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Bernard Hickey suggests removing cash and adopting a blockchain-type system for transactions and savings accounts that is set up and hosted by the central bank to combat deflation, tax evasion and crime

Bernard Hickey suggests removing cash and adopting a blockchain-type system for transactions and savings accounts that is set up and hosted by the central bank to combat deflation, tax evasion and crime

By Bernard Hickey

It's easier than it ever has been to imagine a New Zealand without notes and coins, and not just for the convenience factor.

A cashless society could help us combat crime and tax avoidance by making it much harder to trade illegally and in an untraced way. It would also avoid the problem of cash hoarding if interest rates were ever cut to 0%, or even negative rates. It would make it much easier to have negative interest rates that gave the Reserve Bank the power to stimulate the economy by charging savers to look after their money. A move to a digital currency could also allow us to do without banks for transactions and save an awful lot of money in processing and conversion fees.

So why don't we do it? Now that most people have smart phones and almost all retailers are connected to a payments network, it would seem a simple step to remove cash from the system. After all, many of us use EFTPOS and contactless Visa and Master cards to pay for things. Why not switch completely and remove all the cost and danger of storing, transporting and handling cash?

Yet it's proving much harder than many thought, and it's not just a New Zealand problem. Despite all the gadgets and terminals, there is actually much more cash in circulation than there's ever been. The Reserve Bank reports there was NZ$4.96 billion worth of notes ands coin sitting in wallets and vaults and under mattresses as at March of last year. That's up 61.6% from the NZ$3.07 billion in circulation just 10 years earlier.

A lot of money was withdrawn from ATMs by worried savers during the Global Financial Crisis and has never been re-deposited. Almost NZ$200 million was also distributed in Christchurch in the aftermath of the earthquakes to help Cantabrians get by when their shops couldn't connect or use their regular payment systems. But even with these special events, the amount of cash in the economy has been growing at surprisingly strong rates and faster than the economy as a whole.

To be fair, New Zealanders hold and use less cash than people in most other countries. The cash we have in circulation is worth just over 2% of GDP and we hold an average of around NZ$1,000 each. Australians hold three times as much as us per person, while Americans hold four times as much and Japan's cash holdings are a startling 18% of GDP.

A large part of the rise is due to STDs -- sex, tax and drugs. The secret economy loves cash and it's no surprise IRD is having to launch regular crackdowns on cash jobs to ensure everyone is paying their GST, PAYE and company tax.

But there's something else going on too, and not just here. Extremely low inflation and not so much faith in banks, particularly in the Northern Hemisphere, has encouraged people to hold their savings in cash because the real value of that cash is not being eroded much.

Only Sweden has managed to avoid this growth of cash under mattresses and in tinny houses. The home of Spotify and Candy Crush is also the home of an app called 'Swish'. It is an app set up by Sweden's banks that allows easy and cheap payments between banks. It avoids the Visa/Mastercard or EFTPOS systems we are used to. ANZ's goMoney does something similar, but New Zealand hasn't yet found an easy smart-phone based system that mimics EFTPOS and can be used by everyone cheaply. Our banks could do it, but seem determined not to invent a more modern version of EFTPOS and allow Visa and Mastercard to take over our payments system by stealth.

The holy grail would be a type of bitcoin system that allows people to pay each other without having to use the banking and credit card systems and avoid all the transaction fees and conversion fees that clip the ticket on the (legitimate) economy's every transaction.

One idea suggested by the Bank of England last year was the creation of a digital currency by the central bank itself. It would use the 'blockchain' technology at the centre of the bitcoin system, but that would be reliable and backed by the state. Everyone would have a central bank account and simply transfer money between each other without having to pay fees.

Such a system would allow much cheaper transactions and allow the central bank to impose negative interest rates, once it had also gotten rid of cash. It would be much easier to police crime and reduce the ability to avoid tax.

It all sounds like a radical idea, but it's one that central banks and policy-makers are considering in other countries as they try to encourage spending, investment and efficiency in a world of deflation, crime and tax avoidance.

