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Potential Negative Effects of a Cashless Society: Turning Citizens into Criminals

and other Economic Dangers

Article  in  Journal of Money Laundering Control · April 2019

DOI: 10.1108/JMLC-04-2018-0035

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 Emerald Master 0

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Potential Negative Effects of a Cashless Society: Turning
Citizens into Criminals and other Economic Dangers
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Journal: Journal of Money Laundering Control

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Manuscript ID JMLC-04-2018-0035

Manuscript Type: Scholarly Article

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Keywords: cashless, corruption, organized crime, money laundering, money

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3 Introduction
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A few years ago, at the ACJS conference in Orlando, Florida, a professor was discussing
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9 the topic of money laundering and organized crime. While the main topic of the professor’s
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11 presentation was interesting, the underlying policy rationale behind the professor’s study was
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13 that, in order to decrease crime governments should decrease the use and availability of money—
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16 specifically referring to paper money—circulating through its economy. The argument made
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18 sense to a point, because there have been numerous incidents where individuals have been
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20 targeted by criminal organizations primarily for carrying cash. To this, the professor’s point was
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23 clear—if you decrease the amount of cash in the economy, crime, specifically organized crime,
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25 will decrease, because it will (1) take away the opportunity for people to steal—because you
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27 can’t steal what someone doesn’t have—and it will (2) cause criminal organizations to no longer
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be able to fund their operations. Despite how reasonably sound the argument appeared, an
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32 individual in the audience raised their hand and asked a simple question, which noticeably
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34 flustered the professor. “Assuming the government could ban the use of paper money wouldn’t
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36 these organized criminal groups just use some other source of money, like Bitcoin, to fund their
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operations?” The professor’s answer was brief. “That’s too complicated for them [referring to
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41 organized criminals] to understand.” The purpose of this study is to show how that answer was,
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43 while not out of step with others in the field of criminology, ultimately incorrect, as it
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46 misunderstands: (1) what exactly is money, (2) the many ways that people may react to controls
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48 over the money supply, (3) and the opportunistic resourcefulness of organized criminals.
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The Argument For Cashless Economic Policies

