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Digital Publisher of the Year | Thursday 24 December 2009 | Edmund Conway feed
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Cash is no longer king Photo: PAIf you’re anything like me, this was the day you finally realised it was time to start shopping for presents. Of course, if there’s one day you don’t want to be stuck in a queue at the cashpoint, it’s Christmas Eve. So how much money should you take with you while you brave the high street?
A couple of years ago, a Harvard professor called Greg Mankiw worked out that the ideal amount to have in one’s wallet at any time was $600 (£375), on the basis that time spent topping up at the cash machine is time wasted, and that you’re far less likely to be mugged or lose your wallet than you think. But I’ve got a different answer: absolutely nothing.
Related Articles Reform plan raises fears of Bank secrecy Bank of England speeds up quantitative easing Recession is grim no matter how bored we are of economic doom and gloom Mother of octuplets wanted children because of 'dysfunctional childhood' Recession fears as economy begins to shrinkI don’t mean, of course, that we don’t need any money. But Mankiw’s findings are already out of date – because cash is inexorably becoming redundant. Last week, the Payments Council caused howls of outrage when it announced that come 2018, the cheque will be sent to the great till in the sky. But it won’t be long before notes and coins follow suit.
This is a bold statement to make: currency has been an integral part of our world, in one way or another, since 3,000BC. But the simple fact is that we can survive without it. In fact, abolishing notes and coins could make the world and its economies far less dysfunctional.
To understand why, let’s go back to first principles. Money has two main purposes: to be a medium of exchange (helping us swap things of va
Published: 7:07PM GMT 23 Dec 2009
Comments 32 | Comment on this article
If you’re anything like me, this was the day you finally realised it was time to start shopping for presents. Of course, if there’s one day you don’t want to be stuck in a queue at the cashpoint, it’s Christmas Eve. So how much money should you take with you while you brave the high street?
A couple of years ago, a Harvard professor called Greg Mankiw worked out that the ideal amount to have in one’s wallet at any time was $600 (£375), on the basis that time spent topping up at the cash machine is time wasted, and that you’re far less likely to be mugged or lose your wallet than you think. But I’ve got a different answer: absolutely nothing.
I don’t mean, of course, that we don’t need any money. But Mankiw’s findings are already out of date – because cash is inexorably becoming redundant. Last week, the Payments Council caused howls of outrage when it announced that come 2018, the cheque will be sent to the great till in the sky. But it won’t be long before notes and coins follow suit.
This is a bold statement to make: currency has been an integral part of our world, in one way or another, since 3,000BC. But the simple fact is that we can survive without it. In fact, abolishing notes and coins could make the world and its economies far less dysfunctional.
To understand why, let’s go back to first principles. Money has two main purposes: to be a medium of exchange (helping us swap things of value) and a unit of account (a yardstick against which things can be priced). The textbooks also say it should be a store of value, although anyone who has experienced inflation will realise it hardly fulfils that role these days.
But while pounds and pence will survive, notes and coins are no longer all that relevant. Cash transactions account for only 4 per cent of overall money use: next year, for the first time, we will spend more using our debit cards than with cash.
Until recently, there were three reasons not to cut the umbilical cord: first, because of the impression that a £10 note clasped in your hand is somehow safer than one handed over to a bank, or the Government; second, because cash is essential for small purchases; and third, because cash can be passed between people easily, as a gift or a favour.
Yet just as with the arguments made in favour of the cheque, none of these wash any more. The temptation to hoard cash under the mattress is fatally undermined not merely by inflation, but by the fact that bank accounts are now protected by government guarantees. If you don’t trust the Government to safeguard your money, you’re better off buying gold.