New Zealand is some way off the negative interest rates now set by Europe, Sweden, Switzerland and Japan, but it has been a financial policy pioneer in the past and matches Sweden in having a relatively low amount of cash stashed under mattresses.

It may be time to stash the cash back in the central bank and start using our phones to do all our business.  


A version of this article first appeared in the Herald on Sunday. It is here with permission.

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You miss the problem Bernard.

Why do zero or negative interest rates exist? What do we need inflation?

I get paid in dollars for my work and you want to take the money I have been paid and devalue it further to do what? Encourage me to work harder? or make me spend my $54000 before tax income?

I received a 0.5% pay rise that's about about $270 before tax, my insurances and rates have increased by about $1000.

So labour is increasingly of no value but if I borrowed and bought a house in Auckland for no work I could clock up gains of 20%.

This can only happen not because money is to dear but because money is increasingly of no value bought about by an monetary system based on debt.

The only reason central banks want to create inflation is to devalue the debt mountain that a debt based currency has built up. As a low paid worker any saving I make are being stolen by inflation and this is the purpose of the desire for inflation not for economic growth but to take from the savers and give to the debtors

Your concern about sex and drugs is just a diversion as neither are really illegal except in the eyes of some moral fanatics..


Exactly - it's a thin veil to affect a consummate bail-in of unsecured bank creditors. But it is increasingly evident central bankers and their minders are too late.

Wholesale money markets are busy demonetising themselves by acts of omission and withdrawal from credit creation. The mean spirited and largely uneducated coin janglers are not satisfied with CB mandated industrial scale transfer of digital wealth to entitled asset owners, they wish to root out the only mechanism the unwanted rely on to survive outside of barter, since increasing numbers do not qualify to open a bank account.

Who could be surprised?

Ten days ago, when Deutsche Bank stock was about 10% higher, the biggest German commercial bank declared war on Mario Draghi, as we put it, warning him that any further easing by the ECB would only push stocks (with an emphasis on DB stock which has gotten pummeled over the past few months) lower. What it got, instead, was a slap in the face in the form of a major new easing program when the Bank of Japan announced it is unveiling negative rates just three days later.

Which is why overnight a badly wounded Deutsche Bank has expanded its war against the ECB to include the BOJ as well, and in a note titled "The Risks From Further ECB and BOJ Easing" it wants that with the Zero Lower Bound already breached in nearly a third of global markets, the benefits to risk assets from further easing no longer exist, and in fact it says that while central banks have hoped that such measures would "push investors out the risk spectrum" the "impact has been exactly the opposite."

In other words, we have reached that fork in the road within the monetary twilight zone, where Europe's largest bank is openly defying central bank policy and demanding an end to easy money. Alas, since tighter monetary policy assures just as much if not more pain, one can't help but wonder just how the central banks get themselves out of this particular trap they set up for themselves. Read more

The gift that keeps on giving - too much of a good thing?


Cash is the last bastion of privacy.
Do we need every transaction to be data mined and analysed by companies to cleverly market and lock-in every consumer?


How about we have more freedom, less reasons to trust our politicians and their agendas and less reason to be taxed :)


You are being watched

A cashless society would provide the means to combat crime and tax avoidance by making it much harder to trade illegally and in an untraced way - and much more

1984, Winston Smith. Ministry of Truth, George Orwell, CCTV on every corner


I'm guilty, I use a lot of cash, after the GFC I decided it was the best way to thumb my nose at the banks.

HT someone else on this site.

As soon as a cashless society is inflicted take all your money and buy gold, bitcoin and anything else that might hold value.

Currency debasement is the name of this game.

Driverless cars,
cashless society
next you'll be advocating for sex free marriages
oh ,hold on a minute,that one could already be here.

Bernard, how about instead of viewing the system you propose as a method of transferring money you look at it for what it really is, a way of transferring debt.

