It almost sounds like the opening to a bad joke: The government is seeking to severely limit the use of cash, in order to afford the authorities greater control over the economy and prevent tax evasion. Does that mean Israeli kids will be issued credit cards for when they buy gum from the candy store?

Not credit cards – but credit accounts on their cellphones. New payment systems using technologies like NFC (near field communications) are already allowing shoppers to make even small purchases using ubiquitous smartphones and other portable devices, bringing the dream – or nightmare, depending on your point of view – of a cashless society within reach.

In a recent meeting, the government decided to appoint a committee tasked with investigating ways to limit the use of cash in the Israeli economy. You can’t really blame them: A report by Visa Europe says that NIS 170 billion ($48.2 billion) – an amount equivalent to 21 percent of Israel’s GDP – was unaccounted for in 2010. That money floated around the economy “under the table,” unreported to the authorities, and of course with taxes unpaid.

Israelis are certainly not the worst offenders; in countries like Romania and Bulgaria, undocumented transactions account for as much as a third of the country’s economic activity. But in an era of unpopular budget cuts and even more unpopular tax hikes, the government is seeking to grab every shekel it has coming to it under the law, and if banning cash or sharply limiting its use will help bring that revenue in, then so be it, according to the Prime Minister’s Office, which the committee will report to.

Harel Locker (Photo credit: Kobi Gideon / GPO/FLASH90)

Harel Locker (photo credit: Kobi Gideon/GPO/Flash90)

“There are billions of untaxed shekels, according to our estimates, and the public is missing out on use of these funds,” said Harel Locker, the director of the PMO and the head of the committee, which, he continued, “will research solutions to correct this situation.” On the committee are also officials from the Israel Police, the Finance Ministry, the Israel Tax Authority, the director of accounting at the Bank of Israel, and the attorney general. The committee will present its results to the prime minister by the end of the year.

But media have been quoting critics, of which there are many, who say the change will have a dramatically negative impact on the economy. They predict that rather than ditch cash altogether, Israelis will simply switch to foreign currency in order to conduct transactions, and that the move will impoverish small business-owners, artisans, and self-employed Israelis while enriching the banks, which will be able to collect a plethora of new fees. Another argument contends that large segments of the population – ultra-Orthodox Jews, Arabs, the elderly, and others – who are largely “unbanked” or who, for cultural or other reasons, prefer to use cash, will be frozen out of this new economy. And a third argument has the government seeking to expand its reach, searching for new ways to control the body politic.

But regardless of government edict, chances are that Israelis will in the future be using far less cash than they do now. New cellphone technologies are coming onto the market that will make it easier to use devices to buy anything – even small items, like gum from the candy store – with the payment collected electronically not directly from a bank account, but tacked onto a user’s cellphone bill.

NFC is one of the technologies that will make implementing cashless payments easier. While many people don’t carry credit cards, many of them do carry cellphones, so the ubiquitous infrastructure needed to implement a cashless payment system is already widespread. In a typical-use case, a customer will wave their NFC-capable phone at a cash register reader and the price for the purchased item will be tacked onto their cellphone bill, with payment due at the end of the month. All three of the major cellphone service companies in Israel – Orange, Cellcom, and Pelephone – now offer a “digital wallet” option. It’s like the real thing, only virtual, with money withdrawn from your bank account or tacked onto the monthly cellphone service bill — in cooperation with credit card companies. The wallet can be used to make payments at retail stores with devices, as well as to receive coupons and manage expenses. For example, Pelephone’s system, which has been available since July, can be used by customers who have devices with NFC chips, while users whose devices don’t include such chips (Apple iPhones, for example) are issued a sticker that functions as an NFC “credit card.”

Several Israeli start-ups are involved in the NFC business. On Track Innovations supplies key components to contactless payment programs developed by the major credit card companies, such as MasterCard PayPass, Visa PayWave, Discover Zip and ExpressPay from American Express, as well as a host of apps for specific NFC uses, such as EasyPark, which uses NFC on parking meters to allow users to forgo coins. Israel’s TapMyBiz has a technology to easily install NFC connections for use by devices, in the form of special chips that can easily be added to almost anything. Its showcase product is a business card that includes an NFC chip that, when passed in front of an NFC cellphone, records the information on the business card on the device. And the Tadbik Group helped cellphone service company Orange roll out its NFC tag package, producing tags that could be placed on packages to interact with NFC phones.

But what may potentially become the biggest digital wallet app is the one made by the biggest digital company. A new version of Google Wallet allows NFC and non-NFC phones to connect to the company’s payment network. US users will now be able to link a credit card or bank account to their Wallet, allowing them to make payments in retail stores or to send money from one user to another (Wallet’s main competition in the US is an app called Isis, a joint venture between AT&T, T-Mobile, and Verizon).

While the companies behind the technology tout the benefits to consumers – Google Wallet, for example, says consumers can “check out faster” at retail payment points, get 100 percent protection for their money, and “never miss out” on coupons and loyalty programs – the boon for government is clear. As with all other digital information, financial transactions on your cell device will be recorded, with the information a taxpayer supplies about economic activity easily corroborated against the records.

Plenty of Israelis are incensed over the initiative; numerous web sites and Facebook pages have cropped up in recent days complaining about both the practical and theoretical aspects of sharply curbing the use of cash. “When we pay via electronic means like credit cards, the government can track our activities, and even more, our movements,” says one Facebook page. “If you buy something at a kiosk and then get on a bus, paying with a credit card, ‘they’ can track where you are going, what you are doing, and when you are doing it.”

And then there is the problem of those who don’t have credit cards. “What are they supposed to do?” asked the administrators of the page in a post. “Are they to be banned from public transportation – meaning that not only will they starve to death because they can’t buy food, but they will have to do it alone at home?

“A plan to create absolute control over money and commerce reminds us of Communist Russia. The State of Israel is moving much faster than any other Western country to a state where there will be the possibility of exerting total control over the lives of its citizens.”

According to the post, “the great excuse that supporters of this program have come up with – reducing the rate of tax evasion – is clearly fraudulent, since we know that the large companies pushing this are the ones that get away with paying the least taxes, using credits and benefits handed to them by the government on a silver platter.”

Given the extensive credit checks consumers usually must go through to get a credit card, the plan for a near-cashless society would probably be impractical – if it depended on credit cards. But with NFC and cellphone system payments, implementing the plan would require nothing more than an expansion of the number of retail establishments accepting those kinds of payments – something the cellphone companies, retailers, and government are all in favor of – and less printing of currency. As the number of bills in circulation fall, the number of electronic transactions will rise, as people follow the line of least resistance. According to Pelephone CEO Gili Sharon, it’s practically a shoe-in. “I predict that within three years we will have half a million users,” he said. “In a few years, this payment method will become most convenient and effective and will replace credit cards.” And cash, if the government has its way.