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Economy Title: How to end boom and bust: make cash illegal www.telegraph.co.uk How to end boom and bust: make cash illegal Comment: Forcing everyone to spend only by electronic means from an account held at a government-run bank would give the authorities far better tools to deal with recessions and economic booms, writes Jim Leaviss Gordon Brown speaks in the first televised general election debate between Gordon Brown of the Labour Party , David Cameron of the Conservative Party and Nick Clegg of the Liberal Democrat Party at ITV1 North West base studios on April 15, 2010 Gordon Brown promised to 'end boom and bust' but a cashless world would have given him far more chance to achieve it, academics suggest Photo: Getty Images This story is part of our "Money Lab" series, in which respected figures from the world of finance put forward controversial ideas for improving our personal finances or the economy. We will publish this story in print in "Your Money" this weekend along with the best comments from readers, so have your say below A proposed new law in Denmark could be the first step towards an economic revolution that sees physical currencies and normal bank accounts abolished and gives governments futuristic new tools to fight the cycle of “boom and bust”. The Danish proposal sounds innocuous enough on the surface – it would simply allow shops to refuse payments in cash and insist that customers use contactless debit cards or some other means of electronic payment. Officially, the aim is to ease “administrative and financial burdens”, such as the cost of hiring a security service to send cash to the bank, and is part of a programme of reforms aimed at boosting growth – there is evidence that high cash usage in an economy acts as a drag. But the move could be a key moment in the advent of “cashless societies”. And once all money exists only in bank accounts – monitored, or even directly controlled by the government – the authorities will be able to encourage us to spend more when the economy slows, or spend less when it is overheating. This may all sound far-fetched, but the idea has been developed in some detail by a Norwegian academic, Trond Andresen*. • Get sent the best of Telegraph Money once a week • Get sent the best Isa ideas from Telegraph Investor once a week In this futuristic world, all payments are made by contactless card, mobile phone apps or other electronic means, while notes and coins are abolished. Your current account will no longer be held with a bank, but with the government or the central bank. Banks still exist, and still lend money, but they get their funds from the central bank, not from depositors. Having everyone’s account at a single, central institution allows the authorities to either encourage or discourage people to spend. To boost spending, the bank imposes a negative interest rate on the money in everyone’s account – in effect, a tax on saving. Faced with seeing their money slowly confiscated, people are more likely to spend it on goods and services. When this change in behaviour takes place across the country, the economy gets a significant fillip. The recipient of cash responds in the same way, and also spends. Money circulates more quickly – or, as economists say, the “velocity of money” increases. What about the opposite situation – when the economy is overheating? The central bank or government will certainly drop any negative interest on credit balances, but it could go further and impose a tax on transactions. So whenever you use the money in your account to buy something, you pay a small penalty. That makes people less inclined to spend and more inclined to save, so reducing economic activity. Such an approach would be a far more effective way to damp an overheated economy than today’s blunt tool of a rise in the central bank’s official interest rate. • Interest rates predictions: 'July 2016 for first rise' • Nikkei at 20,000: will it hit '63m' by 2025? If this sounds rather fanciful, negative interest rates already exist in Denmark, where the central bank charges depositors 0.75pc a year, and in Switzerland. At the moment it’s easy for individuals to avoid seeing their money eroded this way – they can simply hold banknotes, stored either in a safe or under the proverbial mattress. But if notes and coins were abolished and the only way to hold money was through a government-controlled bank, there would be no escape. Apart from the control over the economy, there would be many other advantages of a cashless society. Such a system is much cheaper to run than one based on banknotes and coins. Forgery is impossible, as are robberies. Electronic money is an inclusive and convenient system, giving poor and rural sectors of an economy – where cash machines and bank branches may be few and far between and not all people have accounts – a tool for easy participation in the economy. Finally, the “black economy” will be hugely diminished, and tax evasion made all but impossible. Jim Leaviss is head of retail fixed interest at M&G Investments.
Poster Comment: Crazy socialists never quit...
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#1. To: tpaine (#0)
True. But the government can create money and do it in a way that is completely invisible. Taxation becomes less necessary if the government simply creates the money it uses to pay for things, without a trail or a tail. It's convenient, certainly. A system such as this would corral the cash economy. The logical extension of it would be the ongoing database of everything bought with money. In time, all but antiques would be registered through their sales, and that registration would allow for the wealth tax. The escape from the obvious oppression of it all is in Jesus - eschewing material wealth and turning to matters of the spirit. Also, learning to eat the weeds will certainly allow one a margin currently enjoyed by few.
They can inflate or deflate currency at will. The existence of cash impedes somewhat at present, mostly just acting to slow them. Long before that arrives, the robots will put most people out of work entirely.
Well at least you see the "obvious oppression of it all". -- But learning to eat weeds? -- You've lost me..
Long before that arrives, the robots will put most people out of work entirely. Theoretically, mass production of basic goods by robots would reduce costs to the point where they'd be given away if you bought a company's services or entertainment. -- Sound familiar?
That's right. Basic goods can be made so very cheaply that it makes more sense to make them and give them away than to make a market in them. Also, it eliminates one aspect of poverty relief. But food is a different kettle of fish, because as populations grow, pressures on food supplies make foodstuffs hold their value.
Let's see. A negative interest on savings to encourage people to spend. Got it. And to encourage people not to buy but to save? A high interest on savings? Nah. A higher tax on products. Win-win for the socialist government.
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