Australia’s march towards eradicating cash

Why the real agenda isn’t what they say it is and how it will affect us all.

It’s happened again and this time we really need to take notice.

4 Things You Need To Know:

1. The Australian government is banning all cash transactions over $10,000, with recommendations that it should be lowered to $5,000 or $2,000.
2. Based agreement by the G20 and guidance from the IMF, we will soon see the introduction of negative interest rates which means you’ll be paying to keep your money in the bank.
3. These Bills are designed to funnel trap people into the banking system and keep your money locked up.
4. And when another GFC happens and the Banks fail, guess who’s money they’ll be using to bail them out — Yours (Bail In Laws passed last year).

Scroll to the end for more information on what you can do.

Last Friday evening, sometime after 5pm, the Morrison government released their latest in a line of tough new laws designed to “protect” us, hard-working Australians, and our hard-earned incomes, from the scourge of the so-called “Black Economy”.

In response to money-laundering and terrorism funding(?), the government released their exposure draft, aptly entitled, “Currency (Restrictions on the Use of Cash) Bill 2019”.

The aim of this bill is to restrict/ban transactions by way of direct cash to a threshold of $10,000. What this effectively means is that, if this Bill gets passed, you won’t be able to use cash for anything over $10,000. You’ll have to pay for it using either a cheque or bank transfer. This proposed law will apply to the majority of financial transactions involving Business-to-Business, Business-to-Consumer and Consumer-to-Consumer.

Having a threshold on cash transactions may not sound too sinister but when we take a step back and look at the bigger picture…things start to get clearer.

It’s important that we consider 3 key points to understand what’s really at stake:

1. The Black Economy;
2. The Government’s Real Agenda;
3. The IMF and Negative Interest Rates.

The Black Economy

This term refers to people who operate entirely outside the tax and regulatory system or those who do not correctly report their tax obligations. According to the Australian Bureau of Statistics (ABS), it encompasses a wide range of practices, including understatement of takings, the payment and acceptance of “cashies”, centrelink fraud, sharing economy contractors and moonlighting.

According to The Black Economy Taskforce, a taskforce established by the government in 2016 to develop a multi–pronged policy response to combat this “scourge” in Australia, the black economy could be as large as 3% of the national GDP — in 2015/16; which equates to $50 billion and is purported to be growing year on year.

The Australian Taxation Office (ATO) have stated that illegal activities, including money laundering, must also be taken into account; which makes the total cost to the Aussie economy much larger.

As any Government would categorically state, participation in the black economy penalises honest taxpayers, undermines the integrity of Australia’s tax and welfare systems and creates an uneven playing field for the majority of small businesses doing the right thing.

Of course, you’d expect them to say this.

However, research published by the Reserve Bank of Australia (RBA) in July 2017 showed that cash accounted for 18 per cent of total merchant transactions (by value), falling to 11 per cent for payments of $501 or more. Furthermore, cash was actually disproportionately used by those in older age groups, accounting for 51% of payments (by number) for those aged over 65 years, compared with 37 per cent for all age groups. It was also disproportionately used by those in the lowest income quartile, accounting for 44% of payments.

Although much of the Government’s focus is on the criminal aspects; there’s a lot of stuff that’s out there that is not criminal by any means.

This shadow economy does have some positive effects. The earnings generated by the black economy is quickly spent in the formal sector contributing to refreshment of the economy. Businesses in the black economy may be more enterprising than regular ones because of the need to adapt and respond with far greater urgency to the customers’ needs.

In essence, it’s just that the income earned is not reported to the government; so, people who are cutting hair inside their house, Nana’s selling lamingtons, your tradie mates doing cashies. These are the people who will inevitably get caught up in the government’s crosshairs; lumped in with the drug dealers and money launderers (Crown casino…anyone?).

The question we need to ask is: how effective will this Cash Ban bill really be in eradicating the black economy?

Based on the research in the public domain… it won’t make much of a difference.

On the contrary, this bill, along with other recently introduced legislation may in fact erode our civil liberties and individual ownership rights.

Dr. Friedrich Schneider, an eminent Professor of Economics at the Johannes Kepler University of Linz, in his independent study titled, “Restricting or Abolishing Cash: An Effective Instrument for Fighting the Shadow Economy, Crime and Terrorism?” stated, “Cash has a minor influence on the shadow economy, crime and terrorism, but potentially has a major influence on civil liberties…in my opinion we have weak empirical evidence”.

