How much cash is in your wallet?

Probably not too much, if any. And that’s exactly what the Fed, governments and other central bankers around the world want. Let me explain…

After six years, the Federal Reserve put an end to its quantitative easing program (QE) this past week. Aside from sending the US markets to all-time highs, by and large, QE failed to achieve its long-term mission, which was to create a more vibrant economy and increase spending.

What will the Fed do next to try and increase spending and boost the US economy? Will it finally put an end to record low money velocity (the rate at which people spend)?

*Money Velocity 35-Year Chart


The Fed will certainly keep interest rates near record lows for many years. However, as we know, low interest rates can’t, on their own, increase consumerism. They can buoy housing markets, but don’t help retailers much. And considering approximately 70% of US GDP comes from consumer spending, the Fed needs to figure out how to keep Americans eating out, buying smartphones, TVs, cars and gaming consoles.

What has worked in the last 10 years to increase spending and consumerism in a fragile US economy?

One shift we have seen, which has most certainly helped consumers spend beyond their means, is decreasing the use of paper currency in our economy and increasing the use of digital payments (also known as non-cash payments or cashless payments). After all, from a human psyche standpoint, it’s much easier to use a debit or credit card to pay for that new TV than it is to hand over paper currency.


People are much more responsible with their finances when they pay for items with cash. It’s a fact. We often develop emotional attachment to physical objects, which includes fiat currencies. This makes us somewhat reluctant to part ways with cash. However, we have little to no emotional attachment with our credit or debit cards.

Oliver Burkeman at the Guardian studied the impacts of only using cash to pay for goods. Reporting on his findings he stated,

“It’s hardly news that people spend more freely with credit cards than when they’re using cash. But until recently, researchers who study the psychology of money had assumed this was for one reason only: “payment decoupling”, a fancy term for the fact that credit cards mean you get to enjoy your new pair of jeans, or Learjet, weeks or months before you have to part with the money. Newer studies, though, add a fascinating wrinkle: spending actual cash feels uniquely painful even when decoupling’s not an issue. When experimental subjects are given free cash and invited to spend some of it, they do so more conservatively than when given credit vouchers – even when they’re told they’ll get their change in cash either way. “Payment modes differ in the transparency… with which individuals can feel the outflow of money,” one team of psychologists explains, “with cash being the most transparent payment mode.” All non-cash forms of payment feel, to some extent, like Monopoly bank notes. So does foreign currency, another study suggests: you spend more abroad because it doesn’t feel so real”


Maybe that’s why the Treasury Bureau of Engraving and Printing has abruptly slowed down the production of new $100 bills…

Zero Hedge reported on Wednesday that,

“…it now appears that the Fed’s wanton money printing hit a brick wall in 2014, and together with the transitory end of QE earlier today, the Treasury’s literal printing of money also tumbled, with just 650 million of the brand new banknotes issued, an 85% plunge from the year before. In fact, the number of $100 bills printed in 2014 was the lowest amount of this higher denomination unleashed into broad circulation since 2004!”


The Fed encourages a cashless society to increase spending and ward off deflation

By using cash more often than cards, you are forced to be a conscious spender. A study by the business guru and New York Times bestselling author Ramit Sethi discovered that using only cash to pay for items decreased his spending by roughly 18%.

Conscious spending by the masses would, almost guaranteed, lead to deflation in this economic environment. The Fed, central bankers and governments around the world are absolutely terrified of deflation.

So what am I getting at?

The next step in our monetary system, to try and increase spending, is to eliminate cash from virtually all consumer purchases.

The decrease in cash payments (on a percentage basis) has been occurring at an alarming pace ever since the Great Recession. And with QE concluding, expect a near-cashless consumer market to be here very soon (I predict within 3 years).

According to MasterCard Advisors, 80% of transactions in the US are now cashless. That number jumps to 90% in Canada…

Last month Cap Gemini, a global consulting and technology firm, reported that, “Non-cash payments volumes are expected to grow 9.4 percent to reach 366 billion transactions in 2013*, fueled by strong growth in developing markets and the use of credit (up 9.9 percent) and debit cards (up 13.4 percent**).”

Cashless society breeds dangerous spending habits and promotes debt

While some supporters of a cashless society deem it as progressive for our technologically advanced world, I believe it to be dangerous. At the very least, a cashless society encourages unsustainable consumer spending habits (something many central banks have been doing for years).

For example, just look at the household debt in Canada right now. It’s almost the highest in the world. In early September, Statistics Canada reported that the ratio of credit debt to disposable income moved up to 163.6%. While slightly below the record of 164.1%, this ratio is back on the rise after two quarters of declines.

Is it a coincidence that Canadian consumers are amongst the world leaders in non-cash payments?Some may argue it is. However, historically high household debt levels and a massive increase in non-cash payments over the last decade appear to go hand in hand…

8 of the top 10 countries (major economies) which use non-cash payments most frequently also rank among the world’s top ten for most debt per household.

source: MasterCard Advisors


Building the Infrastructure and Social Behaviors to Eliminate Cash

Technology companies are expediting the extinction of cash in consumer markets, right along with central bankers and financial institutions.

Two months ago I was at an Apple ‘show and tell’ event. Basically, it was an event for Apple to introduce its new iPhone to a handful of tech geeks and innovators within the industry. The presenter explained that one of Apple’s goals with this new device is to make it solve what he called the ‘Holy Trinity’.

Apple wants to make its iPhones become your keys, phone and most importantly, wallet. Samsung and HTC are doing the exact same thing, thanks to the infrastructure put in place by our banks and retailers.

Additionally, with more people becoming comfortable shopping online, the cashless adoption faces little resistance. 98% of internet purchases are, as you can imagine, cashless…

In the name of ‘security’ and ‘convenience’, an innovation out of Sweden, one of the leading nations supporting the shift to a cashless society, allows consumers to pay for goods by quickly having the veins in their hand scanned. The technology was created by the startup Quixter and has been tested at a local university. Roughly two thousand consumers are using it in a beta run at approximately 15 food outlets. Ten years ago this would only be imagined in a science fiction film.

Click image to watch Reuters video on Quixter’s vein scanning payment processor


If debit card purchases weren’t already easy enough, banks have now made it so all you have to do is tap your card on a little screen and the purchase is complete, provided it is under $100. Scotiabank states this about the Interac Flash™ service:

“If your total is less than $100, just flash your ScotiaCard over the card reader and you’re done. No need to insert your card, enter your PIN or wait around for change.”



Are these cashless technological advancements a net benefit? I don’t think so. There is certainly a place in society for non-cash transactions, but things are being pushed too far.

The new cashless technology innovations are taking instant gratification to a whole new level. They create an environment which promotes frivolous and unsustainable spending habits by the masses. Completely digitizing our monetary system is a recipe for disaster; but, regardless of my opinion, that’s the direction we are headed.

If you’re actively looking for investment opportunities, as I am, perhaps now may be a good time to look at innovative payment processing companies.

All the best with your investments,






This article represents solely the opinions of Aaron Hoddinott. Aaron Hoddinott is not an investment advisor and any reference to specific securities in the list referred to in the article does not constitute a recommendation thereof. Readers are encouraged to consult their investment advisors prior to making any investment decisions. The information in this article is of an impersonal nature and should not be construed as individualized advice or investment recommendations. and its employees are not a registered broker-dealer or financial advisors. Before investing in any securities, you should consult with your financial advisor and a registered broker-dealer.Nothing in this article should be construed as a solicitation to buy or sell any securities mentioned anywhere in this newsletter. This article is intended for informational and entertainment purposes only. The author of this article bears no liability for losses and/or damages arising from the use of this article.