-zero inflation (People will always argue about what inflation is and what the level is, but for the sake of discussion assume it's a very low positive number) -- what is the problem with a central bank having an interest rate of, say, -0.25%?

Note that I'm talking about monetary policy now, that is central bank interest rates. Not commercial bank savings rates. The latter are typically either zero or slightly positive even if the central banks rate is negative.

The net effect of negative interest rates is to transfer wealth from savers to debtors. This would reduce the amount of total debt that's crushing the economy, theoretically leading to growth. But would do so by confiscating wealth from savers either indirectly through inflation, or directly through depositor fees combined with capital controls. Effectively it will reward all those who have taken on too much debt and punish all those who have been prudent and saved. A very perverse incentive indeed.

In a negative interest rate environment inflation is not going to be a very low positive number. It is going to be much higher. That's half the aim. To inflate away the debt and pay it off with cheaper money. Instead of banks needing to pay the central bank to borrow money, the central bank is going to pay them to take it. And they have the power to coin. Inflation is going to be dramatically higher.

In my opinion, what should be done now is to let the market crash. The long term cause of the crisis has been the constant effort to stop the business cycle from occurring. Instead of having lots of little, regular, mini 'crashes' that would reallocate capital to solid businesses and erase bad debt, we have been propping up and preventing (to the best of the central banks ability) any markets' natural attempts to rebalance.

So we've had this enormous, multi-decade boom. 2008 was a chance to correct, and that was not allowed to happen. So now the bust we have will be ferocious and terrible, far worse than 2008 would have been. But there is nothing we can do. We should have taken our economic medicine years ago, and prevented these insane bankers from doing this for their own personal gain.

Central banks were established to 1) ensure a stable currency and 2) to be a lender of last resort. Since when did propping up the stock market become part of their purview? Or ensuring asset prices continue to rise?

If we don't take the medicine now with an economic down turn, then the problem will just grow bigger, and the next time it will be far, far worse. Just as now it is far worse than 2008. We are effectively screwing our children's prospects for our own greedy self interest. You can only kick the can down the road for so long. With each kick it becomes heavier. Its now a boulder. Eventually we'll break our metaphorical foot on it, trying to kick it.

> what is the problem with a central bank having an interest rate of, say, -0.25%

Because it's taking money from everyone and handing it to those in proportion to their ability qualify for negative rate loan, i.e., commercial banks.

Why would anyone think this is fair?

You can't ban $100 bills because huge number of those circulate in countries all around the world, most of them poor. Some families' fortunes consist of a few such bills in countries of Africa or Central Asia.

What's your plan here?

I highly doubt that the US would have any qualms about making a change to their own currency just because it would potentially inconvenience a few Africans/Asians

Bills are redesigned and go out of circulation all the time. USD is a bit special because it has been a de facto currency in many places outside the US for a long time, but that doesn't change the fact that anyone who sits on a $100 bill in whatever country, must be prepared to head to a bank and exchange it for a new $100 or two $50 before that $100 bill is no longer valid.

When there is a new design for any banknote, which happens every now and then (new security features added and so on) the issuing authority usually puts and end date to the old version a few years into the future. Otherwise it becomes very hard for the central bank to know how much money they have in circulation, and also they don't get the full benefit of the new security features if a lot of "old" money circulates along side it. As an example, I don't think any of the paper money I have in my wallet is of a design that has been valid for 15 years, or will be valid in 15 years from now. I have lived through the retirement of at least 10 different designs over the last decade, and at least three denominations were removed entirely.

That said, the use of US dollars outside the US might not be too sensitive to changes. I remember german D-marks still being a thing in the balkans even after the germans themselves switched to Euro!

All US paper money since at least the civil war (~1865) remains legal tender today.

The banks will stop giving that money out and start sending it back to the gov to be removed from circulation once you turn it in, but there is no date a discontinued note in the USA has to be turned in by.

Here's a source, there are many others. http://www.littletoncoin.com/webapp/wcs/stores/servlet/Displ...

That may be true in the US, and there may be legal ways to get the US government or US banks to exchange old notes for new notes, but good luck outside of the US finding someone who will trade old US currency for something of value today, or tomorrow for that matter.

For instance, I live outside the US and I have roughly $300 in older US $100 bills that was given to me and my wife as a gift for our wedding. No over-the-counter currency exchange or bank will accept the notes. I could probably find someone here to trade me something for the notes, but the effort/hassle is probably not worth it for such a low number of bills.

> exchange it for a new $100 or two $50 before that $100 bill is no longer valid.

What are you talking about?

> the issuing authority usually puts and end date to the old version a few years into the future

Not in the US.

> What are you talking about?

Apparently, how money works in most places but not in the US... I can't imagine it would be very controversial however, if US authorities announced that "in 10 years, banknotes older than the 1960's will be invalid, you can exchange them for new notes before that". Why would it be controversial? It would be a big change after having so old money being legal tender, but it would be understandable not least because old money without modern features is likely much easier to counterfeit than new.

In any case: banknotes expiring completely or being made invalid/replaced by new editions with the same denomination isn't anything strange, even if it would be news in the US. So in that light, removing some denominations of Euro notes wouldn't be controversial. Remember: all the EU countries already quite recently had ALL their original banknotes made invalid (after period of conversion, which I believe has ended a long time ago in the original EUR-countries).

