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CASHLESS

SOCIETY Will convenience lead to catastrophe?

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Cyberattacks on our financial system represent a real threat to our economic and national security.

— U.S. Treasury Secretary Jack Lew (CNBC, 7/16/14.)

How much cash do you carry in your wallet? If you’re like many Americans, it’s less than $50 at any given time. (Bankrate, “Financial Security Index: Cash’s cachet,” 5/12/14.) Gone are the days when we paid for big ticket items with cash or paper checks. According to a recent study, cash will lose nearly $100 billion in point-of-sale volume by 2019. (Pymnts, “Are Mobile Payment Readers Making Cash Obsolete,” 6/13/14.) This move away from cash is by design, not happenstance. Banks, retailers and mobile apps are all encouraging consumers to move towards a cashless society. “Electronic payments have worked hard to make themselves attractive to consumers for all kinds of transactions. Credit cards have developed extensive rewards programs for buying anything from organic apples to airline tickets.

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What’s In Your Wallet?

 onsumers are taking advantage of the fact that, with the exception C of a few small-dollar transactions, electronic payments are so easy and ubiquitous that (consumers) are carrying little cash around… — ­­Bankrate, “Financial Security Index: Cash’s cachet,” 5/12/14. “Money transfer programs like PayPal and Google Wallet make person-to-person payments easier. Even Starbucks has entered the noncash market: the coffee giant allows customers to buy their morning java (and even tip the barista) with a scan of its smartphone app. “Consumers are taking advantage of the fact that, with the exception of a few small-dollar transactions, electronic payments are so easy and ubiquitous that (consumers) are carrying little cash around…” ­ — ­­Bankrate, “Financial Security Index: Cash’s cachet,” 5/12/14.

China’s People’s Liberation Army employs groups of hackers to attack American interests. Among the targets are satellite, drone and nuclear component companies, manufacturers and, most recently, federal workers. Russian hackers, working with the government’s intelligence agencies, launched attacks against Western power plants, energy grid operators, gas pipeline companies and industrial equipment makers in early July. These attacks provided Russia with the potential to sabotage the nation’s energy supply. (CNN Money, “Russia attacks U.S. oil and gas companies in massive hack,” 7/2/14.) The Syrian Electronic Army hacked a diverse group of targets including Forbes, the United States Central Command and Microsoft’s Skype messenger service.

Cash, Hackers and Cyberwarfare There is currently a war being waged online against the United States and its economy led by countries like China, Russia and Syria.

But it’s not just foreign countries attacking the United State electronic infrastructure. Cybercriminals regularly attack and steal critical financial information from the nation’s largest retailers and companies. In 2013 alone, the FBI notified 3,000 U.S. companies that they had been hacked by China-sponsored hackers or cyber criminals. (Time, “How to Hunt a Chinese Hacker,” 7/3/14.) (CONTINUED)

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Among the more popular targets are banks which are regularly subject to hacking attacks. The Wall Street Journal reports:

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A yearlong survey of New York bank security has found that cyber thieves are using increasingly sophisticated methods to breach bank accounts…a majority of the 154 New York banks surveyed reported being the target of cyber attacks in the past three years. The attacks involved the use of malicious software and phishing schemes intended to take over bank accounts, seize data and steal the identity of bank customers.

Federal law limits your loss from credit card fraud. The same is not true for debit cards: “If it’s a debit card it’s your bank. It is your checking account — that money is gone… It’s not a question of if, but more when its gonna happen…” (ABC News 17, “Data breach investigation continues at P.F. Chang’s restaurants,” 6/11/14.)

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— WSJ, “Report: Growing risk of cyber attacks on banks,” 5/6/14. Institutions are not the only victims; stolen bank information could wipe out an individual’s bank account. “With debit cards it’s easier for criminals to have access to your entire account balance. This means criminals could drain it before you even have time to check your statement…As technology continues to make us a cashless society, thieves are getting more savvy. In 2013, IBM discovered there were 1.5 million monitored cyberattacks by hackers.”

As more and more information is stored electronically, the risk to consumers grows exponentially. “Every time consumers interact with a business ­— a deposit at the bank, a prescription at the pharmacy, a purchase at the department store — they leave a trail of data about their identity and habits that those companies then keep and analyze to learn more about them…Companies are also housing that information in the cloud — a term used for communal data servers and other IT infrastructure that are often accessed via the

A Cashless Society: Will Convenience Lead to Catastrophe?

Internet. Storing data in the cloud allows companies to access the information from different places and devices, and thus more easily mix and match data to gain insight into business operations and patrons… But the practice may also make the impact of a cybersecurity breach all the more devastating. Storing information in the cloud gives hackers a single target to attack; imagine a bank that stores all its money in a single vault.” (Washington Post, “Cyber attacks present a greater risk to firms as they collect more data about customers,” 5/11/14.)

