Going Cashless: is convenience everything?

A good friend and FB buddy, who often poses interesting questions to his followers, had this (regarding a cashless society) to offer this morning:

I saw a recent article about how Sweden is fast moving to becoming a cashless society, where more and more financial transactions not only are not done in cash, in some instances, cash is simply not accepted. This even includes some banks. This causes problems for some, especially older folks who grew up doing every financial transaction in cash. But I wonder, how many of you have moved towards being more cashless, and using other means to pay for things, such as cards, or Smart Phones?

My response:

Oh my... where to start? OK, using plastic or an app to pay for stuff is certainly convenient, I'll give you that. I rarely write checks anymore, and all of our family utilities and most bill payments are on auto-pay, saving us a lot of time from month to month. So long as the economy is perking along nicely, and privacy and security are not issues, debit cards are a great way to transact, no question. Being the kind of guy who prefers having options, I like being able to choose between using cash or not.

But there are several downsides to the notion of going full-on digital as the Swedish government is attempting to do, with physical cash being banned, and you can bet if that godawful notion ever takes root in the US, personal liberty and financial stability will suffer.

You think corporate and governmental surveillance is bad now? Just wait until ALL wealth must, by decree, reside in a banking system known to be corrupt and risk-prone. The safety and security of your money in a bank, and your freedom as an individual in a cashless society, is greatly exaggerated, for reasons others on this thread have already mentioned.

It's NOT "your money" anymore

Many people don't realize that when you deposit money in a bank, you no longer "own" it... you voluntarily lend it to the bank, and your wealth becomes an asset for the bank to use as it wants. You in essence become an unsecured creditor to the bank, with the promise that your funds will be returned to you upon demand. Which works just fine so long as the bank is healthy. But when banks fail (and we needn't look far to see ample examples of that), then suddenly your money's no longer available.

Now, folks will brush that off, saying the FDIC has us covered, but the day of a crash and usually several days thereafter, you're screwed. And in the event of a major crash, such as we had in 2008-9, the FDIC simply won't have the funds to make everyone whole.

Then take a lesson from Cyprus in 2012. As a result of over-leveraging forced upon the tiny nation by the European Union, the state bank ran aground, and needed to be bailed out. Except that post 2008, a taxpayer bailout was both fiscally problematic and politically unsavory, so they did a bail-in -- the depositors themselves took the haircut, losing hundreds of thousands in assets to make their incompetent bank solvent again. This technique, performed on a relatively small scale, drew a lot of angry people into the streets of Nicosia for awhile, but in the end, they had no choice but to accept it. And thus the precedent was set. I predict the next crash of the US banking system will be dealt with using the Cyprus model: the taxpayers may be off the hook, but it will be that bank's depositors who shoulder the burden and take the losses.

If you have cash on-hand during a bank failure, you can stay afloat, but not if cash has been banned and all your wealth has been funneled into the banking system. Of course, in the event of an actual monetary failure leading to hyperinflation, even a hoard of cash won't do you much good (see Germany in the early 1920s). A newspaper costing 1 Deutschmark in May 1922 was 20 million marks by November. People were literally burning wheelbarrow loads of their otherwise useless currency to heat their homes. Crazy stuff has happened, and with every bank in the world now running on unbacked fiat currency, it can most definitely happen again.

I could go on and on about this topic, but I won't. My position is digital payments are all well and good, but the day the Federal Reserve and the government come around whining that the costs associated with printing physical cash are just too much to bear... well, buckle up, buttercups, it's gonna be a rough road ahead. In such an event, you'd best be holding some physical silver.