Moreover, Schneider notes that countries such as Sweden, still have sizeable shadow economies even though cash payments have become rare.

To really tackle this problem, we need to go where the majority of our politicians aren’t willing to go.

It’s a well-known fact that the vast majority of money laundering and tax evasion isn’t carried out by mums & dad businesses, the corner shop, the restaurateur or the UberEats Brazilian student. Most of these activities that do damage to the economy are committed by the big banks and multinational corporations.

By now, we should all be aware of the misdeeds of the big banks from the Royal Commission, the hefty fines paid out by them when they’ve been caught assisting with alleged money launderers and the creative banking structures that help multinationals evade taxes.

However, to complete the circle, we need to add one more group to this list; the global accounting firms that audit/help them.

It has been well documented that these global firms are the architects of multinational tax avoidance. They don’t publish financial statements; they are structured through opaque partnerships and they have won $2.5 billion in government contracts over the past ten years; federal government alone.

Their cost to the taxpayer is immense. However, they don’t respond to criticism except to claim there is nothing wrong. A report commissioned by the UK Labour Party’s shadow chancellor of the exchequer, John McDonnell, called “Reforming the Auditing Industry”, exposed these accounting firms as complicit in the crimes of banks and big corporations. Yet, despite the economic risks posed by misleading accounting, these big firms have persuaded governments that litigation against them is an existential threat to the economy.

As a side note, the Black Economy Taskforce Report mentioned earlier was drafted by Michael Andrew AO (who died last month), a former chief of global accounting giant KPMG.

Conservative estimates place annual money laundering to be USD $2 trillion. Fighting the cash economy is a worthwhile aim, but we should be careful not to make changes that result in unintended consequences; especially if it ends up further marginalising the underprivileged, the unbanked, would-be entrepreneurs and senior citizens.

The Real Agenda

Source: Patrick Chappatte

So, if instituting a cash threshold provides only negligible impact; what is the true purpose behind this draft legislation?

To funnel people into the banking system and secure their funds. To force you to move your personal funds into private for-profit banks where you effectively lose your rights to use our own cash, legal tender, however you want to as individuals and be forced to use private banks whether we want to or not.

Let me reiterate, this has very little to do with Anti-Money Laundering or the funding of terrorism. It’s all to do with control and propping up the banks and our Central Banks so as to “preserve financial stability” in the event of another GFC.

Here’s the bigger Issue, the Cash Ban law when combined with the Bail In Laws, where your deposits can be taken to prop up big banks in the event of a financial crisis, effectively traps people so that if a bail in is imminent you can’t get your own money out of the banks.

For those that aren’t aware, the “Bail-In” Law was introduced in a similar fashion to the Cash-Ban draft legislation, very quietly on a Friday evening after 5pm with just 7 senators present.

This bill, the Financial Sector Legislation Amendment (Crisis Resolution Powers And Other Measures) Bill 2017 was passed into law on a voice vote. It was very likely that you saw very little or no press on this and yet the ramifications for all Australians are potentially huge.

Déjà vu?

This very long and complicated piece of legislation has at its core the bailing out distressed institutions as we saw in the GFC using not taxpayer’s money; rather in using the creditors of the bank to bail itself out — our own money that we’ve deposited.

The legislation allows the banking regulator, APRA, ‘crisis powers’ to secretly step in and run distressed banks. It allows APRA to then confiscate and write off certain types of bonds and hybrid securities and allows them to confiscate cash savings of SMSF’s and depositors’ savings; as it’s phrasing doesn’t specifically exclude that.

This Bill brings Australia into line with the “Bail-In” agenda of the Bank of International Settlements (BIS) as agreed by the G20. Along with the International Monetary Fund (IMF) directing its member states to “move towards a cashless society”. In other words, to keep people trapped in banks in order for Central Bank monetary policies to work in keeping the world’s economy stable. The world’s Central Banks appear to have learned their lesson from the crises of the GFC, Japan, Cyprus, Greece, Venezuela, etc.

And here I thought that this Government was supposed to be a free market government. Whatever happened to freedom of choice and basic rights to individual ownership?

The IMF and the Red Pill of Negative Interest Rates

Many of the world’s central banks have reduced interest rates to zero or almost zero during the GFC in the efforts to boost growth and maintain financial stability. Ten years later, interest rates remain at their lowest levels in most developed countries. Although the global economy has been recovering; the probability of instability is high making future downturns inevitable.

