With people now able to buy things with a tweet, and Apple poised to push their mobile devices as electronic wallets, cash is set to take a serious demotion from its position as king.
A new study by Sauder Finance Professor Maurice Levi shows that not only is cash becoming increasingly redundant, but governments could save big and fight crime by axing currency all together.
“When you consider the cost cash creates for governments through tax evasion and its role in illicit markets, such as the drug trade, combined with the increasing number of electronic alternatives, it makes sense to stop the printing presses at the Bank of Canada,” says Levi.
The cost of cash
Even after accounting for revenue gained by printing money, the study suggests the Canadian government could save an amount equal to 50 per cent of the country’s 2011 fiscal deficit if cash were cut. He says similar savings would be found in other Western countries.
"When you consider the cost cash creates for governments through tax evasion and its role in illicit markets, such as the drug trade, combined with the increasing number of electronic alternatives, it makes sense to stop the printing presses at the Bank of Canada."
– Professor Maurice Levi
Levi’s study endeavors to estimate the full cost of the illicit activity associated with cash in Canada, including tax fraud and money laundering. He also accounts for costs of law enforcement, incarceration and adverse health resulting from the drug trade facilitated by anonymous cash transactions.
When the figures are added up, based on estimates by Statistics Canada and other studies sponsored by federal and provincial ministries, Levi suggests the government is out $17.9-billion per year.
This far outstrips revenue that the federal government accrues by supplying money to the Canadian market. By printing money and minting coins, the government realizes a profit equivalent to the face value of the money minus the cost of physically making it. In Canada, Levi estimates this amount to be $4.4-billion per year.
Making a dent in crime
Although Levi recognizes that the removal of cash from the monetary system is not going to completely stop tax avoidance and criminal activity supported by the anonymity of cash transactions, he insists that it will make a serious dent.
“Some tax evaders would still continue to try to fly below the radar, and undoubtedly the drug trade and other underworld markets would still find a way to subsist on some level,” says Levi. “However, there is little doubt these activities would inevitably shrink substantially in a world without cash.”