The global financial crisis opened the world’s eyes on how dependent we were on the big banks. Today, we could be held as much hostage to the banking system as we were before, if not much more. As several countries push for a dematerialization of payment means, have we already forgotten the lessons learned after the crash?
Many of the major banks in the U.S or in Europe still haven’t recovered fully from the multiple crashes and the collapse that shattered the system worldwide. At the time, many citizens realized how fragile the banking system was and they lost their trust. After Lehman Brothers’ bankruptcy many swore that never again they would allow the banks to play with their money like they had in the past. At the time, masses of several countries rushed to their banks to withdraw their assets and keep it in the form that seemed safer to them: cash.
Today, however, the prophets of media and governments around the world have asked us to start saying goodbye to physical money. They want to go cash-free. The idea seems wonderful, no more heavy coins in our pockets and no more ‘cling cling’ sound from the laundry machine. Instead of it; cards, mobile wallets, e-payment systems. We would live in societies where all of our assets are kept in banks, but not physically.
“When we deposit money in a bank, we are making a loan”(1) says Anat R. Admati professor of finance and economics at the Stanford Graduate School of Business. “JPMorgan Chase, America’s largest bank, had $2.4 trillion in assets as of June 30, and debts of $2.2 trillion: $1.2 trillion in deposits and $1 trillion in other debt. It was notable for surviving the crisis, but no bank that is so heavily indebted can be considered truly safe (…) outside of banking, healthy corporations rarely carry debts totaling more than 70 percent of their assets. Many thriving corporations borrow very little,” he added.
After the crisis we received implicit guarantees from governments that the banks would not be allowed to continue such practices. Today “the tendency is go the same way that we were going before but with some speed limits” says Stephen Olaffson, professor at the University of Reykjavik.
Yet, by going cashless if that’s the road we decide to take, banks will again be the only option we have for our assets. For them, the interest is tremendous in seeing governments voting regulations on cash and overall seeing less banknotes and coins in circulation. In addition to the benefits of having fewer employees there is one more incentive for banks to adopt the cashless closed system of banking. Since banks make money with money, “the more money a bank can control, the more profit it can make.”
Presently in U.S dollars alone, there are untold millions, if not billions of currency in circulation that are not under the control of any bank. This wealth is therefore in what we call the open monetary system; the system that would precisely disappear in a cashless world. All this money in circulation, under the mattresses, in pockets, piggy banks, dresser drawers and who know how many other places, would become history. In the coming cashless society, in order for one to be able to buy and sell, all money held by an individual must be deposited into the system regardless on how much trust the individual has for the banking system This means that all of the wealth that is now held by individuals will then be controlled by the banks and other financial institutions.
Do we want to live in a society where we keep allowing banks to have the same practices that caused the collapse that all hurt us, this time with all of our assets? Today, the transition is already happening. And we can start to ask ourselves the question ‘whose money is it anyway?’. Many people have their paychecks and other income deposited directly into their financial account, have loan payments, bill payment made by electronic fund transfer. Once this closed system is fully implemented and, we, have become cashless, all deposits and payments will be done electronically. Individuals will no longer be the first to have access to their money.
It is as scary as it sounds and banks love it. Pastor Guest wrote: “These are a few of the ways banks can make use of the cashless ‘closed’ monetary system to improve efficiency, security, and overall profitability. No doubt there are many other ways the banks and other financial institutions will be able to utilize the closed monetary system to maximize their profits.” It’s worth to think about it twice: whose money is it anyways?
(1)We’re all still hostages to the big banks, The New York Times, Anat R. Admati, August 25th 2013
Lauren Wright is a freelance business advisor.