Perpetually Greedy and One Step Behind

Government officials across the globe fired their latest salvos in the war on cash this week. Predictably, their arguments turned to terrorism and the black market.

That’s a lesson from debate class 101, by the way. If you’re looking to increase nanny state regulations, for example, link it to the welfare of children. It makes it very difficult for any opponents to stand up and say, ‘Sure, your legislation may save a few kids’ lives, but…’

No matter what comes after ‘but’, they’ve already got a steely advantage.

When it comes to the war on cash, the welfare of children hovers quietly in the background. The stronger focus is on terrorism, the illicit drug and firearms trade, human trafficking, and of course the billions of dollars in lost revenue.

It’s a neat package. And one that definitely puts us on the back foot in the defence of your cash. Not that this has ever stopped us before, mind you.

Let’s start here at home.

From The Australian Financial Review (my emphasis):

Biometric passports could be introduced for millions of the self-employed as a frontline weapon for combating the nation’s growing cash economy, which is already estimated to cost taxpayers at least $25 billion a year.

Two things are worth noting here.

First, the government is now concerned about our ‘growing cash economy’. Which is ironic, because just months ago, we were being told that cash was dead. With everyone using one touch payments and their smartphones, cash was headed the way of the dodo. ATMs were disappearing. Cash carried germs. It was clunky and inefficient. Goodbye cash.

But now it’s back. And conveniently growing. Which should concern you because cash is already costing taxpayers $25 billion a year. That’s the second point worth noting. We’ll get back to that dubious figure in a moment.

The article continues:

Recommendations being finalised by the federal government’s cash economy taskforce also include using microscopic tracking devices in high-denomination notes, such as $50 and $100, to expose cash economy abuses…

Michael Andrew, a former global chairman of KPMG and taskforce chairman, said everything from molecular science to global satellites must be considered in battling unlawful economic activity that is equivalent to about 2.5 per cent of gross domestic product

Nanotechnologies, which manipulate atoms and molecules, could be used to track the location and use of large numbers of high-denomination notes suspected of being used for cash economy transactions. It would complement strategies to transition to non-cash payments, digital wallets and new payment platforms.’

OK, let’s wade right in.

First, who doesn’t love the idea of microscopic tracking devices tucked into their back pocket? Move over, George Orwell. Michael Andrew has arrived.

Second, we’re told that unlawful cash activities are equivalent to about 2.5% of Australia’s GDP. And the latest figures from the ATO show the government snares 23.8% of GDP in taxes.

To give you an idea of what’s gotten the government’s panties in a wad, we put together this handy chart below.

Source: Markets & Money

The entire pie represents Australia’s GDP of roughly $1.5 trillion. The smaller slice is the 2.5% in ‘unlawful cash activities’. And the red sliver within that slice — helpfully marked ‘danger’ — is the government’s 23.8% take of that slice.

A quick bit of maths shows that represents about $9 billion in potentially lost tax revenue.

Now, $9 billion is nothing to sneeze at. But it’s less…a lot less…than the $25 billion a year the federal government’s cash economy taskforce estimates. Not to mention that the cash spent in the black market doesn’t simply disappear.

Let’s say you pay your gardener with a $100 note (minus any imbedded nanotechnologies). Odds are they won’t stick that under their mattress. Instead, they might spend it on petrol for their business. That petrol, in turn, is taxed. And the owner of the servo has made a profit, which they will then spend on other goods and services.

With that in mind, the projected $25 billion hit to taxpayers begins to sound ever more fabricated.

Now, to be clear, we do not advocate tax evasion of any kind. In the spirit of ‘many hands make light work’, if everyone chips in, the tax burden is lessened for all. Not that the government won’t spend it faster than it comes in…

But our point is that tax evasion isn’t the government’s real objective here at all.

The government more than tips its hand with the line that this will ‘complement strategies to transition to non-cash payments’. Make no mistake, that’s the one and only end goal here. Eliminating cash.

If there’s one thing governments hate, it’s a lack of control. And physical cash is far harder to control than the digital kind you spend when you swipe your debit card.

You can stash physical cash in a safe. It’s nearly impossible to trace when you choose to spend it. And though central banks have some powers to erode its value by stoking inflation, that power has proved unreliable in recent years.

That’s why the option to implement negative interest rates remains a tool central bankers salivate over. Yet it’s an impotent tool if you can pull your cash out of the bank and anonymously store it wherever you please.

Enter nanotechnologies and global satellites.

With tracking chips in all your notes — don’t for a second think the smaller denominations will be spared — the government will know exactly how much cash you’ve decided to hoard. And when central banks implement negative interest rates to ‘rescue’ the economy, you can bet that any cash in your safe will be hit with an equivalent tax.

We know this all sounds conspiratorial. But then we are talking about global satellites tracking the notes in your wallet.

Meanwhile over in Europe…

The war on cash isn’t isolated to any one nation. Unless every major global player switches to digital ‘cash’, the world’s central bankers will never have the power they believe they need.

With that in mind, the following headline from the AFR also caught my eye this week: ‘Stop flow of cash to terrorists, May pleads’.

The article went on to say (my emphasis):

Mrs May will tell world leaders at the G20 summit in Germany on Friday that they can “change the balance of the fight” against Islamic State by stopping the flow of cash to both major and “lone wolf” terrorist plots…

Mrs May will urge countries including Saudi Arabia… to share intelligence and technology that could detect even the smallest payments to would-be terrorists.’

We mentioned debate class 101 earlier. And here’s a great example. Hands up if you support terrorism! Anyone?

Of course not.

So surely you must support nations sharing information and technology to ‘detect even the smallest payments’. Don’t worry, you can trust world governments to only implement this against, well, whoever they label as terrorists. Not only today, but in 50 years…or 100.

Which brings us to our final point.

Fighting yesterday’s war

Let’s say the sheeple of the world swallow the latest propaganda blitz. And before you know it, nanotechnologies and global satellite networks are tracking every cash note on the planet.

Governments now monitor and control every financial transaction in the world. Tax revenues skyrocket. Black marketeers go out of business. And terrorists are starved of funds…if this were only the 20th century.

But it’s not.

Government officials and agencies have turned a blind eye towards reality. The reality of the booming world of cryptocurrencies.

Not that government won’t try to assert control over cryptos. But lumbering bureaucracies will always lag behind the nimble free market. We have no doubt that the tech wizards engineering the blockchain technology powering cryptos can evolve that tech as to keep one step ahead.

Cryptocurrencies are still in their infancy. New ones are coming onto market every day. Some will fail and take investors down with them. Others will see gains of 1,000% or more in a matter of weeks…or days.

It’s an exciting and risky new market. So risky that before you even consider investing in new or existing cryptos, you need to get the inside scoop here.

Bernd Struben,
Managing Editor, Money Morning

Editor’s note: The above article was originally published in Markets & Money.

Money Morning Australia