With people now able to buy things with a tweet, and Apple poised to push their mobile devices as electronic wallets, cash is set to take a serious demotion from its position as king.
A recent study from the University of British Columbia’s Sauder School of Business now shows that not only is cash becoming increasingly redundant, but governments could save big by axing currency all together.
Even after accounting for revenue gained by printing money (a value referred to as seigniorage) the study by Sauder finance professor Maurice Levi suggests the Canadian government could save an amount equal to 50 per cent of the country’s 2011 fiscal deficit, if cash were cut. He says similar savings would be found in other western countries.
“When you consider the cost cash creates for governments through tax evasion and its role in illicit markets, such as the drug trade, combined with the increasing number of electronic alternatives, it makes sense to stop the printing presses at the Bank of Canada,” says Levi, whose study, Fiscal consequences of scrapping cash, is published in the most recent edition of the Journal of Payment Strategy and Systems.
In a world without cash, a trail of all payments and receipts could be followed to track down criminals and used as evidence in prosecutions, acting as a major deterrent for would-be criminals, says the researcher.
“Cash is the only payment method that preserves privacy and does not leave any trail, which is why it’s the currency of choice for criminals and tax evaders.”
Levi’s study endeavors to estimate the full cost of the illicit activity associated with cash in Canada, including tax fraud and money laundering. He also accounts for costs of law enforcement, incarceration and adverse health resulting from the drug trade facilitated by anonymous cash transactions.
When the figures are added up, based on estimates by Statistics Canada and other studies sponsored by federal and provincial ministries, Levi suggests the government is out $17.9-billion per year.
This far outstrips revenue the federal government is accruing by supplying money to the Canadian market. By printing money and minting coins, the government in essence realizes a profit equivalent to the face value of the money minus the cost of physically making it. In Canada, Levi estimates this amount to be $4.4-billion per year.
Although Levi recognizes that the removal of cash from the monetary system is not going to completely stop tax avoidance and criminal activity supported by cash transactions, he insists that it will make a serious dent.
“Some tax evaders would still continue to try to fly below the radar, and undoubtedly the drug trade and other underworld markets would still find a way to subsist on some level,” says Levi. “However, there is little doubt these activities would inevitably shrink substantially in a world without cash.”