Why Governments Seek To Eliminate Cash

Money is a medium of exchange with a recognized value to make it easy for individuals to trade products and services with one another. Historically, cultures have introduced portable tokens, or cash, to simplify the process.

However, cash can be used in criminal activities such as money laundering and tax evasion. Money laundering allows drug traffickers, human trafficking organizations, and corrupt groups to operate in an untraceable manner.

Types of Digital Transactions

Digital transactions or electronic money create an audit trail for law enforcement and financial institutions and aid governments in economic policymaking. Transactions using digital money may reduce administrative and currency costs and create transparency for consumers. Digital transactions can be completed with:

• Credit or Debit Card
• Mobile Wallets
• QR Code Payments
• Contactless Payments
• Online Banking
• Mobile Payment Apps like Venmo or Cash App
• ACH Money Transfers

The “War on Cash”

In 2016, the European Central Bank (ECB) eliminated the production of its €500 notes to curb fraud and money laundering. The note was the second-largest denomination across the euro currency zone, and the ECB claimed that it was the banknote of choice among criminals.

Since 2016, global policies have been implemented to thwart the use of cash in favor of digital currency transactions. In the United States, any financial institution that receives a cash deposit of more than $10,000 must report it to the IRS, making tracing illegal activity easier.

Promoting and tracking digital transaction amounts to a war on cash. Digital money transactions are handled by computers via the internet rather than passing through anyone’s hands. Critics argue that limiting the use of cash and forcing individuals to pay through banks or credit card companies compromises financial privacy, prevents interest accumulation on saved cash, and limits profits of small business owners who often rely on cash sales.

CBDC and Cryptocurrency

In the United States, Federal Reserve notes or physical currency are the money available to the general public. However, to keep up with advancements in blockchain and cryptocurrency, the Fed has been exploring a Central Bank Digital Currency (CBDC). Managed by the Federal Reserve, a CBDC would allow for digital payments and tracking of transactions and provide the safest digital asset available to citizens with no associated credit or liquidity risk.

As of 2024, more than 130 countries have explored using a Central Bank Digital Currency. Governments that introduce a CBDC enable a war on cash and cryptocurrency. Cryptocurrencies are virtual currencies and individual monetary units, convertible into fiat currency at a variable rate determined by supply and demand, but their use and value are not monitored or guaranteed by any agency.

Cryptocurrencies have not been widely adopted as a means of payment in the United States. They are subject to extreme price volatility and make consumers vulnerable to fraud and scams, according to the U.S. Federal Trade Commission.

The Bottom Line

A “war on cash” is defined as the use and promotion of digital currency. Cash is often traced to criminal activities such as money laundering and tax evasion. Using digital money creates a data trail as all transactions are handled using computers and the internet.