There is a scenario going around the Internet (Google link showing extent of reach) saying the following (with possible slight variations which I haven't spotted yet)...
Why should we pay cash everywhere with banknotes instead of a card?
I have a $50 banknote in my pocket. Going to a restaurant and paying for dinner with it. The restaurant owner then uses the bill to pay for the laundry. The laundry owner then uses the bill to pay the barber. The barber will then use the bill for shopping. After an unlimited number of payments, it will still remain a $50, which has fulfilled its purpose to everyone who used it for payment and the bank has jumped dry from every cash payment transaction made..
But if I come to a restaurant and pay for digitally - Card, bank fees for my payment transaction charged to the seller are 3%, so around $1.50 and so will the fee $1.50 for each further payment transaction or owner re laundry or payments of the owner of the laundry shop, or payments of the barber etc..... Therefore, after 30 transactions, the initial $50 will remain only $5 and the remaining $45 became the property of the bank thanks to all digital transactions and fees.
(Copied from Reddit r/Anarco_Capitalism)
First of all, (grammar and actual average fees aside) the mathematics do not work on this, as 30 transactions with 3% charges per transaction would reduce $50 to just under $20 in the economy (if the fees are rounded up). $19.98 to be exact if my mathematics are correct. This is because the first charge would reduce the $50 to $48.50, then $48.50 - 3% charge = $47.05, then another would leave $45.64 and so on...
However, $30 is still a big chunk lost from $50 to card transaction fees.
I don't know how much you spend per month on average for food, but my wife and I in the UK spend £300 per month, and using this scenario reduces that £300 to around £120 if my mathematics are correct.
This is surely going to ruin the economy and bust the banks in the end. That is because a strong economy needs money sloshing around the system. So, would this be something the central banks would really entertain?
Is this argument for paper money and coins to remain realistic?