Plastic or ... plastic?

Photographer: Yuriko Nakao/Bloomberg

After Cash: All Fun and Games Until Somebody Loses a Bank Account

Megan McArdle is a Bloomberg View columnist. She wrote for the Daily Beast, Newsweek, the Atlantic and the Economist and founded the blog Asymmetrical Information. She is the author of "“The Up Side of Down: Why Failing Well Is the Key to Success.”
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The Bank of Korea is planning for a cashless society by 2020. Swedes are making the shift. I am intrigued but also troubled.

There’s a lot to like about the idea of a cashless society, starting with its effect on crime. The payoff to mugging people or snatching their bags has already declined dramatically, simply because fewer and fewer people are carrying cash around. I myself almost never have any of the stuff on hand. If it weren’t for the rising value of mobile phones, street crime would have largely lost its profit motive … and if better phone security makes it impossible to repurpose a stolen phone, that motive will approach zero.

A cashless society would also see a decline in the next level of robberies: stickups of retail outlets. There’s obviously no point in sticking a gun in the face of some liquor store clerk when all he can give you is the day’s credit card receipts. Even if these sorts of crimes are replaced by electronic thefts of equivalent value, this would still be a major improvement for society, simply because the threat of violent crime is uniquely terrifying and corrosive to community.

One step beyond that, there’s the effect on criminal enterprises, for whom cash is key. Making it impossible to transact business while keeping large amounts of money away from the watchful eye of the government will make it much harder to run an illegal operation. And while I love the tales of quirky bootleggers and tramp peddlers as much as the next fellow, the truth is that large criminal organizations are full of not very nice people, doing not very nice things, and it would be better for society if they stopped.

And one crime would be all but eliminated: tax evasion.

Then we should consider the other benefits of eliminating cash. Provided the payments system takes reasonable precautions, it’s impossible to burn up all your money in a fire, or forget where you stashed it. (My grandfather, a survivor of the Great Depression, adopted in his latter years the habit of stashing piles of cash around the house, just in case. My grandmother almost gave $10,000 to the church rummage sale, saved only by a last-minute decision to wash out the ancient teapot in which he had tucked the cash.)

And then there are the prosaic joys of walking around your daily life unencumbered by wallets full of pretty-colored pieces of paper and bags full of coins. Most of us are already moving toward a cashless society -- not because we care about the crime-fighting, but because the stuff is darned inconvenient.

What’s not to like? Very little. Except, and I’m afraid it’s a rather large exception, the amount of power that this gives the government over its citizens.

Consider the online gamblers who lost their money in overseas operations when the government froze their accounts. Now, what they were doing was indisputably illegal in these here United States, and I am not claiming that they were somehow deeply wronged. But consider how immense the power that was conferred upon the government by the electronic payments system; at a word, your money could simply vanish.

Now consider what might happen if the government made a mistake. When I was just starting out as a journalist, the State of New York swooped down and seized all the money out of one of my bank accounts. It turned out -- much later, after a series of telephone calls -- that they had lost my tax return for the year that I had resided in both Illinois and New York, discovered income on my federal tax return that had not appeared on my New York State tax return, sent some letters to that effect to an old address I hadn’t lived at for some time, and neatly lifted all the money out of my bank. It took months to get it back.

I didn’t starve, merely fretted. In our world of cash, friends and family can help out someone in a situation like that. In a cashless society, the government might intercept any transaction in which someone tried to lend money to the accused.

Unmonitored resources like cash create opportunities for criminals. But they also create a sort of cushion between ordinary people and a government with extraordinary powers. Removing that cushion leaves people who aren’t criminals vulnerable to intrusion into every remote corner of their lives.

We probably won’t notice how much this power grows every time we swipe a card instead of paying cash. The danger is that by the time we do notice, it will be too late. If we want to move toward a cashless society -- and apparently we do -- then we also need to think seriously about limiting the ability of the government to use the payments system as an instrument to control the behavior of its citizens.

This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.

To contact the author of this story:
Megan McArdle at mmcardle3@bloomberg.net

To contact the editor responsible for this story:
Philip Gray at philipgray@bloomberg.net