The Cashless Society

This column has been following the inexorable decline of physical cash for some time. On a personal basis, I am one of those people who, by chance, often find coins. Bit by bit, in parking lots, even on the golf course. And the more I looked down, the more I found. But over time I have noticed that my piggy bank is starving.

I rarely use bills to pay for things, so I have no change to deposit at the end of the day. I've written about the utility of paying by card for everything; you have an organized, end of year written record of all of your expenses and you have either received cash back or miles/points toward travel or other spending. And your purchases are guaranteed by the card company. So I literally never have to use an ATM. I keep telling my Silicon Valley friends that it is not because I am Amish or a Luddite. It's because cash is so irritatingly analog. So there.

A new book by David Wolman, The End of Money, reboots the whole question of not only what is the utility of cash, but philosophically what is actually the nature of money. You may remember Wolman made the news a while back by going an entire year without using any cash at all.

It has been widely publicized that coins now cost more to strike than they are worth. A nickel, for instance, now costs 11 cents to make. And the cost to us of staying ahead of counterfeiters is surprisingly high, also.

As long as we are talking about negatives, carrying cash is potentially dangerous, being vulnerable to crime or loss. The poor, especially in third world countries, are particularly affected in this regard because they often carry their entire daily sustenance/net worth with them. And there is often a weak traditional banking structure in these countries to which even access is problematic. It's tough to spend an average of $1 on a banking transaction when your daily income is $1.25. These are some of the reasons why Wolman avers that "...getting past cash is (an) essential (part of) fighting global poverty."

One of the ways this is happening, and will continue to grow, is through the increasing ubiquity of the cell phone. In Kenya, for example, over 90% of households have a mobile phone, even in remote villages. And apps are being used there to function as virtual banks to springboard economic development.

Back at home, the question of going cashless is becoming moot. Even the checking system is fading as electronic transactions are on the ascendant. Banks are offering apps to visually deposit checks on line. Amazing. We used to talk about the question of eliminating pennies and the costs involved as retailers might respond by rounding transactions up, rather than down. Now the issue is on the evolutionary death of all fungible cash for their digital, virtual equivalents.

Don't get me wrong, this is only a progress report, not an announcement. We have work to do for technology to be fully ready to replace our once revolutionary developments of first coins and then paper money. And cultural change must occur in parallel for old habits die hard. There still is something vastly reassuring about holding a handful of cash, even as the idea of money is transforming from a tactile to an abstract experience.

Wolman speaks of the “clarity and compactness of exchanging value by moving information.” It is true to even the casual observer of the current world’s financial structure that cash has already become the caboose on a long financial train. We could never have gotten to where we are, for good or ill as some wags would have it, if we were still solely reliant on paper and metal money.

And what is money, really? It is malleable; it is whatever we agree it to be. It is entirely a trust issue. “Value is based solely on the collective faith of its users.” And politics plays a big role in this, which a future of solely electronic dealings may have a hand in reducing. Instead of power politics driving the value of a dominate currency such has been the case through history, easy, instant, global transfer of digital information may trump the mighty doubloon/pound/dollar, etc.

The last hold-outs for cash are now things like tips, crime and the few, small, in-demand businesses that have held out against the 2% that card usage might cost them. And natural catastrophes like the recent Hurricane Sandy remind us that total dependence upon electrical devices and services put us at liability of instant functional bankruptcy.

Keeping a few hundred in small bills handy in a safe place is as yet indispensable. But even these holdouts for the necessity of cash money will evolve as the ubiquity of electronic devices, development of even more sophisticated apps and, importantly, fail-safe electrical power continues apace.

How fast this will go is anybody's guess. But for you early-adopters and you non-sentimentalists eager to move on, if you want to rid yourself of old-school habits and cash, I will altruistically help you by accepting all soon-obsolete bills and coins you may want to unburden yourself of.