Financial autonomy and individual freedoms must be protected
Every digital transaction leaves a trail of data that can be tracked and analyzed.
Countries abandoning physical cash entirely, in favor of central bank digital currencies (CBDCs), is not science-fiction. Digital payments are convenient and efficient, but those advantages can blind us to the profound implications for privacy, civil liberties and financial autonomy that a cashless society will bring.
One of the most pressing concerns about a cashless society is the loss of financial privacy, which in turn poses significant risks to personal privacy and autonomy.
Every digital transaction leaves a trail of data that can be tracked and analyzed. Financial institutions often use this information for fraud detection and targeted marketing. But governments can exploit the same data to monitor and punish citizens for undesired behavior. This was starkly illustrated by initiatives like Operation Choke Point in the U.S., which aimed to cut off access to banking for unpopular, albeit legally operating businesses deemed undesirable by the government.
In another example, Canadian trucker protests in 2022 prompted the Canadian government to invoke the country's Emergencies Act, which included measures to cut financial support to the protestors. Banks were ordered to freeze accounts of individuals and organizations suspected of being involved in the protests without the need for a court order.
Similar cases of governments attempting to limit access to denizens' savings in India, China and Greece underscore the need for strict checks and balances to prevent governmental overreach in financial surveillance and control, which will be supercharged by the transfer to cashless economy.
Data breaches and cyberattacks
In a cashless economy, the entire financial system relies on digital transactions, increasing the potential points of attack for cybercriminals. Every transaction, from everyday purchases to large financial transfers, involves digital data that can be intercepted and exploited. As more activities move online, the attack surface broadens, offering greater opportunities for cyberattacks.
The reliance on digital transactions means that a data breach can have widespread and immediate consequences. A single data breach can expose the financial details of millions, leading to significant financial losses and identity theft. In 2023, the average cost of a single data breach was $4.45 million globally, while in the U.S. it was $5.1 million?.
To make matters worse, cybercriminals are becoming increasingly sophisticated and employing advanced techniques to breach security systems. Ransomware attacks have become more prevalent and damaging. In 2023, 72.7% of organizations globally were affected by ransomware, with the average cost per incident reaching $4.54 million?. The average cost of recovering from a ransomware attack in 2023 was $1.82 million, excluding the ransom payment. By 2031, ransomware incidents are expected to cost organizations and economies a collective $265 billion annually.
Meanwhile, the financial implications of cyberattacks are staggering. The global cost of cybercrime is projected to be $9.5 trillion in 2024 and $10.5 trillion in 2025??. These figures include not only direct financial losses but also costs related to downtime, lost productivity, and damage to brand reputation. Sadly, rather than hinder criminals, the complexity of modern digital payment systems provides numerous vulnerabilities for them to exploit.
While hardening security is always going to be an important factor, providing a foolproof way to protect resources by keeping them physical should always remain an option - both for individuals and companies.
Impact on vulnerable populations
The shift toward a cashless society also risks marginalizing vulnerable populations who rely on cash for daily transactions. Many individuals, especially those without access to banking services or digital technologies, could find themselves excluded from essential services. This exclusion can deepen existing socio-economic disparities and create new forms of financial discrimination?.
A good example is India's demonetization event, which occurred in 2016, resulting in the sudden removal of high-denomination notes. The action disproportionately affected the poor and unbanked, who struggled to access necessities without cash?. Similarly, in more developed economies, the switch to cashless transactions can leave behind those who lack digital literacy or the resources to adapt to new payment systems.
Mitigating risks
To effectively mitigate these risks, it is essential to implement measures that ensure financial autonomy and protect individual freedoms. Here are three key imperatives:
1. Maintain cash availability: Keeping physical cash as an option is crucial to protect and preserve individual freedoms. Physical cash transactions offer anonymity and cannot be easily tracked or controlled by governments or corporations. This physical form of currency acts as a safeguard against potential overreach and ensures that individuals have an alternative means of conducting transactions.
2. Limit government control: It is vital to prevent governments from gaining unprecedented total control over private finances. This involves legitimately and legally resisting any legislative efforts or mechanisms that aim to centralize and automate control over individual financial activities. Ensuring robust checks and balances, along with transparent governance, can help prevent abuse of power. Advocacy and public awareness are critical in resisting measures that could infringe on financial autonomy and privacy?.
3. Strengthen privacy policies and data protection: Implementing strong privacy policies and data protection regulations is important, although not a comprehensive solution. Frameworks such as the General Data Protection Regulation (GDPR) in Europe grant individuals rights over their personal data and require organizations to handle data responsibly. However, it is crucial to note that the primary concern is not unauthorized access, but the misuse of authorized data. Therefore, while such regulations offer a level of security, they still do not address the core issue of preventing governmental overreach and control.
Cash serves as a safeguard of individual freedoms and autonomy against governmental overreach.
Regardless of its many advantages (which mostly boil down to convenience), one thing is certain: a cashless society is not a panacea, and the potential risks associated with the elimination of physical currency far outweigh the benefits. The preservation of cash as a viable medium of exchange is crucial. Cash serves as a safeguard of individual freedoms and autonomy against governmental overreach, financial surveillance, and the erosion of privacy, and its availability should be a non-negotiable point in any society that values individual freedoms and democratic principles.
It is imperative that we strike a balance between technological progress and the preservation of fundamental rights, and recognize that the freedom to use physical currency is not a matter of mere convenience but a crucial safeguard against the erosion of civil liberties.
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-Jurica Dujmovic
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