The second or third objections have more merit, but we are on the brink of a technological revolution that will sweep them away. It may be impractical to pay for your newspaper or sandwiches with a debit card now, but most new cards (and some forthcoming phones) have a “contactless” feature which allows you to press them against a sensor and instantly pay for small items, with the payment coming straight out of your bank account, or from a pre-paid lump sum. Soon enough, you will be able to use these cards and phones not just to pay for stuff, but also to receive payments: African countries such as Kenya are well ahead of us here, with six million people paying for goods on their mobiles. Jack Dorsey, one of the co-founders of Twitter, is investing millions in a little box that plugs into your Apple iPhone and turns it into a credit card reader, which would let everyone make and receive such payments.
There are other advantages. According to Willem Buiter, the former Bank of England policymaker, abolishing currency would make it easier to regulate the economy, since it would let the Bank reduce interest rates to below zero, instead of pumping money into the economy through quantitative easing.
And it’s not just that carrying around cash is inconvenient and time consuming. These days, one of its main functions is to finance the black economy: drug deals, counterfeiting, under-the-table employment and other nefarious activities. Because cash is anonymous, people can easily opt out of the taxable economy – leaving the rest of us to pick up the tab for their use of public services. Remove cash entirely, and you make it far more difficult to avoid tax, not to mention discouraging criminal activity.
Two nagging questions remain. First, does moving to a cashless world mean that we’ll have to forsake our anonymity – that a record will be kept of everything we buy? Not necessarily, says Dave Birch, one of the world’s leading experts on digital money. He claims engineers can devise cryptographic systems complex enough to make electronic cash even more anonymous than the paper variety.
Second, doesn’t this make us reliant on electronic networks in a way cash doesn’t? Yes – but this is a path we are well advanced on. In the end, the main obstacle is cultural: given how annoyed people are about the abolition of cheques, will they really have the appetite for this leap into the future? A cashless Christmas is certainly coming – but the resistance to the change will be something to behold.
Comments: 32
Time to stop thinking less about economies, more about people. That way, we can avoid future events that would require 'negative interest rates'.
I've been living in Holland for the last 10 years and we're moving ever closer to a cashless society which is being embraced by the people because it is safer, easier and actually cheaper (on the economy as a whole). The only thing which this article misses is the importance of privacy and the ability to make transactions without any record. In Holland we achieve this via the Chip part of Chip & Pin, with Chip you load the card with money and transfer the money directly from your card to the retailer, no record is kept or sent to the bank. Devices are coming on line to allow you to load the card at home (via the internet) and also to transfer money between non-retailers, for example: pocket money, and also to be able to use the card via the internet to make small, anonymous payments. When this is achieved within the UK, the benefits of a cashless society will become aparent.
Edmund, normally I agree with your writings but not this. Quite frankly you must either be very naive or stupid to think that promotion of a cashless society will not be to the citizens' detriment. The loss of privacy and control of unmonitored transactions as most other bloggers have mentioned is a huge factor, giving more control to a power hungry, undeserving and untrustworthy government. I live in the country and have plenty to barter with ( wood, veg)if it comes to it but I am curious what you have?
We'll just have carry around lots of postage stamps.
There is only one way to have a cashless world, and that is a world without money. May sound like a fancy to most but if you think it through, it has to be the next evolution of society. Now that there is nothing to replace the service sector which is inevitably being taken over by machines, where will jobs come from? Don't dismiss this idea, watch these films. http://www.zeitgeistmovie.com/ Not only do we get rid of most crime, but also all the nasty elements of society such as lawyers, accountants, politicians, corporations and yes, work! I demand the right to NOT work. Don't laugh it off until you watch the films.
Your third from last paragraph extoles the virtues of "cashlessness" as the end of cash-in-hand working, drug trading etc... Then you go on in the next paragraph to tell us how "cashlessness" is even more anonymous! So...which is it then? Poorly made arguement, just to fill column inches, I fear.
Next stop Credits. You work and live in state owned accommodation and the government gives you credits. This has already been bandied about before and dropped when accused of watching too much 'Star Trek'. No thanks.
If you wish to opt out of society and work for cash in hand so no one knows where you are you can do it but not if we go cashless. Also in this downtun the blackmarket is booming keeping the economy from collapsing.
