“Nye Rabotaet” and other excuses for a cash-only shadow economy

I fully expected that once I left the first world that credit cards acceptance would be few and far between, and most of what I would have to pay for in most of these countries would be in cash banknotes (which would transfer to me the challenge of running around these countries to find an ATM to get this cash from).

What did surprise me is that in front of this cash-only economy, there are now actually plenty of stickers advertising that they accept Visa and MasterCard, and sometimes even Diner’s Club, JCB, Union Pay, and others. Behind these stickers, and I would say well over 50% of the time, the cashier unapologetically says something like “the card machine doesn’t work, don’t you have any cash?” Of course, I have been used to hearing this excuse for years from NYC taxi drivers (sometimes even after being told that they would accept cards in order to get me into the the cab, but this seems to have been fixed with the recent system), and of course such a large percentage of card readers would never lie fallow unless their merchants really wanted them to. Like many other details like this, I’m perhaps most annoyed at first with the dishonesty of the sticker and lack of up-front clarification.

As a buyer, I of course enjoy several advantages of using a credit card instead of cash to buy things, especially larger ticket items: 1.) not having to carry around dangerously large amounts of cash, 2.) not having to deal with exact change, 3.) having an automatic record of my purchases, which some cards even later summarize into an annual statement for me, and 4.) earning interest on the floating balance until I pay it off at the end of the month. Granted, number 4 is an advantage to me at the expense of the merchant, but I don’t suppose the 1-3% they have to pay Visa is the real reason they don’t want to accept it; no, in spite of numbers 1-3 actually also being advantages to the merchant, I’m sure we all suspect the real reason is that cash is harder to trace and easier to perhaps avoid the 15-50% they would have to give up in taxes or to other reporting authorities. I’m not sure how much of my cash expenses on this trip so far have actually gone to fuel the black/grey/shadow economy, but this faked acceptance has also been seen in large supermarkets and other well-rooted businesses, not just small apartment managers and anachronistic train stations (in fact, I was surprised that train stations in Russia now take Visa, but ones in China and Latvia that I have seen so far do not). As mentioned, taxis and small stores in the US also do this, but I have never been told by Wal-Mart or Best Buy that their card readers are not working (in fact, oddly enough I was once at Blockbuster when their cash machines weren’t working and they could only take credit cards, much like airline drink servers these days).

It might be easy for me to suggest that there are at least three policies that might better trace this cash-only economy:
1. Eliminate income taxes on traced income that are easy to avoid with cash transactions (replacing these with property taxes and others that cash doesn’t hide from).
2. Establish a system for tracking individual banknotes – this would probably be the most costly and dubious of success.
3. Encourage hyper-inflation with real interest rates still a few percentage points above inflation. This would make it far more costly to hold cash notes than to stick with electronic bank transactions, but I’d have to study more how similar systems have worked to curb cash-only systems in places like Chile or Turkey (Turkey seemed to have cash preferences when I went this time, but almost no
“non-working” card machines behind the stickers)

I’ve once read that the shadow economy in the US could be up to 1/8 its total economy, and I’d love to get better data on how this holds in the second and third world…