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53 A cashless economy is not required to be completely devoid of cash. Instead, according
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56 to Ayoola (2013), it is “one which the amount of cash-based transactions are kept to the barest
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3 minimum while other forms of payment, especially electronic based payments, are utilized” (p.
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684). However, the ultimate goal of the cashless policy is to eventually achieve a cash free
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8 economy—i.e. “when all means of payments are carried out without the use of physical cash”
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10 (Ayoola, 2013). So, even when some external realities prevent a country’s government from
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forcing their economy to go completely cash free, the rationale behind the policy remains—to
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15 constantly push their economy further and further towards making less cash available to the
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17 public.
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The idea that if a government decreases its cash it will also decrease its crime rate is not
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new. Many of the proponents of this theory, in fact, go even further, arguing that the policy will
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24 have several positive effects, to include: (1) increasing government control over the money
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26 supply, (2) decreasing the amount the government has to spend on printing money, (3)
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29 decreasing theft, (4) decreasing corruption, and (5) encouraging many individuals within the
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31 population who do not currently have bank accounts to open them (Wright, 2014; Olusola,
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33 2013). All of these arguments make some degree of sense, and are possibly true to some extent.
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In fact, there have even been some economic researchers who agree (Woodford, 2010). In fact,
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38 in the last few years several nations have started to take steps to make this change to a cashless
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40 economy—with Sweden being the latest example. However, whether this policy will actually
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work is a matter of debate, and there are certainly some potential consequences from taking this
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45 step. However, in order to discuss this matter fully, this study will first explain a basic concept—
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47 money.
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49 What is Money?
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The answer to what exactly money is, may depend more on who you ask, when you ask
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55 them, and where you are. According to economic anthropologists, money has a cultural heritage.
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3 For example, according to Ingersoll (1883), many Native American groups used seashells,
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referred to as wampum, as a form of currency from the 1600s to the 1700s. As European settlers
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8 began to learn of the Native currency, they too began to accept shells as money. However, as the
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10 settlers began to flood the market in shells, they risked decreasing the shells’ value and inflating
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the price of goods. To stem this inflation, Dutch councils, established by the settlers, began to
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15 require standards for the types of shells that could be accepted. This worked to limit the number
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17 of acceptable shells in circulation, which kept their value stable. However, when Native
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individuals started hoarding shells, the rarity of the “legally accepted” wampum forced the Dutch
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councils to react again, increasing the shells’ value by twenty five percent. This eventually
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24 harmed the settlers who were conducting trade with the Natives, as the Native population refused
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26 to accept the Dutch council’s increased value placed on their currency. But, for those individuals
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29 who conducted trade primarily within the Dutch settlements, the shells maintained their value,
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31 even in relation to other currencies. In fact, according to Jacob Spicer, a wealthy individual who
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33 lived in Cape May County, New Jersey, after securing a bag full of wampum, compared the bag
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of wampum with an equal sized bag full of the same weight in silver coins and found the
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38 wampum to be more valuable by ten percent.
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40 However, despite the wampum’s acceptance and attributed value, its use was confined
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mostly to the United States and British Columbia, where it could be traded back to the Native
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45 populations. Separate from this region, where the Native’s cultural traditions reigned, the shells’
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47 inherent value seemed worthless. According to Baker and Jimerson (1992), “Money, primitive or
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49 modern, can be understood only in its context. [In fact,] [m]odern and primitive monies derive
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52 their definitive bundle of traits from the socioeconomic organization of the societies in which
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54 they appear” (p. 679). With that in mind, according to Ingersoll (1883), as the shells’ use
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3 gradually started to decrease—as younger Native Americans, cognizant of their inflated value,
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stopped using them entirely, and elderly Native Americans, prizing the shells more for their
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8 cultural meaning than their ascribed value in trade, held on to them so that they could be passed
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10 on with them in the afterlife—the shells general acceptance as a form of currency eventually died
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out in all but a few isolated trading locations.
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15 Therefore, in order for something to be considered as representative of money: (1) its
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17 supply must be limited, and (2) it must be culturally and readily accepted as payment for goods.
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So, as for the first requirement, the shells that were used as currency had to be believed to be
