Both the official and underground economies love cash | Yeung Wai-hong

2021.04.26
Both the official and underground economies love cash Yeung Wai hong

A cab driver Mr. Wu was recently mugged and incurred a loss of HK$7,000 (US$900). However, there is a code of conduct even among thieves as he gave Mr. Wu a hundred dollar note back in return. Luckily, the driver still had more than HK$10,000 in his wallet that was not detected by the thief, otherwise the loss would have been even greater. Although it is said that even your own children are not as important as your own money, “walking around with a million dollars in your pocket” is like luring people to violate the law. The epidemic is so serious that everyone from Professor Yuen Kwok-yung to epidemic fighters is urging everyone to use contactless electronic money such as the Octopus as much as possible. Most cab drivers dislike payment by credit cards, Octopus, Alipay, and other electronic money, which can be costly and at risk of being audited by the IRS. Hence, most of them only accept cash, and as a result, it is not uncommon for cab drivers to be robbed.

It is clear that cab drivers are not the only ones who like to use banknotes. Even though the economy is in the doldrums and everyone is working from home to fight the epidemic, the opportunities to use banknotes should be greatly reduced, but in the grand scheme of things, the amount of banknotes in circulation in Hong Kong has steadily increased by nearly 9% to HK$542.9 billion (US$69.8 billion) by the end of last year. This is not a phenomenon unique to Hong Kong. The epidemic in the U.S. is far more severe than that in Hong Kong, and the stay-at-home order has hit the economy hard, so it stands to reason that the trade in money will drop significantly. Last year, the circulation of American currency surged 11.6% to an unprecedented US$2.07 trillion against the market. Why?

Traditionally, the underground economy cannot see the light of day and needs to be financed by cash. The official economy is sinking with fewer transactions, but the circulation of banknotes is rising against the market. Could it be that all the new notes have gone underground? However, the shadow economy is parasitic to the primary economy. It is impossible for something to exist without a foundation. Apart from China, the global economy is in a downturn, so how far can the underground economy flourish? If the economic downturn is not an illusion, it would be easy for the newly issued U.S. and Hong Kong banknotes to flow to China, where the economy is thriving. Is that a possibility?

It is unclear whether U.S. banknotes and Hong Kong bills are pouring into the mainland, but the indisputable fact is that Chinese corrupt officials love money. For example, in the case of Xu Caihou, the former vice chairman of the Central Military Commission, there were more than a ton of dollars, euros and renminbi discovered in his home! If the vice chairman has this kind of money, how many tons of banknotes should the chairman have? The recently executed former chairman of China Huarong Asset Management, Lai Xiaomin, was reported to have corrupted tens of billions of renminbi, and three tons of cash were seized from his home. Some experts have testified that although Alipay is used nationwide from beggars to the oldest professions, corrupt officials still hold cash for their own sake. This shows that there is no harm in using electronic money for small value transactions, but to seriously stash riches, it is necessary to go for banknotes. The highest denomination of renminbi is 100 yuan, so it is certainly not as effective as U.S. banknotes for the purpose of concealing wealth.

It is said that as some people became richer under Deng Xiaoping’s instructions, the authorities did consider raising the denomination of the renminbi to make it easier for citizens, but then dismissed the idea in order to prevent corruption. Can small banknotes keep people honest? As evidenced by the mountains of loot piled up by corrupt officials such as Xu Caihou and Lai Xiaomin, small-denomination banknotes are not effective in preventing corruption. The U.S. Mint apparently lacks the corruption prevention mentality of the People’s Bank of China, but seems to be particularly considerate of corrupt officials, drug lords, and even terrorists who are active in the underground economy. Over the years, not only have more U.S. banknotes been printed, but the supply of the large, collection-friendly hundred-dollar U.S. bills has also risen dramatically. To date, American hundred-dollar notes account for the largest proportion of all denominations, accounting for nearly 80% of all banknotes issued!

In Hong Kong, counterfeit banknote syndicates are interested in producing cost-efficient thousand-dollar banknotes. There was also a time when a large number of counterfeits were out on the market such that many shops were wary of thousand-dollar bills and explicitly refused to accept them. Nevertheless, whenever the police or the Customs and Excise Department holds a press conference in which they display criminal evidence and stolen goods, the thousand-dollar notes are still the most frequently shown, so it is clear that large banknotes that can efficiently hide wealth are always the favorite of lawbreakers. That is why, although the average person in Hong Kong has 4.6 credit cards and four Octopus cards, plus Alipay, WeChat Wallet and Apple Pay, etc., the banknote printing factory in Tai Po Industrial Estate is still in operation every day. Why do Hong Kong people have such a fondness for banknotes?

As COVID-19 has been rampant for more than a year, the government has launched the “LeaveHomeSafe” mobile app to trace the spread of the virus. However, as the Chief Executive said, Hong Kong people would rather “write on paper” than simply scan the app, which does not reflect that Hong Kong people lack civic awareness of epidemic prevention. On the contrary, after experiencing the tragedy of SARS, the people of Hong Kong consciously and spontaneously wear masks and wash their hands regularly. In fact, Hong Kong people’s awareness of epidemic prevention is enough to serve as an example to the world. There is no one who does not want to get rid of COVID-19 as soon as possible, but they do not want to scan the app for fear that the authorities will take advantage of it to get hold of their whereabouts and thus lose their privacy. In the end, that is the reason why electronic money, which is easy to use and effective in blocking the spread of viruses, has emerged while banknotes are still prevalent.

If Chan Tong Kai had not been so insatiable that he withdrew cash from the machine with his girlfriend Poon Hiu-wing’s ATM card three times, he would not have gotten caught so quickly and brought Hong Kong to ruin. It is precisely because we all know that the Octopus is a powerful tool for the police to solve crimes that those concerned had left change on top of ticket machines in the Central MTR station to make it easier for people to fight on, each in their own ways. The only reason for not wanting to scan the app is that they are afraid they will lose their privacy if they “LeaveHomeSafe.”

In other words, whether in China or abroad, electronic money and cash go hand in hand, not because people are old-fashioned and not in line with the trend, but with the help of technology and big data, there are numerous tools to monitor and track people, making privacy ever more precious. With the introduction of a real-name registration system in China, from train tickets to phone cards, and now experiments with the ability to track every transaction of electronic renminbi, it is expected that large renminbi bills, U.S. banknotes and even gold will become increasingly sought after to avoid the watchful eyes of Big Brother.

It is also true that in more than half a century since the first credit card was introduced in the U.S. in 1958, the number of U.S. banknotes in circulation has increased rather than declined. Similarly, the Octopus was first launched in Hong Kong on September 1, 1997, and the circulation of Hong Kong banknotes has continued to rise. With the debut of Alipay on October 15, 2003, the volume of yuan in circulation has more than tripled in the past 18 years to 865.43 billion yuan (US$131.9 billion). In an era of zero interest, there is no cost to holding cash, not to mention no fear of leaving a trail and exposing privacy. It is no wonder that both the legitimate and underground economies are aligned with cab drivers in their exclusive love of cash.

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