Zelensky is reportedly “very determined” to move towards a cashless economy as swiftly as possible. And he has the full support of Australia’s richest man.
Cash has a new enemy: the government of Ukraine.
In a panel discussion at the Ukraine Recovery Conference, held in London a couple of weeks ago to drum up support and funding for the imaginary construct that is Ukraine’s post-war recovery, the Deputy Chairman of the Office of the President of Ukraine, Rostyslav Shurma, said Kiev is seriously considering banning cash. Doing so could, he said, reduce the country’s corruption problems by between 95-99%. The effort would form part of the Zelensky government’s sweeping US, EU and UN-funded digital governance agenda (which we previously covered here, here and here).
Everybody knows about the progress we have done with Diia [Ukraine’s digital ID and governance platform] and the digitisation of public services. We plan only to enhance the speed of the public services we will provide [this way] because the logic is very simple: if there is no physical contact with the bureaucrat, there is no risk of corruption.
There is one more important step that I believe we will take. I cannot tell you definitely that we will do [it] because it is still under discussion — but under very deep, very serious discussion with the whole team including the president and prime minister. We want to be the first fully cashless economy.
We know there is a lot of debate about this from the different stakeholders that we are eliminating the rights of the people with no cash. But we believe this will be a very effective tool to eliminate, I think, 95 to 99% of all corruption cases in the country if there is no cash at all.
This is bonkers, of course. Bonkers for the absurd numbers (95-99%) cited as well as the implied notion that a cash-free Ukraine would suddenly be cleansed of all corruption, as if cash were the only financial conduit by which bribes or kickbacks are paid. Bonkers also because Ukraine is still a heavily cash-based economy where physical money accounts for between 40-50% of Ukraine’s M1 money supply (currency, demand deposits and other liquid deposits), according to Vitaliy Shapran, a former member of the National Bank of Ukraine Council. That compares to 15-20% in neighbouring Georgia and 0.5% in Sweden, one of the world’s most cashless economies.
While it may be desirable for cash’s share of the money supply to shrink, getting rid of it entirely is simply not realistic, Shapran told Focus Ukraine, a blog of the Kennan Institute of the Woodrow Wilson International Center for Scholars. For a start, it would leave many of the country’s pensioners with no means of accessing or using money. Then there’s the fact that huge swathes of Ukraine’s territory are currently a battleground for a proxy war of attrition between Russia and the Collective West that has no clear end in sight.
One major victim of that war is Ukraine’s power grid, which is routinely targeted by Russian forces. As a result, the country continues to suffer rolling power blackouts and internet outages. According to its energy minister, Ukraine is conducting the largest campaign of repairs in modern history to its power system in preparation for another winter of Russian airstrikes. As Yves noted in her Nov 3. piece, Has Russia Already Pwnd Ukraine?, it would seem that “the most efficient way for Ukraine to restore the grid (and remember no rebuild will be terribly efficient) would be to get the needed equipment from Russia.” Suffice to say that is not going to happen.
In any remotely sane world, this would immediately disqualify Ukraine as even an outside contender for the planet’s first fully cashless economy. But as readers may have noticed, this is not a sane world, especially when it comes to “Project Ukraine” (h/t Benny Profane).
Building the “Most Convenient Digital State in the World.” At What Cost?
Ominously, Shurma is not the only senior government official in Kiev talking about the need to eliminate cash. The Deputy Minister for the Economy Oleksandr Gryban recently said Zelensky was “very determined” to move towards a cashless economy and the government would “make everything to make it happen as soon as possible”.
“This is a clear intention of the president, I assure you,” Gryban said. “He does understand that a number of problems were driven by cash, so one of the last meetings he was managing, cashless economy was just one of the main pillars for the future economic transformation.”
Ukraine’s “Diia” digital ID and governance platform predates the conflict with Russia, but as I noted in my previous post, USAID Quietly Unveils Plans to Export Ukraine’s Digital Governance Model Around World, it has been significantly expanded since the hostilities began, in the eternal spirit of never letting a good crisis go to waste:
Just as the combat theatres of Iraq and Afghanistan served as testing grounds for the mass harvesting and storage of sensitive biometric data, some of which fell into the hands of the Taliban when the US abandoned Afghanistan, war-torn Ukraine is being used to pilot the rapid construction of an all-encompassing digital governance system.
A fully functioning ID system is a prerequisite for launching a central bank digital currency. In December last year, the National Bank of Ukraine (NBU) unveiled its draft concept for developing a CBDC known as the digital hryvnia or the e-hryvnia. Oleksiy Shaban, Deputy Chairman of the NBU, described it as “the next step in the evolution of the payment infrastructure of Ukraine.”
Most of the money used to bankroll Ukraine’s “state in a smartphone” model of governance has come from Washington’s soft power arm, USAID, while US mega-corps like BlackRock, JP Morgan and Mckinsey & Company stand to pocket much of the money raised for reconstruction. Other contributors include the European Union’s eu4digital initiative, the UN’s Development Program (UNDP) and the Swedish government. Their money has helped to build “the most convenient digital state in the world — without corruption, without bureaucracy, absolutely paperless, and open for everyone,” says Valeriya Ionan, the deputy minister of digital transformation.