A Cashless Society: An End to Financial Privacy? As we noted above, more and more personal information is being accumulated and stored electronically. And as we move towards a cashless society, even our most mundane purchases will be electronically collected. While this electronic storage places our personal finances at risk, it also jeopardizes our right to privacy. According to an article by Newsmax, the “Obama administration is drawing up plans to give all U.S. spy agencies (CONTINUED)

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full access to a massive database that contains financial data on American citizens and others who bank in the country, according to a Treasury Department document seen by Reuters.” (Newsmax, “US Plans to Let Spy Agencies Scour Americans’ Finances,” 3/13/14.) In addition, the National Security Agency is building a computer to defeat most encryption. “In roomsize metal boxes, secure against electromagnetic leaks, the National Security Agency is racing to build a computer that could break nearly every kind of encryption used to protect banking, medical, business and government records around the world. According to documents provided by former NSA contractor Edward Snowden, the effort to build “a cryptologically useful quantum computer” — a machine exponentially faster than classical computers — is part of a $79.7 million research program titled “Penetrating Hard Targets.” (Washington Post, “NSA seeks to build quantum computer that could crack most types of encryption,” 1/2/14.) Thus, a cashless society may prove the end to financial privacy. “A growing number of economists and technocrats want all money to be virtual, and therefore under the control of government and corporate financial institutions. Of course, that would mean the elimination of financial privacy once and for all. In 1976, in U.S. v. Miller, the Supreme Court decreed that there is no legitimate expectation of privacy in any financial transaction that involves a third party.

drove down the Dow for three minutes; temporarily erasing roughly $130 billion of value from U.S. stock markets…

Every electronic transaction involves a third party, such as bank or credit-card processing company.” (Wall Street Sector Selector, “Who Needs Cash?” 6/11/14.)

What’s Left When the Cash Is Gone? There seems little doubt that the United States will be subject to a potentially catastrophic attack upon our financial system. Indeed, the U.S. Treasury Secretary warned the investors and institutions that such attacks could cause massive harm to our economy: “Cyber intrusions are not some hypothetical event on the horizon. They are real and they’re happening every single day. “These incidents represent a direct threat to our economic and national security, perpetrated by state and non-state actors around the world with growing intensity and increasing sophistication…And successful attacks on our financial system would compromise market confidence, jeopardize the integrity of data and pose a threat to financial stability. Cyber intrusion has far reaching consequences…Hackers accessed A.P.’s Twitter account and announced a false alert saying there had been an attack on the White House, which

“ Risks to the system can be found at the vendors, suppliers and contractors who keep our financial system running. They can be found in industries that underpin the marks like telecommunications and energy and they can be found across the physical infrastructure that supports the economy like our entertainment system and water supply. These related companies, industries and utilities rely on a network of computer systems, and an incursion at a strategic point along the network could lead to market disruption and massive harm.” (Jack Lew, “Delivery Alpha Speech,” CNBC, 7/15/14.) If the United States ultimately moves to a cashless society, what happens when the electronic currency vanishes due to cyberterrorism, theft or plain negligence? One of the few remaining hard assets following such an attack would be physical gold and silver bullion coins which are immune to these threats. These coins, minted by worldrenowned mints such as the U.S. Mint, Royal Canadian Mint and Western Australia’s The Perth Mint, are legal tender and their precious metal content is guaranteed for its weight and its purity by the issuing mint. Thus, at a time when a calamity strikes our financial institutions, the only true currency left may be bullion coins. If this occurs, will you be prepared?

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An Urgent Update to A Cashless Society

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Imagine a future in which soon, a government staff member could suspect an individual of some misconduct, or perhaps deem that person’s politics or speech unacceptable. It would take just a few keystrokes to order all financial institutions to decline any withdrawal or payment from that individual and to transfer any deposits or payments of that person to the government, or at least freeze any access to funds. Perhaps this would need to be reviewed by a secret court that would approve 99.7 percent of all requests, but would provide a veneer of due process. It is fair to think that the targeted individual might starve to death. This could be insured by cutting off access to the payment system of anyone suspected of helping the targeted individual. (“Cashless Society: A huge threat to our freedom,” CNBC, 12/12/13.)

This chilling forecast by investment banker Scott Shay may soon become a reality as a growing movement seeks to remove the $100 bill from our economy. Lawrence Summers, the former treasury secretary and director of the National Economic

Council in the Clinton White House, recently penned an editorial urging the United States to eliminate the $100 banknote. Mr. Summers argues that elimination of the $100 bill will help us combat crime: “Harvard’s Mossavar Rahmani Center for Business and Government, which I am privileged to direct, has just issued an important paper by senior fellow Peter Sands and a group of student collaborators. The paper makes a compelling case for stopping the issuance of high denomination notes like the 500 euro note and $100 bill or even withdrawing them from circulation… “He is surely right that illicit activities are facilitated when a million dollars weighs 2.2 pounds as with the 500 euro note rather than more than 50 pounds as would be the case if the $20 bill was the high denomination note. And he is equally correct in arguing that technology is obviating whatever need there may ever have been for high denomination notes in legal commerce….” (“It’s time to kill the $100 bill,” Washington Post, 2/16/16 [emphasis added].)

The New York Times, echoing Mr. Summer’s extreme views, dismissed the concerns of many Americans about the threats of a cashless society: “Some people also prefer not to conduct transactions electronically because they fear security breaches. But these are relatively minor burdens compared with the potential benefits of reducing crime and tax evasion.”(“Getting Rid of Big Currency Could Help Fight Crime,” New York Times, 2/22/16.) It’s hard to understand how these pundits believe the threat of cybercrime is a “minor burden” when prominent experts with the FBI, NSA and National Intelligence are warning us that cyberattacks threaten our financial systems and domestic infrastructure. To learn how you can acquire the only hard currency that cannot be hacked or digitally stolen, call Goldline today at 888-742-8420 to see how easy it is to buy physical gold and silver.

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