You just reminded me why NZ is forever destined to be a serf nation. And just how out of touch rich NZ is from the rest. Complaining about 5 billion in cash whereas debt obligations run into 100s of billions. So when, not if there is a run on the banks the proletrariats have only minutes to get hands on what little physical cash they might have. Best leave the masses some cash scraps to fight over.


My cash transactions don't employ me paying a bank fee is just ONE good reason Bernard! Jezz, all a cashless society will bring us is even more people with their hands out clipping the ticket of every transaction we make. NO, screw that. And it won't stop crime as what is occuring NOW is the biggest financial banking fraud crimes of all time, with corrupt governments oversite to boot!
People are losing faith in the monetary system every day and you suggest they double down? Seriously.

Argument for more surveillance, more control, less independence, less autonomy, complete with scaremongering over crime as justification. Amazed that child porn wasn't invoked, as is traditional.

In an all-electronic system, how much does the infrastructure have to be beefed up so that there's enough stability and redundancy for it to function when things go wrong? If a crucial server or network is hit by a truck and catches fire now, we can muddle on through for a short time with cash on hand, and most of us probably still have a dusty chequebook lurking somewhere if it comes to that. If the fallback/redundancy of having decentralised stores of physical cash and cash analogues is eliminated, what takes their place to safeguard the system when the system fails? With physical cash, if I have a housefire, it doesn't effect what's in your pocket, and you can carry on as normal. But if the electronic system goes down, there's no dispersed reserves unaffected by the disaster. Everything gets screwed at once.

Exactly. The comment about the Chch earthquake requiring extra cash to be in circulation shows just how useful cash is.
This is another article by Bernard designed to grab headlines. Of course its wishful thinking by be specific parties, that's all. It will never happen. Totally impractical.
It is not possible to predict at this point whether there will be a trend to more, or less cash. Electronic transactions are happening more frequently but if deposit interest rates drop further, keeping cash in a fire resistant safe (not made in China) will start to look very attractive. No OBR/ covered bond issues with your very own pile of cash!

It would force a massive shadow banking system and unofficial currencies out of necessity. IOUs, barter, handshake agreements, hacked-up jewellery, buried hoards. Like the Dark Ages over again.

What if this is all a cunning plan to completely transfer the creation of money to the Banks. After all if only 3% of all money in circulation has been created by the state why not transfer the whole thing to privately owned companies viz the Banks. Central Banks are no longer controlled by the people but by one world Bank so why not go the whole hog! If we do want to improve society then I am sure there are better ways of doing it rather than claiming it could be done by a cashless society. Personally I would abolish all income tax, GST and deductions, and have a type of Tobin tax on all deposits. That would provide income for Government to provide better services for its people. Then I would have a heavily progressive tax system on all income say over $100,000.00 but that would be for the sole purpose of reducing inequality. Unfortunately there would be a large job loss in the IRD and the accounting and legal industry but ....

Patricia...."There would be large job losses in the IRD and the accounting and legal industry but...."
Let them plant spuds, Had their cake and eaten it ?

uh, you just said abolish income tax and have a tobin tax, but then have a heavily progressive tax on income above $100k, so that means both? except that hammers PAYE earners who pay tax already and not the asset rich who seem to pay little if none. I would suggest that there is no need of that as in fact taxing un-taxed income would be fairer and generate more Govn income. As an example Google NZ did many millions of business in NZ but I believe paid no NZ tax.

There is plenty of room for improvement for my idea Steven. All I can see is that the people who are paying GST and income tax are those who can least afford it and those who can, spend all their energies trying to avoid it. It is just an idea and shouldn't cause any anxiety. I cannot see that the word "services" has to mean growth either. It can mean that but not necessarily. What about "maintenance", what about "education" etc etc

"better service" in effect you want to grow for ever on a finite planet.

"Then I would have a heavily progressive tax system on all income say over $100,000.00 ..."

And then you go on to say IRD, lawyers and accountants would suffer large job losses. You clearly do not understand what is involved in the tax "minimization" industry. A progressive income tax on the rich with no IRD to enforce it would see no one earning over $100k.