According to economists, severe recessions have historically required 3–6 percentage points cut in policy rates. If another crisis happens, few countries would have that kind of room for monetary policy to respond.

To get around this problem, a recent IMF staff study shows how central banks can set up a system that would make deeply negative interest rates a feasible option.

Furthermore, as specifically stated by the IMF:

“In a cashless world, there would be no lower bound on interest rates. The interest rate cut would transmit to bank deposits, loans, and bonds. Without cash, depositors would have to pay the negative interest rate to keep their money with the bank, making consumption and investment more attractive. This would jolt lending, boost demand, and stimulate the economy.”

Two things immediately jump out at me when reading this…1.) “In a cashless world; and 2.) “depositors would have to pay the negative interest rate to keep their money with the bank”.

Pay to keep their money…our own money?

In the IMF’s guidance paper, “Enabling Deep Negative Rates to Fight Recessions: A Guide”, they suggest reducing policy rates from, for example, 2% to minus 4% to counter a severe recession. Which effectively means that any money you hold in a bank…you’ll have to pay them to hold it for you.

Why would anyone want to deposit money into a bank then?

That’s where “a cashless society” makes things very handy for Governments and Central Banks.

You see, Central Banks treat their economies like a global fan-dangle machines with magical levers that they pull on to see what happens; specifically interest rates, money supply, foreign exchange rates.

Oh..oh…the economy is wobbling again. Let’s keep pulling the same levers…more and more. However, by allowing cash money to be taken out of the system, out of banks, it weakens a Central Banks ability to be able to do what they need to do with their monetary policy.

In a weak economy, negative interest rates can be seen as a way to discourage people from hoarding their cash money. If you have to pay for the privilege of holding cash in a bank, the theory goes, you’d be better off spending or investing instead. Or, in the case of banks, they’d be better off lending the money to consumers and businesses rather than keeping it in the central bank. In that sense, negative interest rates can be a way to kickstart economic activity.

Will it even work?

Although the negative consequences have been well-documented; market distortions, artificially incentivised risk taking, penalised savers, increased inequality, and strained pension funds, the true future impact of this type of Interventionist monetary policy is yet to be seen and felt. We’re very much in uncharted waters here.

Negative rates are not good. They are a clear sign of economic uncertainty, distress even and that fact alone is likely to limit its effectiveness.

We need a plan B

Source: Patrick Tanner

Researchers in the 1970s predicted that a cashless economy utilising a widespread debit card system would be the perfect surveillance tool. As banking expert Martin North observed that with this measure and many other legislations passed in recent years, “We are going to lose more and more of our ability to do the things we want to do”.

$10,000 is just the beginning: in June 2018, just after the Prime Minster announced the proposed ban; KPMG was already lobbying Treasury to lower the limit to $5,000 or even $2,000.

The Citizens Electoral Council sums it up by saying:

“Whether you use much cash or not, this still affects you, because it strips you of your right to use cash, and forces you to use the private banks. By doing so, it removes the power of consumers to keep the banking system honest, on such policies as bail-in and negative interest rates. The banking system is very important, but the government should be reforming it, not forcing people to use it.”

In reality the moment someone tells you in your private life that you’re “not allowed” to have something that is rightfully yours, and they try to take it from you; you cease to trust them and cut off the relationship. Why then, when it comes to Government, should things be any different?

What we need is a Plan B. If we wish to retain ultimate control over our money, how we want to use it and with whom, then it is critical that we start looking at asset classes which are outside of the banking system; whether its gold or Bitcoin.

Regardless, It’s time that we take notice of what is happening and act. NOW.

Here’s what you can do — We have 7 days left:

Write a quick email or letter submission to the Treasury consultation process, which closes on 12 August 2019, objecting to this law. (The government only provided a 14 day review window!)

Email: [email protected] with the subject line:

Submission: Exposure Draft — Currency (Restrictions on the Use of Cash) Bill 2019S

Address written submissions to:

Manager

Black Economy Division

Langton Cres

Parkes ACT 2600

Contact your local MP (and your Senators if you can), by email, phone or in person, informing them about this law (there’s a real chance they don’t know), and demanding they oppose it.

This piece was originally published in Medium

Yohann Azlee, Managing Partner at Northup & Bass, is a researcher, life-long learner and corporate advisor with passion for innovation, business intelligence and transformative technologies.