The end of cash: The government’s plan to control our money

Anyone who prefers to use cash even for bigger transactions simply because they value their privacy should still be able to do so. Unfortunately, the government intends to take that away from us. Why?

Łukasz Warzecha

In mid-February of last year, tensions between organizers of a protest by truck drivers in Canada against COVID regulations and the government in Ottawa reached a boiling point. A stalemate was brewing, with Prime Minister Justin Trudeau publicly declaring the protesters to be second-class citizens. The truck drivers, on the other hand, did not – despite increasingly difficult circumstances and freezing temperatures – crack under pressure to leave the streets they were blocking in the center of the Canadian capital. Subsequently, for the first time in the country’s history, the Canadian Prime Minister reached for a special emergency law and, under it, allowed the police to freeze the funds of those associated with or participating in the protest. This was a watershed moment. Within a week, the protest was broken up, participants arrested, trucks towed.

Such an effective police action, targeting protesters’ finances, was made possible by the fact that Canada is already a country with a very extensive cashless transaction system. By 2025, 97% of point-of-sale transactions are expected to take place in this form. In 2016, more than 45% of Canadians still admitted to paying with cash. By 2020, however, cashless payments accounted for 63% of all transactions.

However, Canada is not at the forefront of countries where citizens prefer cashless forms of payment. The Global Web Index conducted a survey in October 2020, covering more than 600,000 people in 46 countries around the world. The average for the survey as a whole is 60%, and Canada topped it by eight points and was ranked ninth together with Denmark and the Netherlands. Poland, on the other hand, took the podium with 75%, with only South Korea (77%) ahead, followed by Sweden in third place (74%). With that said, it is in Canada that the ambition to become the world’s first completely cashless country is officially spoken of.

What is enshrined in the Polish Deal?

Our government does not officially announce such ambitious plans, but quietly seeks to gradually eliminate cash. The next drastic restrictions on cash settlements, enshrined in the Polish Deal¹, were to take effect as early as this year, but have been pushed back 12 months. The thresholds are very low: in settlements between an individual and an entrepreneur – that is, in practice, in every purchase we make – they are set at PLN 20,000, and this will be the first time such a limit will affect ordinary people; between entrepreneurs it will be only PLN 8,000.

The rationale is the same as it has always been: this is to curb the gray market. However, this argument is hardly convincing. By introducing various solutions, such as online cash registers, the Law and Justice government has already greatly reduced the bypassing of the system. Are there any estimates of what can be additionally achieved by such radical steps?

One might have a sneaking suspicion that this is not about sealing the system at all, but about expanding the scope of control over citizens – a natural tendency of almost every central authority. The more cashless transactions and the lower the cash limits, the easier it is to trace citizens’ actions. Only a dozen months ago, the National Tax Administration was equipped with a highly questionable instrument: it was given the right to inspect citizens’ bank accounts without a court order. In view of the multiplying ambiguities, it was clarified over time that in order to obtain such an insight, the National Tax Administration will have to initiate pre-trial proceedings in a given person’s case, but this is still poor consolation. Such proceedings can be initiated on any pretext – a mere reasoned suspicion of a criminal and fiscal offense is sufficient – and then, after obtaining the necessary information, discontinued.

On the other hand, it is not the case, as some routinely argue, that “the honest have nothing to fear.” We are under no obligation to disclose all our purchases to the authorities, and if we want to hide them, it is not necessarily because they break the law. If someone prefers to use cash even for more serious transactions – simply because he values his privacy – then he should still be able to do so. Unfortunately, the government intends to take it away from him. Besides, the more opportunities for intrusion into citizens’ privacy and surveillance, the greater the temptation for corruption for those who have official access to such information, as well as for those in power to use such instruments against those who will not break the law, but will generally be troublemakers. Unfortunately, observation of the actions of the authorities – not only in Poland, by the way – against dissidents of various kinds does not allow us to trust that such powers will be used only for laudable purposes.

A new tool of repression

Another negative effect of cash displacement is the creation of a new instrument of repression – exactly what the Trudeau government used against unruly truck drivers during the Canadian protests. The absence of cash means that anyone can be blocked from accessing their money.

But there are also consequences that are less tangible, and no less significant: money is completely detached from its real value and turned into points awarded to citizens. The process of detaching money from its value was initiated roughly in the 18th century, when money, whether gold or silver, being the natural bearers of the value of the bullion from which it was made, began to replace payment tickets. Still, under normal conditions, money had an anchor in the form of gold parity. This ended definitively after World War II with the establishment of the Bretton Woods system. The move away from physical currency is the next step, and perhaps even a big leap on that path.

One result may be a much greater willingness to spend virtual money. Various research confirms this. Renowned researcher on psychological aspects of economics Drazen Prelec, a professor at the Sloan School of Management at the prestigious Massachusetts Institute of Technology, conducted the following experiment in 1999. An auction of already sold-out tickets to NBA league games – a commodity in great demand in the US – was held for students. Half of the participants were told that they could only pay in cash, the other half were told that they can only pay with a credit card. It turned out that those belonging to the second group were ready to bid even twice as high. And this is not the only such case. It shows that moving away from physical money is in the interest of those who care about selling us as many goods as possible.

Digital currencies. Is that the goal?

The ultimate goal may be to move to “central bank digital currency” (CBDC), or central bank digital currencies. This would mean the complete elimination of physical money already. Work on electronic currency is being carried out by many countries around the world, including the European Union. A pilot program is being implemented by Sweden, Australia and South Africa, among others. The most instructive and at the same time significant may be the story of Nigeria – an African country, however, not counted among the failed or decaying ones, like Somalia or South Africa. The Nigerian economy is functioning fairly normally: its GDP was ranked 31st in the world in 2022, although GDP per capita (145th) is performing poorly.

Last year, the government in Abuja began introducing the eNaira, a digital currency, with a plan to move to 100% virtual money. Despite the use of various ploys, incentives, and ultimately drastic restrictions on the withdrawal of cash from banks and ATMs, Nigerians are reluctant to accept the policy, and waves of protests have swept through the country.

Projects to create CBDCs have usually been justified on the grounds that cryptocurrencies – which are, after all, also virtual money – are gaining in popularity, so central banks need to create an alternative to them. However, this is hardly a convincing explanation. Cryptocurrencies are still the domain of a proliferation of citizens, so it’s not really clear why central banks would compete with them. Besides, the nature of the two projects is, counter-intuitively, completely different, although this may not be apparent to the layperson at first glance. After all, in both cases we are not talking about physical money.

However, in the case of digital currencies of central banks, we are talking about a system of points, issued and controlled entirely by these banks. Cryptocurrencies are something completely different. Not only are they not controlled by any central institution, but their foundation is the so-called blockchain technology, which guarantees total privacy. To put it in vastly simpler terms, the cryptocurrency held by a person is not “deposited” in some account or even on the hard drive of his or her computer, but exists in encrypted form in distributed cyberspace. This is the fundamental reason why states are fighting cryptocurrencies: they offer real and unprecedented independence from their financial systems, as well as privacy, though of course they also carry the risk of instability or lack of any institutional guarantees. But this is a risk that its holders accept.

In Poland, the defender of cash has so far turned out to be the president of the National Bank of Poland, Adam Glapinski. In October 2021, the media quoted his words, delivered at the opening of the 7th Cash Handling Congress: “Cash plays a key role in the economic system, and its elimination would be contrary to social expectations.” For now, however, the head of the NBP has not addressed plans to radically reduce cash payment limits starting in 2024.