Thanks for that HeavyG. Much food for thought in that comment.

Thanks for that HeavyG. Much food for thought in that comment.

This is the same thinking that caused the problem in the first place. We are witnessing the end of an "error"; the era of Economists and their other-worldly theories.

The politicizing of economists would be more correct IMHO. There are some good economists about who saw this mess coming.

Always like to have cash in my pocket. It's a brilliant and simple system. Very practical.

It's funny how people on six figure incomes get upset by those at the bottom who are just trying to make ends meet by getting paid cash for the odd job they can find. The real people ripping of the system are at the top of the pile with the money to pay those "creative accountants" on how to avoid paying millions in tax. Leave the little guys alone and focus on the big fish. Most of us are already paying through the nose for PAYE and not earning a living wage.

The people on six figure incomes are the group who pay the bulk of the tax take and in turn are the group who keep the country running. Most of them are not getting tax credits unlike those at the bottom. There are very few people at the top who are in a position to avoid paying millions in tax. Those at the bottom pay bugger all tax and those in the middle pay most of it. You should be more thankful. Those who take cash are ripping off gst and tax yet will want hospitals, roads, schools and in turn National Super. The word "greed " comes to mind.

I use cash so little I have seen 1 new $10 note and still dont recognise any coins without close inspection.
The coins get dropped into a jar, and given to the neighbours children for little niceties like bring our wheelie bin in.....hmm part of the alternative economy I suppose??
Or given to the grandchildren to partly spend and partly save. hmm basics of education in economics maybe.. which there is lot of chatting about in media.

In my wallet I carry several $100 s... just hidden away.....
This is if one blows out a tyre in the middle of know where on a weekend or public holiday and needs cash to quickly sort the problem without further inconvenience or stress
Or when the electronic system fails in a store.
Or as mentioned , a earth quake, or similar disaster... dont need to wait for government to step in a distribute cash.
Note that there are not many , if any, retail out lets have the old credit card swipe impression paper machines any more.. and if do dont know how to use them.

Yep the electronic system be it efpos, credit / debit cards internet transfers , pay pal are great.
But we have a society of so many that never have to use cash, and if do on very rare occasions....because of this they see the simple view.. I dont need and never will need cash, and like cheque books may as well just obsolete them.

Funny thing is.. how and why did cheques/ promissory notes start in the 1st place?..
OH yeah because of a lack of cash on hand at the time for whatever reason.
Or we could carry gold disks and break off the amount we need.....
Thats familiar.. think the Spanish did that a few 100 yrs ago.

Kill cash....and if elections stop flowing down the outside of little wires the economy, trade , everything stops... and the consquinces of that over inconvenience of alternative economy far out weighs.

Boy just re-read this; wasn't too sure if I had imagined it yesterday, but yep its for real!
This has to be the best part.... "but that would be reliable and backed by the state. "!!

Like Nova-pay, or Incis, or any day to day privacy breach, lost folder/USB/leaked policy document/failed ticketing system etc.

The fiat experiment is over Bernard, and I guess these last throws of the dice are to be expected. More central control anybody?

Real value will be found (whats left of it) in the real world. A currency is merely an agreed system to claim such. Once confidence in these IOU's has been lost, then you can tie up all them digital 0's and 1's anyway you want, people will go elsewhere. It will just unleash a far greater inventiveness in 'avoidance".

What amazes me is just how long confidence has remained in the US dollar; I mean print paper and trade for real resources....absolutely MAGIC!!! Now wheres them emperors new clothes.....

Wow - This entire article and all the comments, Not one mention of Gold and Silver


Wonderful government control measure. Upset the authorities and they can cut off all access to funding for basic survival. Oh and remember Cyprus? Greece? We have no deposit insurance. New Zealand is an outlier among developed countries in not having deposit insurance. The likes of Australia, Canada, Hong Kong, Singapore, the USA, India, Britain, and major other European Union countries all have deposit insurance. Under the Australian scheme, deposits are protected up to a limit of A$250,000. So what happens when a bank fails? In cyprus banks were closed for several days and parts of deposits exceeding 100,000 euros were seized retirees who had saved a few hundred thousand euros in a lifetime of work were devastated, entities that contributed significantly to the economy-including the hotels at the centre of the tourism industry could not pay their employees for weeks, and many never recovered from the crisis.
Think it could never happen here - then why did the government change the legislation to allow it?

