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Comment: Forcing everyone to spend only by electronic means from an account held at a government-run bank would give the authorities far better tools to deal with recessions and economic booms, writes Jim Leaviss







This story is part of our "Money Lab" series, in which respected figures from the world of finance put forward controversial ideas for improving our personal finances or the economy. We will publish this story in print in "Your Money" this weekend along with the best comments from readers, so have your say below


A proposed new law in Denmark could be the first step towards an economic revolution that sees physical currencies and normal bank accounts abolished and gives governments futuristic new tools to fight the cycle of “boom and bust”.

The Danish proposal sounds innocuous enough on the surface – it would simply allow shops to refuse payments in cash and insist that customers use contactless debit cards or some other means of electronic payment.

Officially, the aim is to ease “administrative and financial burdens”, such as the cost of hiring a security service to send cash to the bank, and is part of a programme of reforms aimed at boosting growth – there is evidence that high cash usage in an economy acts as a drag.

But the move could be a key moment in the advent of “cashless societies”. And once all money exists only in bank accounts – monitored, or even directly controlled by the government – the authorities will be able to encourage us to spend more when the economy slows, or spend less when it is overheating.

This may all sound far-fetched, but the idea has been developed in some detail by a Norwegian academic, Trond Andresen*.

In this futuristic world, all payments are made by contactless card, mobile phone apps or other electronic means, while notes and coins are abolished. Your current account will no longer be held with a bank, but with the government or the central bank. Banks still exist, and still lend money, but they get their funds from the central bank, not from depositors.

Having everyone’s account at a single, central institution allows the authorities to either encourage or discourage people to spend. To boost spending, the bank imposes a negative interest rate on the money in everyone’s account – in effect, a tax on saving.

Faced with seeing their money slowly confiscated, people are more likely to spend it on goods and services. When this change in behaviour takes place across the country, the economy gets a significant fillip.

The recipient of cash responds in the same way, and also spends. Money circulates more quickly – or, as economists say, the “velocity of money” increases.

What about the opposite situation – when the economy is overheating? The central bank or government will certainly drop any negative interest on credit balances, but it could go further and impose a tax on transactions.

So whenever you use the money in your account to buy something, you pay a small penalty. That makes people less inclined to spend and more inclined to save, so reducing economic activity.

Such an approach would be a far more effective way to damp an overheated economy than today’s blunt tool of a rise in the central bank’s official interest rate.


If this sounds rather fanciful, negative interest rates already exist in Denmark, where the central bank charges depositors 0.75pc a year, and in Switzerland.

At the moment it’s easy for individuals to avoid seeing their money eroded this way – they can simply hold banknotes, stored either in a safe or under the proverbial mattress.

But if notes and coins were abolished and the only way to hold money was through a government-controlled bank, there would be no escape.

Apart from the control over the economy, there would be many other advantages of a cashless society. Such a system is much cheaper to run than one based on banknotes and coins. Forgery is impossible, as are robberies.

Electronic money is an inclusive and convenient system, giving poor and rural sectors of an economy – where cash machines and bank branches may be few and far between and not all people have accounts – a tool for easy participation in the economy.

Finally, the “black economy” will be hugely diminished, and tax evasion made all but impossible.



Jim Leaviss is head of retail fixed interest at M&G Investments.




http://www.telegraph.co.uk/finance/personalfinance/comment/11602399/Ban-cash-end-boom-and-bust.html

Great :/. At this rate bitcoin and some other cryptocoins will have a bright but mostly illegal future :).

Illegal, but extremely bright future.  :P
People would side with Bitcoin, rather than with the Government, if such measures ever get implemented.

This is just fucking stupid and any of us who actually know anything about economics know that these investment groups and politicians directly benefit and engineer these economic recessions. Rather than actually fix the problem they seem to be looking at digital currencies as a much easier way to keep hyperinflating their currencies.

To end boom and bust, I would suggest the exact opposite. To make all electronic money (I'm not talking about cryptocurrencies) illegal, just like money creation by the banks by ending the fractional reserve system. Imagine that the only money banks would be allow to lend would be the same quantity of cash they actually have in their vaults. That would cause a huge slowdown of the economy, but that would clean the financial system.

All this would do is give the government more power then they already have.

Don't know if they create these recessions. They end up profiting anyway. True. But don't they profit more if there aren't major problems? I think they just don't care. Probably think that if they don't push the limits someone else will. So might as well be them making money.


That explains why most people have no influence in the government.

I wonder how many people actually still fall for this kind of stuff, not many I hope.

Just use Bitcoin or Goldpieces instead.

It definitely would push people to use some form of token.
We could go back to the olden days - corn, eggs, etc.

It's all just a big racket.

I choose elected government, rather than non-elected banksters. You are not taking power away from gov, instead you are giving rest of it to (private) banking sector. Every transaction, every gift you will ever give or recieve will be accounted for by people, who see you only as cash cow. Good job.

If virtual currency only solutions were that good to begin with, we would not have a discussion about BANNING its (far less controllable) alternatives.

Furthermore, it will give responsible groups (again banks and corporates) absolute control and power over economic boom/bust cycle and market manipulations. It wouldnt end, rest of the world would just have far less possibilities to defend itself.