In 1250 A.D., when the Florin was first issued in Florence, this gold coin kept a stable value for more than a hundred years. The Florin was accepted across Europe and its impressive stability encouraged international trade on the continent. Since then, currency has come a long way and evolved.

In 2016, with contactless payments on the rise, we are witnessing the downfall of paper money as various forces push us towards a cashless existence. Nowadays people send and receive money using their phone, a device that almost everyone carries with them on a daily basis. Referring to the freedom of Bitcoin and mobile devices for better or worse, someone famous recently quipped, “Everyone is walking around with a Swiss bank account in their pocket.”

There are various studies that make the call for a cashless society, and focus mainly on innovative upsides such as reduced transmission of germs without considering any downsides that may impact society itself as well as individuals.

Interestingly enough, a cashless economy would further push online black markets into the limelight which, according to a recent study, effectively lowers violent crime and improves purity of the illicit products. This can be explained due to the lack of interpersonal interaction between merchant and customer, therefore there is no potential for mugging or attack.

While street vendors and middlemen are affected by a cashless economy, organised crime and cartels have a solid connection to the traditional financial system and will not be influenced. Since banks were more than willing to launder their illicit funds in the past, cartels without ties to banks and financial institutions will then slowly be pressured out of the market.

Aftereffects of the 2008 recession

However, the biggest push towards a cashless economy may be motivated by the economic consequences of the last recession. Even though the technology to create an entirely cashless society has existed since the first electronic fund transfers started in the 70s, thus far there has not been the political will or machination necessary to implement such a significant change.

Now there are reports that leading policy makers at the latest Davos meeting were already emphatically calling for a cashless society. And as we have learned from the past, the last recession gave way to central bank action and influence of unprecedented proportions. Policy makers have consistently lowered interest rates in a rushed attempt to spark an economic return to growth.

Interest rates are now near zero in all the major economies such as European Union, USA, Japan and the UK. Yet economic recovery has been stifled and remains sluggish in Europe and Japan. In the U.S., growth has been higher, but not as high as during expansive periods in its past.

Worst of all, there is a meltdown in the making across the plane with China trying to perk up its economy by devaluing its currency, as well as reduced growth in other developed economies. At the same time, it seems impossible to continue printing new money at an unprecedented rate. The so-called quantitative easing has been creating ever larger national debts, with no clear plan as to how to unwind. To many, it seems like moving the goalpost towards larger disaster.

Measures left to spur the economy

It may soon be necessary for central banks to introduce negative rates. Countries like Denmark, Sweden and Switzerland, have had official negative interest rates for some time, and Japan has recently joined them. However, they are all still above -1%.

Also, in order to make lower negative interest rates effective, governments would have to steer towards a fully cashless economy. If interest is at zero, it is still reasonable to use a bank to store your money. Once it reaches -3%, you may quite rightly feel that your wealth would be better served in digital assets such as Bitcoin and Ethereum that are decoupled from the traditional financial system.

In other words, assets such as Gold, Bitcoin and even a dollar bill have no yield. The reason for this is simple — they are not supposed to. Real money is characterised by having no risk.

Official interest rates that are close to zero would still allow banks not to deduct from our accounts. But the narrative changes completely once interest rates are as low as -3%. At this level of negative interest rates, banks would have no choice but charge you to keep your money within the bank. Although in this context it may be perceived less as a ‘charge’ per se, and more as a form of financial pressure. Some analysts estimate that interest rates could go as low as -4.5% in the EU, -3.5% in Japan and -1.5% in the US.

Gold was; Bitcoin is the new money.

Striving towards a complete cashless society is likely to steer society towards archetypes considered money for centuries, such as gold. However, there is also evidence to suggest that this process will draw significant attention to digital assets such as Bitcoin, Ether and other decentralised currencies.

To provide support for the growing digital currency ecosystem, the team at Plutus has created an app that will allow users to simply download and convert their crypto to fiat via a built in peer to peer exchange.

Image Credit Duru Eksioglu