The big international Banks committed crime after fraudulent crime with their robosigning of mortgage documents, libor fixing and so on. The type of crime prevented by not having cash transactions is much less important. HSBC was found guilty of laundering drug money however so they would have to figure a new way to profit from drug dealing if a cashless society materialised.

Big Tony here. Ok, no more cash to pick up in drugs. I'll be over Thursday to chat with David about my new opportunity in websites. You'd better have something to donate, cause I hear you have no cash. What you got?

I heard Tide was being used in the US for these purposes, of all things.

God forbid the worlds largest corruption happens in banks , a cashless society really would complete their ultimate goal , digital money and unlimited credit .
lets revert to real money cut up those bankers best friends and remove power from people often described as more dangerous than the collective force of the worlds standing armies .

Hell no B! You can't trust the government to do the right thing so why would you trust them with your income? With the ongoing failing monetary policy tack their on. The only other way to be paid when theres no more cash and debt is for the select few we're left with the only remaining commodity(s) of air, food & water to barter with?

Naughty Bernard. Totalitarian State is bad, not good at all. George Orwell's "1984" was meant as a warning, not a roadmap.

roadmap? its beginning to look more like a one way street.

who saw this coming you say, out of all the talking heads I've listened to over the last 10yrs or so I think the most accurate has been Mike Maloney...

Steve Keen, hands down, with track record, but "Mike Maloney" as I have no idea who he is. --edit-- Oh right a gold bug, and a real money king.....maybe not.

Re: Talking heads - Steve Keen is pretty amazing. He predicted the housing bubble and developed what appears, (to my untrained eye at least) to be a very convincing mathematical model for how the debt based economy works. He rationalised the great moderation (diminishing boom bust cycles late 1980s -1990s) and predicted that private debt levels, which had previously been ignored, would lead to all sorts of problems. Keen Thinks we're turning Japanese ( ie. hopelessly debt saturated economy with anaemic growth, and falling asset prices).
Jim Rickards also seems to see the bigger picture. He wrote currency wars in 2012 - That's a pretty impressive work which upon reflection I realise Rickards was quite accurate on a lot of things. Ominously, Rickard's newest books are called "The death of Money" and "The new case for gold".
Happy to hear what others consider good reading material..

The only ppl making money off gold are the sellers and the book writers IMHO.

To me if you ever need gold then the situation is so dire you would be better off buying lead.

If your currency collapses then you'd do quite well to own gold. I dont know if that could ever happen in New Zealand but look at the Brazilian Real, the Argentine Peso, and to a lesser extent the Russian ruble. It happens!

"It would also avoid the problem of cash hoarding if interest rates were ever cut to 0%," so then without $s and after an OBR how do you eat?

You really make the case for barter and precious metals.

Not necessarily - Read more

" allow the central bank to impose negative interest rates," and it all goes to custard and then you cannot eat as you have nothing left. So you end up becoming totally reliant on the state, hello 1984. The thing is revolutions often come from hunger. The banks like King Louis and Marie A. are failing to understand that when you take everything away those that have nothing to lose will seek change and you will be for the chop.

Just waiting for it. What will the trigger be?

Of course it’s not just the deflationary impulse that Japan is struggling to combat. There’s also a persistent lack of wage growth. “Wages need to rise at a 3 percent annual pace to achieve stable 2 percent inflation,” Bloomberg reminds us.

In short, Japan is nowhere near 3% when it comes to rising worker pay. In fact, data out on Monday shows that wage growth for 2015 was just 0.1%, down from an already abysmal 0.4% in 2014.

