Member Article

Cashless society : Danes are doomed to trust the banks

Denmark has recently passed legislation to gradually discontinue the use of cash. For the Danish banks, it is one historical opportunity to become the only doorkeeper of their economy. Imagine a society where every single payment you make, even the smallest, is recorded and monitored by your bank… who may also charge you a fee for it. Welcome to Denmark.

Within the past year, the largest Scandinavian banks have stopped allowing cash withdrawals in most of their branches. Moreover, the entire Scandinavian financial industry has actively encouraged regulation limiting cash use in daily transactions in the name of fighting crime and even ‘protecting the environment’. Now the Danish law is even allowing individual providers of goods and services such as shops, restaurants and more to turn away customers who cannot pay electronically.

In other words, cash is being banned by the Danish Government because the banks said so.

Let’s backtrack a little to see how the banks have progressively come up with the idea of getting rid of cash, but have made their lobby so powerful that the Danish government has followed with a blind eye.

It is a well known fact that if falling rates exceed the costs of holding cash at home, or in a safe deposit box, people will rush to their banks to withdraw their savings. If interest rates go negative, bank account holders are encouraged to withdraw their savings and keep them as cash rather than on a bank account. With cash, you don’t pay any interest, so it’s always better to keep your cash under the mattress at home, than to keep it at a bank that will charge you for it. That -of course- doesn’t bring any benefit to the banks and that is where the war on cash begins.

If cash was to be abolished (which is almost the case in Denmark that has given itself 15 years to completely get rid of notes and coins), potentially any fiscal or monetary policy would be enforceable. For the banks, it would be ideal: the account holders would almost be forced to spend their money (and banks would get their fees) or to invest in riskier assets like stocks and bonds (where banks make most of their money). It’s a win or win policy… at least for the banks.

Are the Danes doomed to trust the banks? The answer is complex as there is no previous case in history. However, we know for sure that it could have disastrous effects on the economy resulting directly from these ‘malinvestments’. In other times, this could have been called a ‘confiscation of wealth’ and the accounts holders would be the first to take the hit. But it goes even further; living in a cashless country you cannot not have a bank account or use online wallets. It certainly deprives a good part of the population from their basic rights of using their money how they want (and in the form they have chosen).

Today in Europe, cash is widely trusted by its users. As the recent data shows, there is a growing cash circulation within the Eurozone, Switzerland and the UK. Banning cash would have tremendous consequences economically and socially. The dies may be cast for Denmark but it certainly isn’t for the rest of the European countries. In Denmark, we could very well witness a cash substitution phenomenon. Money is today materialized by notes and coins but it could as well be materialized differently if cash was to be banned. Meaning that the banks and their anti-cash war could very well turn back against them.

In the 19th century, the Austrian economist Carl Menger pointed the fact that ‘certain commodities came to be money quite naturally, as the result of economic relationships that were independent of the power of the state’ . Today in the Denmark, if the power of the state decides to go cash-free, nothing will impeach a lot of people to use near-money substitutes such as gold or silver or even other commodities that would facilitate their exchange of goods and services.

For the Danish case, we can already imagine that some fishermen villages in the remote coastal regions of Denmark would prefer to re-invent a local money rather than depend on the central banks’ or digital means of payments.

Up to this day, in these areas of Denmark, cash is so trusted that some fishermen or farmers would leave their productions in front of their houses while they are at sea or in the field and the customers would buy the goods by leaving cash money into their mailboxes.

So, is Denmark really ready for this transition?

The major cities and its banks certainly are, but it may rapidly create a double faced country with a local economy that escapes the power of banks. What will be their plan next? Only the future will tell.

This was posted in Bdaily's Members' News section by Patrick Wright .