This blog has, in the past, posted my thoughts on the looming cashless society. While I have been distracted by the political theatre that has taken over the news cycle since the 2016 U.S. presidential election and the accompanying anti-Russia narrative, as you will see in this posting, those who we elect to put in charge of us are making significant moves to change the monetary system
Australia's Morrison government is led by Scott Morrison who was sworn in as Prime Minister in August 2018. He is a former Treasurer and, as such, has inside information on the nation's fiscal and monetary situation. The measure was recommended by a 2017 report entitled the Black Economy Task Force and was supposed to be in place in July 2019 but has been delayed until January 1, 2020.
The black economy task force report states the following:
"The black economy is a significant, complex and growing economic and social problem. In our opinion, it could have increased in size by up to 50 per cent since 2012.
The costs it entails are not only financial in nature (lower tax revenues and higher welfare costs), but also societal. The black economy is manifestly unfair, allowing some to play by their own rules and penalising businesses, employees and consumers who do the right thing. Under cover of the black economy, vulnerable workers are exploited, criminal groups flourish and social capital and trust are undermined.
The black economy is not standing still, but rapidly shifting and evolving in step with wider economic, technological and social changes. It is a growing problem which, if not dealt with, can develop a dangerous momentum of its own: a ‘race-to-the-bottom’ which we are already seeing in particular areas.
A sense of urgency is needed from policymakers, leaving behind business-as-usual approaches from the past. A new strategy and commitment is required: one which addresses underlying causes, not symptoms, while keeping regulatory burdens low; one which goes beyond tax; and one which breaks down agency silos and embraces joint action and the intelligent use of data and analytics. This Taskforce was a genuinely whole-of-government undertaking, bringing together 20 Commonwealth agencies.
This agenda has a clear purpose and objective: to make our society both fairer and more equitable by creating a level playing field. To the extent that this yields a revenue dividend, the Government’s capacity to fund needed services (or provide tax relief or lower deficits) will be greater.
Combatting the black economy is not just a matter for governments. We all need to be part of the solution." (my bolds)
Here is a graphic from the report showing the alleged indicators of a black economy in Australia's economy:
While these numbers are interesting, there is no way that governments can accurately assess the size of the black economy given that transactions are not reported to any government or bank.
To battle the black economy, the report proposed the following strategy (among others):
1.) Move to an economy-wide cash payment limit.
2.) Mandate the payment of salary and wages into bank accounts.
The authors note that there is already a drop in the use of cash for payments around the world:
That said, there are still a very significant portion of the general public that prefers to deal in cash for legitimate transactions. In fact, in Australia, 37 percent of payments are still made in cash.
Now, let's look at the legislation which is called "Currency (Restrictions on the Use of Cash) Bill 2019". In the draft version, we find the following:
1.) The limit for cash payments is set at $10,000.00
2.) The penalty for cash payments in excess of that amount will be punishable by two years in prison or 120 "penalty units" or both. Like me, you are probably not familiar with the term "penalty unit" so here is a table showing what a penalty unit is worth:
This means that 120 "penalty units" are worth $18,600.
Here are a few excerpts from the legislation:
While the Australian government is touting this legislation as an effort to shut down the black economy, there is one key reason why this legislation will be necessary everywhere at some point in time. Here is a graph showing the Reserve Bank of Australia's interest rates for the past three decades:
At 1 percent, Australia's key interest rate is at all-time lows. Any efforts by Australia's central bank to stimulate the economy will require a the bank to push interest rates into negative territory. With that in mind, let's look at a scenario. You have $1000 in currency/cash. You have two choices; you can deposit that cash into a bank account that is paying a negative interest rate and lose money or you can "hoard" the cash, using it to pay for your legitimate expenses. If you choose to hold cash, you are defeating the purpose of negative interest rates which are intended to stimulate the economy by getting you to spend. If the government insists on you spending your hoarded cash, one of the best ways to do it is to put a limit on the amount of cash that you can legally spend. While the $10,000 limit in the current legislation seems like a very high limit for most of us, there is nothing to stop Australia's politicians from lowering that amount in the future.
Let's close with a quote from the Citizens Electoral Council media release:
"This law is emphatically not about controlling money laundering and the black economy. The vast majority of money laundering and tax evasion is done by banks and corporations, not individuals. And who helps banks and corporations do it? The big four global accounting firms, including KPMG, whose boss Michael Andrew recommended this cash ban! The big four literally write the tax laws that enable corporations to evade tax, and dominate the offshore tax havens like the Cayman Islands that exist for tax evasion and money laundering. When Michael Andrew was the global boss of KPMG—the only Australian ever to lead the worldwide operations of a big four firm—two of KPMG’s biggest clients, British banks HSBC and Standard Chartered, were caught in 2012 by US authorities in massive money laundering operations. In other words, KPMG assisted its clients to launder money, but is using money laundering as the excuse to take away the rights of Australians to use cash!" (my bold)
Here are Michael Andrew's comments from the introduction to the Black Economy report:
Back to the CEC comments:
"Money laundering and tax evasion are nothing new, that they would suddenly require this “solution”. What is new is the plunge in the public’s confidence in the banks, especially since the global financial crisis. But instead of properly reforming the banks to restore the public’s confidence, through policies such as Glass-Steagall, which separates normal banking from the financial gambling that causes crises, authorities around the world have resorted to insane and in fact criminal measures that further destroy confidence in the banks.
Both bail-in and negative interest rates destroy confidence in the security of bank deposits, which motivates people to take their money out of the bank and hold it in cash. This is the experience in Japan and Europe. So like some European countries, Australia is banning cash to force people to use the banking system so they cannot escape these policies, under threat of two years jail."
Given that governments are rarely composed of individuals possessed with a single original thought and the fact that the world's central banks have boxed themselves into a near-zero interest rate "corner" just as they have in Australia, we can be assured that Australia's moves to a cashless society are a harbinger of things to come for all of us and most likely sooner rather than later. This is particularly pertinent given that we are now over ten years into the current economic expansion and that the Federal Reserve and other key central banks have almost no interest rate room left to stimulate the economy during the next recession. On the upside for the ruling class, governments know that banning the use of cash and promoting it based on reducing crime will certainly appease the sheeple among us who spend their days wondering what the Kardashian family is up to now.
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