> after period of conversion, which I believe has ended a long time ago in the original EUR-countries

That depends on the issuing country. I'd guess it's related to whether they expired their banknotes before the Euro.

French and Dutch banknotes are now invalid, but German Deutschemarks are valid for exchange at any Bundesbank indefinitely. The same applies to Austrian and Estonian currency.




The main issue here is actually the 500 euro note, not the $100 bill. The idea is that such notes fund a great deal of terrorist activities overseas, and I sort of agree that we shouldn't have such large denominations.

I would even be okay with getting rid of the $100 bill. Let's face it, people who deal in VERY large amounts of cash $100,000+ are not good people. Drug dealers or politicians (same thing in my opinion) don't use $20 bills as amounts that high get very cumbersome. If you find yourself in a situation with so many $20 bills that you physically can't carry them around, I have literally zero sympathy for you.

Slippery slope? Maybe, but as it stands I have no issue.

Except the note size is kind of secondary here.

Having limits on transactions over 1000 euro (like France) does forces law-abiding citizens to handle transactions in a way that can be monitored by the security services (the non-law abiding citizens of course just ignore the damn law or wash the money through a front).

It's yet another attack on privacy, if I want to buy a bike from someone legally and pay in cash for it what business is it of the governments, it's a private transaction between two parties for a legally owned and sold item.

I'm rapidly coming to the view that Orwell wasn't far of the mark with "If you want a vision of the future, imagine a boot stamping on a human face - forever." except instead of an actual jackboot we just have the complete removal of privacy, fear of the boot stamping on your face instead of an actual boot.

> The idea is that such notes fund a great deal of terrorist activities overseas

That's the bare faced lie masquerading as an excuse. The reason they want to get rid of it all of a sudden is to cut down on cash hoarding in a negative interest rate environment.

>If you find yourself in a situation with so many $20 bills that you physically can't carry them around, I have literally zero sympathy for you.

I lack sympathy for the banks that would see a deposit flight to cash in the event of negative interest rates they lobbied for.

I once paid a five-digit amount for a used car in cash, using 1000 chf bills. This would have been inconvenient with 20$ notes.

The only legal tender is cash (and coins). Bank accounts are not, they are just claims for legal tender. If Banks close or go bankrupt you have no way to get to your money quickly or painlessly.

But Apple Generation does not care. We are used to being watched and patronized.

Do you imagine that one iota of crime would be prevented by making drug lords pack an extra suitcase full of money? If not they why bother.

Yes. Carrying an extra suitcase is inconvenient, makes you more stressed and so more prone to making mistakes (or means you have to pay an extra lackey to carry it). None of this makes crime impossible but it raises the cost, which for some people will shift the balance in favour of legitimate business instead.

> Drug dealers and politicians (same thing in my opinion)

The number of things wrong with this statement. I don't like most politicians, but those two are very different. I'll just leave it there, because I don't even know where to begin to refute this.

Also, anyone that uses +$100,000 in cash is a bad person? This makes no sense. I run a charity, and if I choose to give cash to the organizations beneficiaries, is it evil? If I do the same thing personally and find $100,000 to give to charity or a family in need, am I evil now? Generalizing people who spend a lot of money (to you anyway, it's a very subjective and arbitrary definition of a lot of money) is just illogical.

would hate to see the death of cash. it would pretty much mean the entire black market would have nowhere to go. meaning a lot of people would be without an income. of course governments want this, but should they? http://freakonomics.com/2011/11/01/the-black-market-is-the-s...

Black Markets will find another exchange medium (they already exist) such as laundry detergent.


Edit: Article more in line with current discussion:


Maybe some of the more classic black markets, but the newer ones that use Bitcoin and are online are the way of the future anyway. I have a feeling many of the larger BM organizations would be fine if cash was eliminated today. I see this mainly hurting consumers and citizens.


in this surveillance society, cash is a threat because its still anonymous. Bitcoin is not anonymous!

one has to subscribe to see the whole article

To down-voters: for me the article posted did appeared pay-walled and I might not have been the only one to encounter it that way! Why the down-vote?

Your link doesn't work.

I didn't down vote, because it looks like WSJ is catching onto the game. Going to Google in the usual way doesn't work either.

Oh, I see what you mean, WSJ now opens pay-walled for me too, so it become a worthless help from my part.

There is always a "web" link under the article link at the top. That will (often) take you to a google result where the non-paywalled article can be found.

This article is ridiculously biased. The actual reason the EU reps want to phase out the 500€ bill is that according to the latest data, over 90% of those bills are used for criminal activity. Can't look up references well as I'm on the phone, but you read that right: only 10% of the bills are used by regular people. All the rest of it is used by crime syndicates because the larger the bill, the easier it is to move illegal money.

So logically if they phase out the largest note the drug dealers income stream doesn't get any smaller its just moved around in a lot more smaller increment and now you can logically say that some huge percentage of the new largest note is now used by criminals.

At what point do you stop to realize that you aren't doing anything useful to combat crime?

Eliminating the 500 EUR would leave the 200 EUR in circulation. Assuming the criminals shift to using that, they'll see a modest 2.5x increase in volume to transport. Somehow I doubt that would be a show stopper.

Clearly we should replace Euro notes with Rai Stones[1] :)

[1] https://en.wikipedia.org/wiki/Rai_stones

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