During the 2024 Politics, Philosophy, and Economics League Competition at Ottawa University in Kansas, we were asked to evaluate a proposal to replace the paper dollar (and our coins) with a digital currency.
It was part of a competition where contestants had to approach their evaluations from a classical liberal perspective, listing all potential pros and cons of going cashless. This essay summarizes our findings.
Advantages
Digital currencies are more convenient than cash for both buyers and sellers. You do not need to go to an ATM to withdraw dollars before you shop at your grocery store. You can tap your debit card or scan your phone. The retailer does not need to waste time at the end of the day taking a bag of cash to the local bank. It is also a more convenient way for retailers to keep financial records – which helps run businesses more efficiently and aids in tax preparation.
Digital currencies provide more safety. If someone picks your pocket, the chance of tracking and recovering your paper dollar is next to zero. In contrast, your smartphone is password protected, while companies that issue debit cards offer theft protection (many times through helpful apps). Thus, you don’t lose a penny if someone runs away with your purse. And if you own a cashless gas station, a robber may take some liquor and cigarettes but not your daily sales receipts.
Finally, digital currencies will make it harder for terrorists and other criminals to hide their activities from local and international law enforcement agencies. Without the ability to move suitcases and containers filled with hundred-dollar bills, the bad actors will leave a traceable digital footprint for the FBI, DEA, ATF, CIA, NSA, DHS, Interpol, and countless others to prevent bomb threats, fentanyl smuggling, and human trafficking.
Pitfalls
A cashless economy would present a massive problem for millions of seniors who struggle to be tech-savvy due to vision impairments, anxiety about understanding computers, limited dexterity, and other barriers. In addition, millions of poor citizens (who currently pay cash for a third of their purchases) may be excluded from the formal economy because they do not have bank accounts. That is why some politicians in major metropolitan areas (where a sizeable portion of the residents are “unbanked”) — including Detroit, Michigan — have passed laws forcing businesses to accept cash.
Going cashless may increase the cost for the consumers, and that would hurt the poor the most. Credit card companies, for example, often charge fees between 1 and 3 percent on each transaction. In just one year, 2021, Visa and Mastercard earned $138 million in this way. Stores pass such costs on to their customers, even the poor who pay cash. It’s like adding a national consumption tax without an act of Congress, casting doubts on its constitutionality.
Letting our public servants trace all payments with the intent to decrease crime in a cashless economy can also become a weapon to intimidate and crush the opposition. It causes privacy concerns, as it could violate the Fourth Amendment of the Constitution, which reminds the federal institutions of their duty to protect our privacy. In 2023, at the Northwood University Freedom Seminar, George Mason University Professor Todd J. Zywicki warned of the danger of replacing cash with a government digital currency.
Conclusion
Paper dollars may be going the way of the gold and silver coins that joined the dodo in the gallery of extinction. Two out of 5 Americans no longer use cash. Almost 90% of payments in Swedish stores are cashless. From a classical liberal perspective (a.k.a. The Northwood Idea), the question is not so much cash or digital. The critical issue is preserving our individual right to choose with whom we trade, on what terms, and how we pay. Money is not a product of human design. It served man’s needs before the first alphabet was used to record financial transactions in Mesopotamia. Money resulted from voluntary human interactions long before the rise of the first civilization. People were already using salt as currency when they established the first government and wrote the first political law. And it would be best if we keep the government away from determining the future of money.
Editor’s note: This essay is featured in the Summer Edition of When Free to Choose, Northwood’s signature publication dedicated to promoting free enterprise. Click here to receive When Free to Choose in your inbox!
About the authors
Noel Tokarev is a dual enrollment student from Midland, Michigan. He coauthored this piece with fellow Northwood students Konner Lauria of West Branch, Michigan, and John Michelotti of Oak Park, Illinois.