Australia’s Richest Man Joins Fray
At this year’s annual meeting of the World Economic Forum in Davos in January, USAID’s administrator and inveterate neocon Samantha Power announced that Washington is hoping to export the “success” of Ukraine’s e-governance digital identity app, Diia to other countries around the world that are struggling with corruption. A few months later, UNDP said Diia is “ready to go international.”
One country that is currently working to replicate Ukraine’s digital ID system is Estonia, which is already one of the world’s most digitized countries. As Estonia’s Prime Minister Kaja Kallas noted a few months ago, the move represents a “new chapter” in the two countries’ digital cooperation.
Ukraine’s allies/backers/owners have at least two possible motives for wanting Ukraine to abandon cash: first, so that it can serve as a testing ground for a CBDC, just as it has done for digital identity; and second, to borrow from a recent article in the Sydney Morning Herald, to “avoid the corruption seen after the Iraq War, when reconstruction funds were used for bribes and kickbacks.” As the article points, Ukraine is still a hive of corruption, placing 116 out of 180 countries in Transparency International’s latest Corruption Perceptions Index.
In a bizarre twist, Ukraine’s plan to kill cash also enjoys the support of Australia’s richest man, Andrew “Twiggy” Forrest, who has launched a new investment fund for Ukraine’s reconstruction, kick-started with $500 million of funds from his private company, Tattarang. The fund will be operated by Ukraine’s Ministry for Economy and administered by the world’s largest asset manager, BlackRock. The Australian mining billionaire hopes funds from other investors of up to $US100 billion.
But on one condition: Kiev must first take out cash, thereby “put[ting] the nail in the coffin of corruption:
“That’s the point I’ve made to the Ukrainian government: cash will lead to corruption. Now here’s your opportunity to go cashless – there’s no reason to have cash in your society, none.”
A more blatant endorsement for the death of cash from a billionaire businessman you will be hard pressed to find. Even if Forrest’s faith was well placed and Ukraine was able to eliminate cash without visiting significant amounts of further pain, distress and devastation upon an economy that already shrank by around a third last year, the plan has one significant snag:
What About All the Physical Euros and Dollars?
As economic analyst Borys Kushniruk told Focus Ukraine, the proposed measure to take out cash will have little impact on political corruption, given that most bribes are paid in dollars and euros. Cryptocurrencies are also becoming a popular payment method that is for the moment widely encouraged by Ukraine’s digital-friendly government (machine translated):
You can eliminate cash hryvnias, but not dollars and euros – the main currencies in which bribes are distributed. Hundreds of millions of dollars in cash are in the hands of Ukrainians. And times are also changing. Many people give bribes in cryptocurrency, making it even more difficult to catch them.
The idea of abolishing cash reflects a misunderstanding [among current officials] of the main economic uses of money. It has five interrelated functions: as a measure of value, a medium of exchange, a method of payment, a method of accumulation and international currency [for foreign trade, international loans, etc.].
If cash is abolished, said Kushniruk, people will inevitably need to introduce another means of payment, including presumably other physical currencies:
When someone wants to cancel something, they should understand that they will still have to ensure the functioning of the economy. Cash payments are an important component of the economy.
The First Deputy Head of the National Bank of Ukraine Kateryna Rozhkova appears to concur, cautioning that while the “banking system is ready” for a cashless economy “from the viewpoint of technology, inclusion and continuity,… I am not sure that we can claim to be ready to ensure a zero amount of cash in circulation.” She also noted that in some countries where cash had been reduced to minimal levels, “the population did not like it.”
In other words, the central bank does not seem to occupy the same ground as the Zelensky government on this issue, or at least does not view it with the same urgency. Meanwhile, the global race to elminate cash continues to gather pace. At its “Summer Davos” event last week, the World Economic Forum emphatically endorsed the adoption and proliferation of CBDCs. From the digital rights newsletter Reclaim the Net:
In a report, timed for release with the event this week, the WEF listed “advancing cashless societies” as one of the strong motivations for introducing CBDCs. “Focusing on reducing cash use, promoting digital payments and enhancing financial literacy to drive economic growth and increase efficiency, while balancing privacy concerns,” the report states.
Though it doesn’t say exactly how “balancing privacy concerns” will be addressed.
The conference this week brought attention to the stark reality of physical money becoming a relic, as Eswar Prasad, a Cornell University professor, emphasized during his speech.
Prasad enlightened the audience on the duality of CBDCs. He marveled at their potential benefits but also cautioned against the possible perils. One of the intriguing aspects of CBDCs, according to him, is their programmability. Governments could engineer these digital currencies with the ability to expire and to dictate what they can or cannot be used for.
“We are at the cusp of physical currency essentially disappearing,” said Prasad, thereby underlining the gravity of the situation.
War-torn Ukraine has already been used as a testing ground for digital identity and governance systems. Will it be used in the same way for CBDCs and cashless economics? The ever-obsequious Zelensky government certainly seems happy to offer its services, apparently regardless of the economic pain and fallout it will inflict.