Clare's comment was so accurate that it has been removed. Beware the totalitarian state!
Edmund Conway may you experience the situation where none of your cards work because of some technolgy failure (or other reasons) at that point when you can't even buy a coffee - you'll wonder why you didn't carry any cash
most commentators have seen the cashless economy for what it is - another step on the road to totalitarianism.
This all sounds sensible until you factor in the human element. What if someone forgets their pin (another example of th banks deliberately making the consumer responsible instead of themselves)? These days they still rely upon snail mail to send through silly paper based pin reminders instead of a fully encrypted end to end exchange of credentials. This is slow, inefficient and ideal for banks to cut their customers off from their money in the name of efficiency. Frankly, a cashless society works until the smallest break in the chain - such as taxis, buses or pre paid meters for the poor get in the way. Wouldn't it be more sensible to demand that banks truly embrace the 21st century, stop trying to shovel blame on to the consumer and frankly stop desperately avoiding their responsibilities and simply create processess and systems tht can be trusted instead of suspected or entirely, malevolently profit driven - such as taking 20% of a transaction cost, o demanding a minimum number of transactions, or making users pay for security checks every other week, at random? Cashless societies will work when banking is no long solely focussed on short term greed, ut long term gain.
A significant proportion of reserve currencies circulate as legal tender in the third world and contries that still impose currency controls. The Fed, BoE and the European Central Bank know full well that a significant proportion of the currency that they issue will never come back to be redemmed. Remember cash is an IOU note in all by name. This allows them to continue deficit funding to a greater extent. I cannot see governments or central banks agreeing to scrap cash
Why use their bogus currency? Use silver and gold coins and not their worthless electronic counterfeit that they can steal from you by just lifting their finger and pressing a button from a remote distance.
Cashless idiot slaves. A black man in 1860 Georgia, USA was freer than we are today.
A world without cash? A world without an understanding of how the world works more like. A world where services are everything and goods made somewhere else are magicked to you somehow by someone else. Yes, a world without cash would mean we are only a computer blip away from the end of civilisation.
Agree completely with Clare on December 23, 2009 at 08:26 PM. Read her post carefully - it is the truth.
Take our cash away and we'll use somebody elses. Dollar bills are the historical favourites in authoritarian states with crumbling economies..
Ironic, isn't it, how once upon a time, to do a business transaction, you had to hand the money to the church who would hand it to the other person, taking a snip for themselves in exchange for their lending you their precious 'knowledge' of the Cypher (ie Zero), and here now again we gleefully re-introduce a faceless middle agent who once again will gladly transact our business in exchange for a digital snip. I hearby predict that alternative currencies (eg the Brixton Pound) will flourish.
The naivete revealed in this article is frightening.
You mean to suggest I should trust my money to the government that has spent 83.2 billion pounds more than it has taxed this year? I think I'll follow your advice and buy some gold!
