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ISIS and the End of Cash

How the war on terror became a war on real money.
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If you listen to administration officials, the key to winning the war on ISIS is to cut off the group’s funding, some of which the government claims is tied up in stacks of U.S. dollars. At the same time, banking interests and policymakers claim possession of a $100 bill is practically evidence of criminality in and of itself. As these two efforts to stigmatize cash intersect, America faces a dramatic push to eliminate, or at the very least drastically curb, the existence of physical money.

Throughout the first 15 years of the global war on terror, there have been a lot of changes to our society in the name of war. But warnings about the effort to eliminate physical money within the United States still sounds like hyperbole. Not even the worst dictatorships in history eliminated money outright. Yet the intermittent talk of some future cash-less society is growing more intense, and high-profile officials like former Treasury Secretary Lawrence Summers are ever more comfortable in making public their disdain for paper money.

On February 4, the Financial Times ran an op-ed touting “The Benefits of Scrapping Cash,” arguing that the outright elimination of physical money would be a great way for America to hinder “drug-dealers and terrorists.” Such articles aren’t totally foreign to the FT, which ran another article back in August condemning paper money as a “barbarous relic.” Yet this wasn’t a simple case of the Financial Times running some policy flack’s vision of a perfect banker’s paradise.

Just two weeks later, Summers was penning a piece for the Washington Post calling for a global agreement to withdraw from circulation all paper money worth $50 or more. That same day, articles began circulating claiming that ISIS had switched to an exclusively U.S. dollar-denominated economy, based on the claim on a single “activist” in the Syrian city of Raqqa, who was quoted in the Associated Press under a pseudonym.

Summers’ article was in great measure a chance to advertise a Harvard Kennedy School working paper called “Making It Harder for the Bad Guys,”by Peter Sands, a member of the board of directors for the Institute of International Finance.

The Sands paper starts with the usual argument that high-denomination paper money is only really used for illegal activities, padding the usual laments about tax evaders with talk of international terror, that one tried and true excuse which can sell almost anything. Ultimately, he concludes that physical money is anachronistic, and that there are limited downsides to phasing out high-value paper money, along with potential benefits to the banking community.

If starting with the premise that cash “offers anonymity, leaves no transaction record and is universally accepted” and ending with the conclusion that it must be stopped is scary, the benefits to bankers are even more so, with the argument that physical money puts cap on interest rates at zero percent.

A rate of zero, or literally no interest, aims to discourage saving by offering no premium for putting off spending to a future date. Yet if everyone’s savings exist solely as electronic credits in the formal banking system, the option exists to have a negative interest rate, to charge people money for not spending. This, in a banker’s view, is the ultimate way to stimulate spending, but is impossible so long as people can (and undoubtedly would) withdraw all their money if the bank started charging them interest to keep it deposited.

Though both Sands and Summers stop short of the call to outright eliminate cash in one swoop, Sands concedes that the effectiveness of removing higher denominations would be limited by whatever they stop with. Eliminating the $100 bill doesn’t mean much if everyone just uses $50’s, and eliminating the $50 bill just has everyone using $20’s. It’s hard to imagine, once this paring down of cash begins in earnest, however, that we will be left with much more than a nickel for the gumball machine.

And there is no evidence the ISIS claim is even true. For every claim of ISIS seeking to use U.S. dollars, there is an alternate claim, with the same lack of evidence, that ISIS uses Bitcoin for all its important transactions, or demands jizya payments from Christians to be made in gold.

It seems clear that ISIS will continue to use a piecemeal currency system for the foreseeable future, using various nations’ cash where convenient, and indeed using the international banking system when it suits their interests.

In desperation for an “easy fix” for the ISIS war, the administration has turned to the cash elimination idea after things like bombing oil trucks didn’t work. In the past month the Pentagon has carried out multiple airstrikes in civilian areas of Mosul explicitly because they believed a large pile of physical currency was in the area and could be destroyed through sheer force of arms. While they hype blowing up “millions” in cash, there is little indication that it has done anything to stop ISIS.

At most, the elimination of U.S. currency shifts ISIS toward using some other nation’s cash as a substitute, at best creating a nuisance for them. At the same time, it dramatically curbs personal privacy within the United States and further empowers banks to fleece the American public.

From being frisked by the TSA to accepting NSA surveillance of personal emails, Americans have had to give up an awful lot of freedom in wartime. The loss of the right to use physical currency, however, would put us in the rarefied air, among the worst dystopias conceived in fiction.

Jason Ditz is news editor at Antiwar.com, a nonprofit organization dedicated to the cause of non-interventionism. His work has appeared in Forbes, the Toronto Star, Minneapolis Star-Tribune, Providence Journal, Washington Times, and Detroit Free Press.

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