What are the pros and cons of cash transfers for the government?
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Cash transfers have both good points and bad points from the point of view of the government.
On the good side, cash transfers are relatively simple to accomplish and to administer. All that the government has to do is to determine who is eligible for the transfers and send checks to them. Today, the government can often dispense with producing the checks and can simply transfer the money electronically to the accounts of those who are getting the transfers. This is relatively simple. It is much simpler than trying to administer and distribute in kind transfers.
The major problem with cash transfers is that they can be diverted to purposes that the government does not really want. For example, let us imagine that the government is trying to help poor people buy food. If the government simply gives them cash they can use the cash to buy alcohol or other things that are really not necessary. Cash transfers allow the recipients to have money that they can spend in any way they want. This prevents the government from attaching any “strings” to govern how the money will be spent.
On the chance the question refers to payments made between individuals or companies and not payments from the government to an individual, the government has serious concerns about cash transfers. The U.S. Government requires banks to report on cash transactions of $10,000 or more. The form used is called a Currency Transaction Report, and it is submitted electronically by the bank to the Internal Revenue Service. Because cash transactions involving large sums of money are occasionally associated with money laundering, which is usually traced to what is called a "predicate crime," the government uses these reports to look for signs of underlying criminal activity, like drug trafficking.
As the government cracked down on the use of banks and wire transfer services (e.g., Western Union and Money Gram), which were abused by criminals and terrorist organizations to move money around the world, terrorists started relying more on moving their money around in bulk cash shipments, often transported in suitcases. By using cash transfers and bulk cash shipments to avoid the formal banking system -- and the IRS reporting requirements that entails -- it has become much harder for the government to track the money, which in turn makes it harder to track the terrorists. Electronic means of moving money around leaves a trail that investigators can identify and follow; moving cash around does not leave such a trail. In that respect, the government does not like cash transfers.
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