A CASHLESS SOCIETY Will convenience lead to catastrophe?

“ “ 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.)

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What’s In Your Wallet?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.

“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 morn-ing 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.

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

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.

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.)

“ “ 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.

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

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.

— 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 state-ment…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.”

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 check-ing 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.)

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 compa-nies 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 infrastruc-ture that are often accessed via the

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 hack-ers 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 accumu-lated 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. Ac-cording to an article by Newsmax, the “Obama administration is drawing up plans to give all U.S. spy agencies

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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 room-size 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 exponen-tially 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.

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 increas-ing 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

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

“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 com-puter 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 curren-cy 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 world- renowned 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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