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rare. For example, in order to increase the rarity of the shells and the likelihood of their
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24 acceptance, an increased amount of labor had to be put into them. This would seem to fit Marx’s
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26 belief that money is only given value based on the value of the labor which is needed to produce
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29 it (Marx, 1976). Although, this is an extremely narrow definition of money, and ultimately it is
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31 incorrect. Regardless, once the number of shells in circulation increased, their value had to be
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33 regulated; so, limits on what shells could be accepted were adopted in order to prolong their use.
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When the rarity of the shells increased, because the number of shells in circulation decreased, the
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38 settlers again passed laws to increase the value of the shells they had, in order to again encourage
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40 their continued use in trade. This, however, had the unintended side-effect of further limiting
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trade with the Native populations—whose cultural traditions and beliefs were essential to the
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45 shells’ further survival as a currency.
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47 This then leads to the second requirement that the “money” must be culturally and readily
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49 accepted as payment for goods. As such, because the shells seemed to derive their value based
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52 primarily on the cultural acceptance that the Native American populations had for it—and only
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54 secondarily for the value the European populations had for it—when the value the Native
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3 populations placed on the shells declined, its use, even among the Europeans, eventually
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declined as well. Money, thus, can be thought of as more than just a lifeless medium of
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8 exchange, which can be used to trade for goods, and whose inherent value can simply be
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10 assumed. Money is, instead, a cultural idea, which grows up alongside the people who use and
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continue to believe in it, but it can die when that faith is lost—or when the people who believe in
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15 it die.
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17 What is Zombie-Money?
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However, unlike biological organisms, money, even formerly dead money, can resurface
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23 and live again—surviving in small isolated pockets of people who, either out of necessity or a
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25 continued belief, depend upon it for their own survival. As such, this “zombie-money” becomes
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27 something less than real money, as it may never become accepted in the general population;
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30 however, its use remains stable in small groups of like-minded individuals. Examples of objects
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32 used as a sort of “zombie-money” abound. In fact, according to Senn (1951), after September of
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34 1946, when The US and UK governments banned all “non-official transactions between Allied
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Soldiers and Germans” (p. 330), which included the conversion of Reichsmarks into dollars or
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39 pounds, cigarettes began to be used as a form of currency. However, the use of cigarettes as a
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41 form of currency was limited, not only by the small percentage of German nationals, who had
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become accustomed to bartering as a means of exchange and had started conducting trade with
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46 Soldiers only out of necessity, but also by the limited time the ban on the Reichsmarks stayed in
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48 place.
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According to Radford (1945), a similar use of cigarettes as currency also arose in POW
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53 camps during World War II, as cigarettes and food were made available to Allied prisoners of
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55 war from the Red Cross in the form of care packages. However, when the supply of cigarettes
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3 decreased and their value increased too high in relation to the cost of food, bartering became the
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primary means of trade. Further, when the supply of care packages decreased, short term forms
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8 of credit were made available by the Allied prisoners to those individuals without any cigarettes,
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10 to be paid back when the next shipment arrived. After D-Day, packages arrived more often, and
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the Allied prisoners established a shop to manage the amount of food being received. A form of
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15 paper money, which was referred to as Bully Marks, was created by the shop to symbolize the
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17 credit owed by the issuer, the shop, to the holder, the Allied prisoner, in order to purchase the
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food they received from their care packages. These Bully Marks could later be redeemed by the
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shop for food or for cigarettes; however, generally the Bully Marks were fixed to the price of
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24 food, which remained stable in relation to cigarettes. Over time, as the shop gained more control
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26 within the camp it began to fix the value of the bully mark, by limiting the access of food to the
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29 camp, in order to discourage black market trading of food outside the shop at a price which
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31 differed from that “recommended” by the shop. Eventually, the shop was able to establish the
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33 price of food both inside and outside its walls. However, when the number of available care
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packages began to fluctuate, the market within the camp fell into disarray, public opinion
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38 amongst the POWs turned against the shop, and the shop lost its power to regulate prices all
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40 together. At that point, the power of supply and demand completely free of regulations regained
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control over the market.