People reading about Edmund Conway's article about a cashless economy and transaction system should not panic, if they are not used to it or haven't experienced it. It's aready here. It took me a while to get used to it. The credit card company docked some credit line awards; stating that I have not been using them sufficiently to justify the boost. All I did was just switch from writing checks at the grocery stores and supermarkets, using them only for utility bills like phones, electricity, cablevision, and more. So, with conversion to using credit cards even at gas stations filling up my car's gas tank, the credit card companies became pleased, because they earn money from companies who use these credit card machines and electronic systems to get their revenues guaranteed up front; as opposed to old-fashioned check-paper trails that take days to clear through banks that issued them. All I have to do is write one check each month to the credit card company, for each of the two credit cards I use for all the transactions for that month duration, instead of writing check for each transaction. It makes a lot of sense, and I now like it better. The fear earlier was extravagance. Because, payment is so easy for anything you want and purchase under the approved credit line for each card. But, I came to learn a lot about financial discipline where I don't go with the credit line but how much I have coming through wages, also, paid electronically straight to my bank account by my employer. The non-usable check stub is just a receipt showing that my wages or salary earnings have been credited to my bank account electoronically in what is called direct deposit. And, I can go to the nearest ATM machine to verify payment through my checking account and bank card. So, from purchases at the supermarkets, to my wages, I don't write or receive usable checks--all are done through electionic transactions and banking. Welcome to a cashless economy and transaction system. It proved more valuable when I travelled to another city. As I explained in a previous commentary, from renting a car, or booking hotel accommodation, I didn't have to write any check. Even, the luxurious hotel accommodation was booked through the Internet, and I printed the receipt from my computer's printer, which I presented upon arrival--all covered by credit card privileges. Air flight tickets can be purchased this way and many other transactions. Now, the only other time and reason I carry petty cash is for dry cleaners and other small businesses that still take only cash because of high rate of check bouncing and payment defaults aggravated by the recession. Small meals are, also, better with cash payments. It's not good to expose credit or debit cards to all kinds of transactions. It's better for bigger companies with better resources for security and encryption systems. This is what British MPs should have used to prevent all those seamy transactions and purchases not covered by or covered with bogus receipts. Credit card purchases leave transaction trails. Which was what got a governor in trouble when he naively and surprisingly used it for escort service, when the FBI busted him in a political whitch-hunting investigation that uncovered the fishing expedition in Red-Light Districts. Charges alleged using government funds to pay for the seamy, Romeo fishing expedition. And, he resigned his prestigious post. Joke apart, cashless transaction is a wonderful experience. I was running late paying a membership due, and to avoid the dead line, I just wrote an e-mail to the membership secretary authorizing payment without any other specific information. In less than an hour, e-mail reply came from California telling me it's done with a downloadable attachment indicating the updated payment record in my electronic membership-account record and file. This used to take up to three weeks in pre-Internet years. Now, it took less than hour to complete same transaction at a location thousands of mile away. One can see how valuable cashless economy and transaction can be. I'm glad to be part of it. But, it starts with building a good credit: Buying little things from companies on credit and paying them later. This has nothing to do with how much you have in your bank account; but your demonstrable ability to show you've been buying things on credits and paying them back. In my case, more than 90 percent of the books in my library I bought with club-membership credit from different far-away companies. I paid them back with checks. So, when it came for credit reference for credit card companies during application, I used these book merchandising companies. It didn't take long, I received e-mail invitations to apply. That was it. But, do that with companies you've been doing business with trying to reward you for your loyalty. Don't release detailed personal information to stangers--individuals or instituions--on the Internet. It has risks. Again, fear not: A cashless economy and transaction is good at any time. It's great. I'm glad I'm a part of it, in spite of a humble, financial beginning and early struggle. It'll be more beneficial in a future, literary, professional life. Good article from Conway. Igonikon Jack, USA
Universal electronic money means total control of the citizenry. Any card can be remotely deactivated, leaving its bearer destitute in an instant. Any electronic mechanism can be switched off, leaving large numbers of people without recourse. Imagine, heaven forbid, that a Government were to be at war with the populace. Without funds, how would the latter resist? Cash is an important safeguard.
We are forced to use cashless cards at work and it's great for them, but not for us. If a cashier accidentally made an error in the past you'd spot it from your change. Now the total has disappeared from your card and the till so fast you don't always see it even if you're watching for it. Later you find there's little left on your card - an error, or have you simply spent more than you thought? No way of knowing.