In other words: wages have flatlined.

For December, real wages fell 0.1% Y/Y. That's the second straight month of decline. "Total wages in Japan haven’t risen more than 1 percent in any year since 1997 and they fell for the past four years once inflation is accounted for," Bloomberg adds, in an extremely amusing indictment of the country's complete failure to put the "lost decade" behind it. Read more

"also" is of course wrong, you need both because without wage growth ppl have no more $s in their wallet to pay for more expensive things.

That is one of the things that I dont get about Jk etc, allowing record immigration does nothing for increasing wages IMHO.

trigger? who knows its like puting your finger into a buzz saw and wasting time which of the 60 teeth cut first. rather than ringing for the ambulance.

Going cashless will put us more into the hands of the banks and governments and expose us to more of their control. Worldwide many of the biggest banks have been found guilty of massive manipulation of many global markets: LIBOR, Forex, Bonds, Commodities. Yet hardly any bankers have ended up in jail. The banks pay a fine and move on, the fine just a cost of doing what is for them good business. The banks are widely held to be guilty of having caused the Great Recession circa 2008, partly due to them packaging and selling junk real estate as prime mortgages. The banks further have great influence over political processes, funding election campaigns, political parties, etc. World mainstream media also appear to have been sucked into the vortex of control exercised by banks & their buddies. Central banks have now put the world near another worldwide crisis due to massive money printing over recent years, the results becoming more obvious since the start of 2016. There has been an abundance of articles globally over the past year advocating a cashless future, usually banks, central banks or their political buddies and shills. Cash is one way for the "little" people, who actually generate the real wealth, to retain a degree of independence. Do we the people really want to surrender complete control to banks, central banks, politicians and the media cheerleaders and make it easier for them to appropriate what they will from us?

I love it. Great idea. The blockchain is a crazy piece of tech and we haven't seen the best of it yet. Next I think it will be used for digital documents to verify the authenticity of it. Anyone can copy a passport (well, maybe not anyone) but to crack a digital encryption for blockchain is near impossible. The DIA could also produce their own public blockchain for birth certs and passports.

Interesting about Christchurch. How can you have a technology (like cashless payments) work when there is no power or internet? You'll be stuffed. Every terminal would need battery backup and 3G access. I think some retirees who want a landline over UFB have found this issue (no power, no internet, no emergency calling).

You used to be cool Bernard, now you're just being evil. Heaps of people need cash, they couldn't make a living without it. Stick that legal crap, you know where. Cash only makes it easier for the working poor, and small business for profit sector (two insignificant sectors for you obviously) to make ends meet. You want to screw them over just to sound all high and righteous. While legalised graft and corruption remains a sacred cow that can never be harmed.
Perhaps your stupidest suggestion is that we all just use our cellphones, haha. All you cool kids can do that out in the city, and carry those cancer causing devices round in your pocket all day. Out in rural where some are still on frikin dial up internet, and smartphones are about as useful as a paperweight you may not get very far. I hope that happens to you, and all the other ivory tower geeks out there trying to screw over the small business for profit and working poor classes in NZ. Aim a bit higher would you, instead of at the least represented classes of NZ society.

Wow that's some windmill your taking on there Quixote.........there is however a minor flaw in the plan .
The policy makers themselves are fearful of it . The USD put a chokehold on bit coin before any traction could be gained and that's not even close to what you do get a reaction though I'll grant you that you old Blasphemer you.

I was disturbed to learn though that Japan's cash holdings were only 18% of GDP given the economic performance I thought it would be much higher ........but there you go eh ,prostitution is on the slide.

Cash is costly, requires manual labor by the merchant and banks, and fuels crime. Its also very convenient. We can charge for that convenience rather than banning cash.

Easing into a cashless society could be done by just imposing a 2% tax on cash. Very simple, when you deposit cash, you pay 2% tax to the bank. Eventually merchants have to charge 2% extra for cash transactions, and the free market does the rest. If people want to keep using cash, let them, but have them pay for the privilege.