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45 These examples of “zombie-money,” whether in the form of Bully Marks, food,
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47 cigarettes, or sea shells1, exemplify the case that money, even in the most remote locations and
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49 regardless of its form, is still subject to market and cultural conditions. More specifically, the
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52 preceding discussion shows how money can be created from the establishment of trust between
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Other forms of money have included scrip money issued by mining companies, state government backed currency, token
56 money, such as copper buttons, and other unaccounted currencies issued by private corporations (See Timberlake 1981; 1987).
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3 individuals, in the form of credit, in order to help stave off the harsh effects wrought by the
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wildly fluctuating conditions of the global economy. It also shows how money can be created
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8 from the cultural beliefs of a people and how those beliefs can be shared with other individuals
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10 with entirely separate and distinct foundations, but who, in the course of seemingly random
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events, find themselves being ruled under similarly controlled circumstances. Further, it shows
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15 how money can live on in the minds of the people who accept it as a legitimate form of currency,
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17 but that it may also die when the faith of the people, which has been attributed to that money,
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similarly dies. Finally, while regulation over the money supply is possible, and maybe even
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necessary, public opinion in regards to that money is equally as important—if not more so.
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24 The Public Reaction to Government Regulation of Money
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27 Just as the Native Americans refused to honor the values set by the Dutch councils for
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30 shells, so too did the POWs refuse to honor the prices set for food when the availability of care
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32 packages became too chaotic and the established shop was unable to react fast enough to
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34 stabilize the market. Government control over the money supply and the market has its limits.
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There are even historical examples of this effect. For example, going back to even the earliest
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39 foundations of the United States, when England sought to control the price of goods and to
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41 increase taxes on products, such as tea, which were to be paid by the colonists without their input
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in order to discourage smuggling—which was itself a reaction to other duties imposed upon
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46 them2—this blind attempt to forcefully control the market without consideration from the
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48 citizenry simply lead to many unintended side-effects. Black markets, smuggling, the creation of
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new forms of money, and even revolutions can sprout up and overtake any regulations
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53 established by a government that has become too rigid and blind to the conditions affecting its
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Here, I am referring to England’s imposition of the Townshend Act of 1767 and the Tea Act of 1773, which eventually led to
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3 people. Therefore, if a government loses sight of the fact that money is a byproduct of the faith
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of its people, there may also be unintended side-effects that may negate the benefits from the
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8 change in policy.
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10 However, while these reactions by the people to regulations may spring up even in the
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face of the most seemingly reasonable forms of governmental control, they may also differ in
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15 terms of their relative size and effect. As such, regardless of the subjective definitions used to
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17 describe either “reasonableness” or “tyranny,” assuming these two definitions would fall along a
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scale associated with the severity of the various reactions of individuals within a society to
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governmental control, where “reasonableness” is less severe and “tyranny” is more so, all else
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24 being equal, a more reasonable policy change, for example, can be assumed to inspire less of a
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26 reaction from the general public, which would generate less of an effect (positive or negative) on
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29 society, than a more tyrannical change. The question then posed by a government’s imposition of
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31 a cashless economic policy is—not whether there would be a reaction, but—how large of a
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33 reaction would there be, and what effect would it have on that society?
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37 The Argument Against Cashless Economic Policies
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40 The one circumstance where one might, indeed, expect information technology to bring
41 an end to the use of national currency would be when an (authoritarian) government
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might prescribe that all transactions must go through an electronic device. It is not hard to
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44 imagine the advantages that a government might envisage from being able to record
45 (electronically) every payment that every agent in that country made. This is a perfectly
46 feasible Orwellian nightmare. (Goodhart, 2000, p. 198).
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48 Charles Goodhart, an economist at the London School of Economics, later went on to
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state that if an authoritarian government were to implement this sort of policy the individuals
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53 who live there would probably just convert their money into some other form of foreign currency
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55 or they would return to a commodity form of currency, which he stated could include anything
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3 from cigarettes to gold. To know for sure if that scenario would play out, we would need to find
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a country which has implemented this policy. Luckily one already exists, Nigeria, whose central
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8 bank, the Central Bank of Nigeria, adopted a cashless economic policy in 2012.
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10 While it would be unfair to call Nigeria an authoritarian regime, it would be fair to say
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that Nigeria’s government has had many tumultuous issues since their country declared
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15 independence in 1960. According to De Mesquita and Smith (2011) in their book “The
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17 Dictator’s Handbook”, at the time when Nigeria declared their independence they had high hopes
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that their country’s discovery of oil—which has been estimated to be the tenth largest oil reserve
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in the world—would help bring prosperity to all of their country’s citizens. However, since that
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24 time Nigeria has gone from a republic, to a military dictatorship, back to a republic temporarily
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26 for one election—which was quickly voided by the military powers, and the winner of which
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29 was declared a traitor, hunted down, arrested, and eventually died (probably of “natural causes”)
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31 in prison—and back to a dictatorship. Finally, in 1998, when the military dictator at the time,
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33 General Sani Abacha, died, the country swung back to become a republic again, which it has
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managed to maintain up to the present time of writing this paper. All the while, from 1960 to
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38 2000, the vast amount of wealth from oil, which was expected to “raise all tides” for the people
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40 of Nigeria, instead was squandered—mostly due to government corruption. In fact, according to
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De Mesquita and Smith (2011), poverty actually increased from a rate of 36 percent in 1970 to
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45 70 percent in 2000. To add to their misery, according to the CIA World Factbook, Nigeria has
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47 also been heavily used as a hub for trafficking cocaine and heroin into Europe, and it is a major
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49 center for money laundering (only recently coming off the Financial Action Task Force’s
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52 (FATF) list of “non-cooperative countries” in 2006).
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3 Since the government has transitioned back to a more stable democratic republic,
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conditions have improved; however, government corruption and allegations of voter fraud still
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8 remain an issue (Ekiti, April 2015). Because of this it is obvious to see why Nigeria may have
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10 wanted to reform their economy into a cashless system in order to cut back on corruption, drug
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trafficking, and money laundering (just to name a few issues). The question, however, is whether
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15 it has worked. And, the answer to that question, according to many economists in Nigeria, is “yes
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17 and no.”
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On the issue of corruption, according to Ayoola (2013), who looked at the effectiveness
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of the cashless policy on countering petty, grand, and systemic corruption, found that Nigeria’s
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24 cashless policy seemed to only effect “petty corruption.” Petty corruption is defined by Ayoola
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26 to be where junior level public sector employees accept tips, commissions, and kickbacks in
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29 exchange for “official services to be rendered”. These “official services” can include any and all
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31 basic administrative duties these employees are already supposed to do—i.e. their job—and it is
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33 essentially the white-collar equivalent of petty theft. However, the larger versions of corruption,
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which mainly regarded the political corruption of elected officials and the culture of corruption
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38 in the country as a whole—i.e. the types of corruption which led to Nigeria squandering its oil
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40 resources, and which essentially doubled the percentage of its population that fell into poverty—
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were left generally unaffected. This is a theme which ran through several reports. In fact,
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45 according to Ikpefan, et al (2015), not only did large scale corruption remain unaffected by the
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47 adoption of a cashless economic policy, but unemployment increased as well.