"Remove cash entirely, and you make it far more difficult to avoid tax, not to mention discouraging criminal activity." Does that mean "avoid tax" as in 'Sergey Brin' or 'Larry Page' (to recall a recent headline from your very own redoubtable organ) and the multitudinous other non-domiciles, tax exiles, robber barons, baronets, baronlets and similar officially-condoned wide-boy squires of our time, OR "avoid tax" as in 'poor old retirement-age Fred from the Accounts Receivable department, cash-coaching a couple of students across the road for their HSC in order to make his manifestly diminishing income meet his extremely modest middle class committments and rapidly approaching genteel poverty not to mention covering his wife's unfortunately un-NICE prescriptions?' I think the point is, do you even know what "avoid tax" or "criminal activity" actually mean, or who are actually by far and away the most prolific but never-indicted mainstream practitioners? "Dave Birch, one of the world’s leading experts on digital money [...] claims engineers can devise cryptographic systems complex enough to make electronic cash even more anonymous than the paper variety." Let's hope there's no excessively powdery snow about just as they're going into their cryptographically anonymous tunnel.
What a silly, silly piece. I am, at present, in France, awaiting an "instant" electronic transfer of funds (instantly disappeared from the paying account) which the bankers, as usual, have hung on to for 48 hours or so just so they can get their grubby little hands on it for a while. Ask market traders who accept non-cash payments: outgoings, instant. Incoming, when the banks have finished lending the money in short-term markets. A cashless society is ultimately a totalitarian society. Still, with enough idiots like Conway around, it may yet happen. Yummy yummy, but not for you, and not for me.
A "Dream"? More like a complete nightmare! The loss of freedom is what this would mean. I would revert to barter, both goods and the seat of my brow. The loss of cash in the hand is an horendous future, leading to control. My children would live in a total police state, I just hope I can give them enough advice and stored wealth to keep them safe. Edmund, sell your kids if you want to, they cannot have mine!
Consider this: if you regard fractional reserve banking as a fraud - as I do - then you will want nothing to do with perpetuating existing banking practices. This means you must never let any of your money enter the banking system. You need to get paid in cash, and purchase everything with cash, but in our electronic world this is impossible. You must be paid by electronic direct debit into a bank account, so your salary enters the banking system whether you like it or not. The instant it's inside the system it can be lent and multiplied by fractional reserve lending, generating profit for the banks and simultaneously putting your account at risk. Do you not see how the banks now have us totally enslaved in this fraudulent scam? There isn't a single bank in this country or anywhere in Europe or the USA that will allow you to open a full reserve account. Why not? And why are not more people disgusted that we are forced to play this fraudulent game? It's time for people to educate themselves and call for a total reform of our banking system along honest principles.
I think Edmund needs to get out more. The cash economy is alive and well and living outside of his circle of experience. I am using cash more and more and one personal benefit is that if I haven't got it I can't spend it. I second Clare on the issues of control. Lastly the big proponents of a cashless society are firms like Visa and Barclaycard. They want to take a cut of every transaction and charge the trader for the use of a machine. Cash cuts out the mediator and the trader gets the lot. A straight deal really.
James Bateman 9:48pm In Edmund's brave new world, the New Labour/New Tory managed state, it is illegal for children to earn their pocket money (child labour, exploitation!), the country gardener may not sell produce without authorisation from the DoE (Department Of Everything), you may not run an errand unless you are a State Registered Care Assistant and hiring your young neighbour is illegal since it is simultaneously child labour and putting your own child[1] at risk of abuse from an unregistered childminder. Basically, any interaction not actively authorised, monitored and taxed by the State is considered, by The Consensus, to be a deep, satanic shade of black. [1} This phrase defined as, "the child which the state is currently allowing you to keep on your premises, subject to regular inspections."
You forgot one reason you cannot dismiss: privacy. I can give someone a pound coin, and no one, can track, regulate, or interfere with that transaction. Cashless money is just a way to give the Government more power; and that is the LAST thing we need right now.
Conway you are either nuts or part of the NWO propaganda machine. Just picture yourself in line to pay for food and your card is rejected because you are accused of anti-Government hate speak. You have no cash pal. You are toast. Tow the line or we cut you off. The ultimate control program. Isn't it bad enough that we insanely allow private individuals to print money and charge us interest? Central banking needs to be terminated or we shall never be free and the poor will always starve. We are heading into full blown collectivism. There will be unrest to put it mildly.
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