Some politicians want to ban cash, arguing that cash is helping criminals. The first steps in that direction are the withdrawal of big denomination notes and the limits imposed on cash payments, writes Thorsten Polleit.

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Proponents of a ban on cash claim that this will help fight criminal transactions – involved in money laundering, terrorism and tax evasion. These promises of salvation are used to get the general public to agree to a society without cash. But there is no convincing proof for the claim that the world without cash will be a better one.

Even if undesirable behavior is indeed financed by cash, you still need to answer the question: will the undesirable behavior disappear without cash? Or will those who commit the undesirable acts take to new ways and means to reach their goal?

Take the example of the 500 euro note. If we do away with it, won't those who wish to use cash pay with five 100 euro notes instead? Or ten 50 euro notes? And what about the costs imposed on the large majority of respectable people, if you put a ban on their cash? And anyway: Should we ban alcohol, because some can't handle it properly?

«Should we ban alcohol, because some can't handle it properly?»

The plan to restrict the use of cash, or to abolish it step by step, has nothing to do with the fight against crime. The real reason is that states want to introduce negative interest rates. That way, debt, which have gotten out of hand, primarily of states and banks, is devalued.

If you apply negative rates on bank deposits, customers in short or long run will try to avoid being dispossessed – for example by hoarding cash. To block this last escape route, proponents of the ban on cash want to do away with it.

Incidentally, some reputable economists are supporting the plan, claiming that the «natural rate» has become a negative rate. Because of that, central banks were forced to push interest rates below zero, being the only way to foster growth and employment. The assertion that the balanced interest rate has become negative doesn't stand up to a critical examination though.

«It is inherently impossible that the balanced interest rate is negative»

Without going into detail – suffice to say: it is inherently impossible that the balanced interest rate is negative. Market rates, which entail the balanced rate, can fall below zero, but not the balanced rate itself. The policy of negative rates is no cure for the economy but causes massive economic problems.

Banning cash is infringing on the freedom of citizens on a massive scale. In withdrawing cash, the citizen is bereft of choice for his payments. After all, the state has the monopoly on the production of money. There is no competition on cash. Thus, nobody but the state can satisfy the demand for money by citizens.

If the state bans cash, all transactions must be executed electronically. For the state to see who buys what when and who travels when where is then only a small step away. The citizen thus becomes completely transparent and his financial privacy is being lost. Even the prospect that a citizen can be spied upon at any time is an infringement on his right of freedom.

«Cash helps to protect the citizen from an unfettered intrusiveness by the state»

Cash helps to protect the citizen from an unfettered intrusiveness by the state. If the state increases taxes too much, citizens at least have the option to avoid the tribulation by paying in cash. The knowledge that citizens can do so, makes states hold back a little.

States will give up any restraint once cash has been banned. The justified concern isn't at all rendered obsolete by the reference to Sweden and Denmark, where the cashless society is said to function to its perfection. The citizens of those countries can still use foreign cash if they want.

The experiences with totalitarian regimes in the 20th century should teach each and every one not to give states more and more means and rights of control. In banning cash, society is taking a step closer to the dystopia of George Orwell described in «1984», closer than many might think today.

«The state is destroying more and more of the freedom of citizens and businesses»

The plan to ban cash – step by step – is a sign of the fundamental ailment of our time: the state is destroying more and more of the freedom of citizens and businesses, once it has turned into a territorial monopolist and highest judge on all conflicts.

And that's the very essence of the urge to ban cash: the state's irrepressible quest to expand. The state as a monopolist is uninhibited and beyond control. Even a minimal state turns into a big state over time as Hans-Hermann Hoppe, the economist and philosopher put it.

The fight to keep cash may bring something good though: it will shed light on the need to take the power away from the state as we know it, by applying the same principles of law on its actions as on those of each and every citizen. That way, his monopoly on producing cash would come to an end and the citizen wouldn't need to worry that he may be deprived of his cash against his will.

Thorsten Polleit, 49, is chief economist at gold trader Degussa and author of several books. He is also a professor of economics at the University of Bayreuth. The German citizen is president of the Ludwig von Mises Institut in Germany.