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49 Further, Nwankwo, et al (2013) found that the policy had another significant negative
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52 impact, in addition to those previously mentioned, which was to disenfranchise a large segment
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54 of the population from the economy. Criminals are not the only people who prefer to use cash.
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3 Many poor people who live in rural areas, and who may distrust banks, also prefer to operate in
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cash. However, preference is not the only issue. According to Sharman (2011), most of the
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8 world’s anti-money laundering (AML) provisions, which were designed largely for first world
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10 economies—like the US and UK—have been pushed by the FATF, the global enforcer of money
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laundering laws, to be adopted by third world countries, like Nigeria. Being labeled a “non-
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15 cooperative country” essentially cuts a country’s economy off from the global banking sector.
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17 This can have significant negative effects on a government’s economy to function, and it may
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precipitate regime change if the government is unable to pay its military—which could prove to
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be a problem in Nigeria, given its history.
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24 While these AML laws have positive effects, such as actually decreasing corruption,
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26 organized crime, and terrorist financing, they also come with many requirements—specifically,
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29 for an individual to open an account, they must be able to prove their identity. This is easy
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31 enough in a rich country, but it is less so in a poor one, where record keeping is not as organized
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33 and where obtaining official documentation may come with a price tag in the form of bribes,
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which many poor people may not be able to afford. In fact, according to Sharman (2011), “Over
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38 70 percent of adults in the developing world (2.7 billion) do not have access to the formal
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40 financial system” (p. 51). A cashless economic policy to these people means cutting them off
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from their only “official” source of money.

