I’d like to think that I’m no stranger to the history of money – whether it was tied to gold or fiat. I’ve been educated (in 2013) by no less than the great Mr Daniel Seng, who taught me the fundamentals of the history of the Global Economy between 1945 and 2000. I believe that this allows me some space to philosophize about the function of fiat money and whether it will continue to hold a place in our society in the decades to come.
After reading this article about the Nordic countries’ experiment with negative interest rates, I found myself thinking about the function of cash and fiat money within our society. The article talks about how the Swedish Central Bank’s (The Riksbank) policy of setting negative interest rates did not actually lead to a significant outflow of savings, or the ‘zero lower bound effect’. Instead, it seems that they have either left their money in the bank or spent it – which is precisely the effect that the policy was meant to cause.
Now it seems that this is a ‘delightful problem’ only because the Nordic countries have societies that are ‘already close to cashless’. However I have reason to believe that this trend will also extend towards other 1st world economies, particularly Singapore, and conducted my own pros and cons analysis of the situation, which I’ll explain later.
With the advent of apps such as DBS PayLah! and Dash, I find myself thinking that Singapore will begin to move towards this cashless society faster than most others. The benefits seem to overwhelm the negatives for the government: I doubt policymakers will look on it unkindly.
Even though Singapore gives up control over its domestic interest rates and money supply in exchange (ha) for the ability to control our exchange rates through managed floats, the fact is that Western economies are beginning to warm up to the idea of negative interest rates at the central bank level to encourage spending.
How does this affect Singapore? Well, to provide a simplified explanation, as our interest rates are freely floating, we take bearing from other countries’ interest rates. The ramifications of western economies implementing negative interest rates could have similar impact on Singapore’s rates.
Pros:
It lowers transaction costs. It becomes easier for us to conduct our day-to-day activities – with a single fingerprint, we can easily transfer the exact change. No more fumbling with wallets for us, and no more hassle splitting the bill. Payment by mail order,
We lower the incentive for pickpocketing and theft. In a cashless society, pickpocketing a wallet would give the thief negligible value for the risk he takes. As a caveat, petty crime and coercion may increase.
Easier to spot illegal activity – it would lead to easier spotting of crime hubs. Cash transactions are at the heart of the argument that only the wrong/bad have the need for privacy. The flesh trade, tax evasion and the drug trade would become easier to trace down, which I would call a good thing overall.
Greater accountability for taxation purposes. Accountancy will start to become a sunset industry. (Could be a con… but who enjoyed balancing the books anyway.)
Cons:
Risk of fraud greatly increases, until we are able to put in place effective systems to combat fraud.
Losing your card means losing your ability to pay for items. Does this mean a progression towards chips embedded in our arms even? Who knows. One of my commanders talked about his idea of tattooing his NRIC on his arm so that he doesn’t have to bring his IC with him. Just think about that.
Considerations of privacy abound – and they are probably the only major objection worth considering at this point for a technological hub like Singapore. Data collection will reach an unprecedented level and the parts of our economy structured around harnessing and using this data (FinTech) will grow.
Other countries have not begun to adapt to the technology that we put in place – if we start moving towards a cashless society, the existence of other countries’ and their use of fiat will lead us back to square one as we continue to do so. One solution would be to have them exchange their cash for SGD at the airport, but that creates inconvenience for tourists, and I don’t think we want to create a negative incentive for tourism. It depends on how extreme we want to take the principle.
People might not be able to adapt easily to the technology – mom and pop (or mama) stores may not be able to stump up the cash upfront for improved point-of-sales systems. However, when has that ever stopped Singapore from plodding onward?
Our banking and financial system will become more vulnerable to DDOS attacks – think the end of Fight Club, but on a digital level.
Perhaps one day in the not too distant future we will all be transferring cash through Pay Lah, and buying cigarettes through a QR code. Feel free to disagree with me, but just remember that I warned you about the potential ramifications.
After reading this article about the Nordic countries’ experiment with negative interest rates, I found myself thinking about the function of cash and fiat money within our society. The article talks about how the Swedish Central Bank’s (The Riksbank) policy of setting negative interest rates did not actually lead to a significant outflow of savings, or the ‘zero lower bound effect’. Instead, it seems that they have either left their money in the bank or spent it – which is precisely the effect that the policy was meant to cause.
Now it seems that this is a ‘delightful problem’ only because the Nordic countries have societies that are ‘already close to cashless’. However I have reason to believe that this trend will also extend towards other 1st world economies, particularly Singapore, and conducted my own pros and cons analysis of the situation, which I’ll explain later.
With the advent of apps such as DBS PayLah! and Dash, I find myself thinking that Singapore will begin to move towards this cashless society faster than most others. The benefits seem to overwhelm the negatives for the government: I doubt policymakers will look on it unkindly.
Even though Singapore gives up control over its domestic interest rates and money supply in exchange (ha) for the ability to control our exchange rates through managed floats, the fact is that Western economies are beginning to warm up to the idea of negative interest rates at the central bank level to encourage spending.
How does this affect Singapore? Well, to provide a simplified explanation, as our interest rates are freely floating, we take bearing from other countries’ interest rates. The ramifications of western economies implementing negative interest rates could have similar impact on Singapore’s rates.
Pros:
It lowers transaction costs. It becomes easier for us to conduct our day-to-day activities – with a single fingerprint, we can easily transfer the exact change. No more fumbling with wallets for us, and no more hassle splitting the bill. Payment by mail order,
We lower the incentive for pickpocketing and theft. In a cashless society, pickpocketing a wallet would give the thief negligible value for the risk he takes. As a caveat, petty crime and coercion may increase.
Easier to spot illegal activity – it would lead to easier spotting of crime hubs. Cash transactions are at the heart of the argument that only the wrong/bad have the need for privacy. The flesh trade, tax evasion and the drug trade would become easier to trace down, which I would call a good thing overall.
Greater accountability for taxation purposes. Accountancy will start to become a sunset industry. (Could be a con… but who enjoyed balancing the books anyway.)
Cons:
Risk of fraud greatly increases, until we are able to put in place effective systems to combat fraud.
Losing your card means losing your ability to pay for items. Does this mean a progression towards chips embedded in our arms even? Who knows. One of my commanders talked about his idea of tattooing his NRIC on his arm so that he doesn’t have to bring his IC with him. Just think about that.
Considerations of privacy abound – and they are probably the only major objection worth considering at this point for a technological hub like Singapore. Data collection will reach an unprecedented level and the parts of our economy structured around harnessing and using this data (FinTech) will grow.
Other countries have not begun to adapt to the technology that we put in place – if we start moving towards a cashless society, the existence of other countries’ and their use of fiat will lead us back to square one as we continue to do so. One solution would be to have them exchange their cash for SGD at the airport, but that creates inconvenience for tourists, and I don’t think we want to create a negative incentive for tourism. It depends on how extreme we want to take the principle.
People might not be able to adapt easily to the technology – mom and pop (or mama) stores may not be able to stump up the cash upfront for improved point-of-sales systems. However, when has that ever stopped Singapore from plodding onward?
Our banking and financial system will become more vulnerable to DDOS attacks – think the end of Fight Club, but on a digital level.
Perhaps one day in the not too distant future we will all be transferring cash through Pay Lah, and buying cigarettes through a QR code. Feel free to disagree with me, but just remember that I warned you about the potential ramifications.