Monday, May 13, 2013

Killing off cash

American money

Cash has been taking a beating lately.

Recently, Canada minted its last penny. 

Eurozone countries are working to restrict cash payments. 

Bitcoin is all the rage or was until a short time ago.

Payments start-ups such as Square and iZettle are on a cash-killing mission, while non-profit organisations, governments, the World Bank, small businesses, multinational corporations, app developers, hippies, libertarians, liberals, right-wingers all have agendas that can be advanced by alternatives to cash, and they're all pushing to bring them about.

But like forecasts of flying cars, predictions of a cashless future have a history of failure.

This is in part because progress is incremental, and in part because physical money is a time-tested technology.

It's fast, widely accepted, anonymous and useful for old-school budgeting and when the power goes out.

Yet powerful forces are aligning against cash.

Together, they provide a glimpse of what a cashless or mostly cashless future might look like, and illuminate the promise of digital money.

Irrespective of whether cash is ever kaput or just increasingly marginalised.

Faster and cheaper

The battery against cash is coming from three fronts - new technologies, scepticism about the stewardship of sovereign currencies and increased enthusiasm for alternative currencies, and greater scrutiny about cash's myriad costs.

Think anti-counterfeiting cops and armoured trucks.

Bank security.

Tax evasion.

Terrorists using 200-euro or $100 notes to buy explosives.

And every cash-related crime ever conceived.

Digital money innovations, particularly tools anchored to mobile phones, offer faster and cheaper ways to pay bills, buy and sell goods, send and receive money and make bank transactions.

Alternative currencies, meanwhile, are moving from the fringe to the centre, as more and more people worry about the long-term value of coin of the realm.

Angst about government currencies has traditionally sent people flocking to gold.

And for many devotees of the shiny stuff, gold remains the one and forever answer.

But gold is not value incarnate. 

It's just another commodity, albeit a historically pivotal and impressively hefty one.

Those who grasp that fact, yet still distrust central bank-issued currencies, are turning to local and online options, barter exchanges, and the crypto-currency Bitcoin.

But the most consequential aspect of this monetary revolution is growing recognition that the costs of cash fall disproportionately on the poor.

When was the last time you saw a wealthy person patronise a cheque-cashing service?

Or saw him use Western Union or visit a payday lender (for an above-board transaction, I mean)?

Cash is expensive not merely because of the risk of being robbed at the cash machine or losing your savings to a fire, flood or abusive spouse.

It's also expensive because of steep prices paid in time, fees and opportunity costs. 

For you and me, those costs are, by and large, not nominal.

But for the billions of people who subsist on $2 (£1.28) a day, they are anything but.

Digital tools are already providing millions of people worldwide with the opportunity to avoid cash. 

And avoid it they do.

They are storing value and transacting by way of electronic accounts "on" their mobile phones.

For the first time, people who were trapped in the informal economy can steer clear of usurious local moneylenders, save precious time and money, and benefit from the basic financial services that you and I take for granted.

And no, looping people into the formal economy isn't a clandestine Valentine to banks and bankers.

The fact is that a bank account, online bill, person-to-person payment, access to credit, insurance - all of these tools for building economic stability depend on money in electronic form.

If you don't have that, it's far more difficult to climb permanently out of poverty.

The truth is that it doesn't matter all that much whether cash's further marginalisation ever leads to extinction.

What matters far more is the potential for digital money innovations to improve the welfare of so many.

David Wolman 


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