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45 This is why industries, like Bitcoin, a non-government backed digital currency, which
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47 promise individuals the ability to conduct financial transactions with no questions asked, have
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49 become so popular worldwide—not just with criminals. Even if a country tries to make the use
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52 of currencies, like Bitcoin, illegal, which many of them have, enforcing those laws, given
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54 Bitcoin’s anonymity provision—which allows people to establish accounts with absolutely no

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3 personal identifying information—seems unworkable. This also doesn’t stop individuals from
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turning to other types of zombie-money, or even to terrorist organizations some of which offer
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8 people an alternative way to receive financial services through the hawala system. In fact,
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10 according to Abdirahman (February 2015), the terrorist organization, Al Shabaab is believed to
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have provided financial services to disenfranchised citizens of Somalia after their country was
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15 cut off from the banking sector. Also, it is possible that some other forms of crime, like computer
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17 crime or embezzlement, might even increase from those who can and do participate in this new
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cashless economy.
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Dan Ariely, a psychologist and behavioral economics professor at Duke University, in his
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24 book “The Honest Truth about Dishonesty” (2013), described how he conducted several
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26 experiments in order to see what it would take to get people to cheat. As a part of his experiment,
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29 he asked participants to solve as many Sudoku puzzles as they could in a set period of time,
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31 record how many they got correct out of ten, and then report that number to a researcher who
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33 would be sitting at a table and would pay the participants for the number of puzzles the
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participants got correct (or reported as correct). In the first variation of this experiment the
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38 participants conducted the test and handed their sheet to the researcher directly and received cash
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40 in the form of US dollars. The average number of correct responses reported (with no
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opportunity to cheat) was about four. The second round of experiments had the participants shred
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45 their results after completing the test, report their number to the researcher from memory, and
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47 then get paid in cash—also in US dollars. The average number of correct responses reported then
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49 (with the opportunity to cheat) was only six. Given that there were ten puzzles they could have
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52 reported as correct, this was seen as an indication that people will cheat, but only by a little.
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3 However, when Dr. Ariely conducted the final round of experiments, the only thing that
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was changed from the previously mentioned round—where the participants shredded their results
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8 before reporting them—was that participants would be paid in tokens, instead of cash. Those
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10 tokens could then be taken to a second researcher and then exchanged for cash. So, after the
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participants completed the test, shredded their results, and then reported their number of
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15 “correct” responses in exchange for tokens, the average number of “correct” responses increased
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17 to eight out of ten. Essentially, the amount of cheating had doubled—just by changing the form
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of cash into something less real.
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From all the research I have done over the years, the idea that worries me the most is that
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23 the more cashless our society becomes, the more our moral compass slips. If being just
24 one step removed from money can increase cheating to such a degree, just imagine what
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can happen as we become an increasingly cashless society. […] [D]igital money … has
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27 many advantages, but it might also separate us from the reality of our actions to some
28 degree. (Ariely, 2013, p. 34).
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This only reinforces the concept that money is culturally defined. It may very well be that digital
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33 forms of money will become more accepted by people overtime, but if a government mandates
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35 the use of some new form of digital money all at once, it very well could lead to more crime—
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37 because as the money seems less real, the consequences of the individual’s actions may also
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40 seem more remote. This could lead to other types of crime, such as computer crime,
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42 embezzlement, identity theft, etc. This could be done: by government officials embezzling their
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44 country’s citizens’ electronic funds; or by encouraging individuals to open bank accounts, further
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weakening their moral inhibitions to cheat—i.e. to commit computer crimes, identity theft, etc.—
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49 eventually turning citizens into criminals.
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51 Conclusion
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3 All of this makes the adoption of a cashless economic policy seem completely useless,
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because not only has it not decreased larger forms of corruption and crime where it has been
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8 implemented, it may even increase it. Of course, it could be difficult to see this in official
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10 statistics, as many of these types of crimes may go unreported. Further, if a country’s citizens
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send more money into the underground market and/or adopt some form of zombie-money, it may
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15 make tracking their transactions even more difficult, which might negate a lot of the
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17 effectiveness of both AML laws and the government’s control over the money supply—which
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are the main reasons a government would adopt this sort of policy in the first place. To not
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recognize these potential problems shows a great lack of understanding of both the cultural
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24 implications of money and the increased sophistication of—not only average citizens who must
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26 adapt to their new environment to survive, but—organized criminal and terrorist networks who
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29 take advantage of the very regulations and legal infrastructures that governments put in place.
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Works Cited
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35 Abdirahman, A. (February 2015). U.S banks move ruining the lives of families in Somalia.
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40 Ariely, D. (2013). The Honest Truth about Dishonesty. New York: HarperCollins.
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42 Ayoola, T. (2013). The Effects of Cashless Policy of Government on Corruption in Nigeria.
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43 International Review of Management and Business Research, 2(3), 682-690.

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45 Baker, W., & Jimerson, J. (1992). The Sociology of Money. American Behavioral Scientist,
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48 De Mesquita, B., & Smith, A. (2012). The Dictator's Handbook: Why Bad Behavior is Almost
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51 Ekiti, G. (April 2015). INEC boss decries huge cost of organizing elections in Nigeria.
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Marx (1976). Capital: Volume I. Harmond-worth: Penguin Books.
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17 Olusola, M., Oludele, A., Ogbonna, C., & Osundina, S. (2013). Cashless Society: Drive’s and
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21 Radford, R. (1945). The Economic Organization of a POW Camp. Economica, 12(48), 189-201.
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23 Senn, P. (1951). Cigarettes as Currency. The Journal of Finance, 6(3), 329-332.
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25 Sharman, J. (2011). The Money Laundry: Regulating Criminal Finance in the Global Economy.
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28 Timberlake, R. (1981). The Significance of Unaccounted Currencies. The Journal of Economic
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31 —— (1987). Private Production if Scrip-Money in the Isolated Community. Journal of Money,
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34 Woodford, M. (2000). Monetary Policy Implementation: Past, Present and Future? International
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37 Wright, R., Tekin, E., Topalli, V., McClellan, C., Dickinson, T., & Rosenfeld, R. (2014). Less
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