The Global War on Cash – Lessons from History

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Introduction

Regular readers will be fully up to speed on the Reserve Bank of India’s botched attempt at a handbrake turn style demonetisation thanks to Jerri-Lynn Scofield’s thorough coverage (see here, here and here for more background on this sorry tale). But the Indian government’s attempt at implementing a strategy of moving an economy away from physical cash (notes and coins) is only the latest — although the most aggressive seen to date — in a global battle to make cash obsolete. What’s new in India is that users of the payment system are being made to demonetise by coercion. But in every major economy, physical cash is under siege.

In this article I will show how central banks, the commercial banks (especially the Too Big to Fails), governments and technology companies have been waging a war on cash for decades. Inspired by the seminal work of Langdon Winner, who made the bold claim that technology has politics, I will also argue that drive to “reform” and “modernise” the payments systems we use, with its incessant focus on technology, has camouflaged the disproportionate power of some of the agents seeking to force this change.

Before diving in to the historical examples, it is worth considering in the context of the payments systems we use what, exactly, is physical cash? Leaving aside the obvious stores-of-value and means-of-exchange descriptions — and looking at cash as a payments system — it has some unique and rather special characteristics. Firstly, as a service, it is free at the point of use. When I pay you in cash, neither of us incur a fee for my settling my account with you by handing over notes or coins. Secondly, while the provision of cash as a service definitely does have costs associated with providing that service to us, the cost of that service is progressive. To put that another way, if your liquid net worth is $10,000, then it costs you little or nothing to store that wealth in cash. If, however, your liquid net worth is $1,000,000,000, it costs you an awful lot to store that wealth in physical banknotes.

Keep these characteristics in mind as you read the remainder of this piece.

Softening Up Society for the Decommissioning of Cash

In case you hadn’t noticed, we’re all being hit upon by some pretty powerful institutions who are trying their best to convince us that it is an inevitability that physical cash will go the way of the dodo. As just a couple of examples, firstly here is a TV commercial which is currently being run in the UK by state-owned RBS subsidiary Nat West Bank:

For those who don’t want to or are unable to view the clip (its worth watching just for the sheer creepiness of it, reminiscent of the scene from Frankenstein where the monster encountered the girl and the pond) the key message from the commercial is encapsulated by the line:

“… then we thought, in a time when the next generation may not even use pennies, isn’t it up to us to educate them for their financial future?”

As always with the invisible hand’s invisible little helper — often referred to as advertising — you know something is up when we’re told things will happen but how those things come to happen lacks any agency. Just who, exactly, is responsible for the next generation not using pennies? What has happened to them? Why?

Secondly, this is typical of the nudge-theory messaging which however well-intentioned it might be nevertheless contributed to the generation of a low-level anxiety about the “dangers” of carrying physical cash:

Image of police "warning" on the perils of carrying "too much" cash.

Be afraid, be very afraid

This poster was in the storefront of a bank. Of course, thieves will steal cash. But crime statistics show (Table 6 pg. 26 refers, UK data) that there is little difference in the rates of crime for thefts of cash as opposed to thefts of vehicle parts, mobile phones or bicycles. But never have I seen similar warning posters displayed on car dealerships, mobile phone companies retail outlets or bike shops.

Consumer Behaviour — Economic Democracy or Coercion ?

Why are users of physical cash being targeted in this way by governments and banks? The simple answer is to dissuade us from using cash and to encourage us to use as little of it as is possible or to create a perception that if we do use cash, we’re behaving like some outmoded throwbacks and the kids will look on us as — horror of horrors — in danger of becoming obsolete.

But there’s a more complex question behind that rather obvious response. Are powerful actors like governments and banks suspecting that they may not be the most influential determiners of technology and that payment systems users have a great deal of bargaining power too?

Consumer behaviour has always been thought of as an essential element of Adam Smith’s “invisible hand” that creates markets. They are, after all, 50% of the supply and demand equation. But I have never liked that reductionist argument which forms the basis of neoliberalism’s central tenet that we’re all mere rational actors registering purchasing votes with our dollars. Yes, we can either buy or not buy, use or not use. But we are more than just that. We can sabotage, regulate, protest and demand. We can also practice a pattern of usage that is completely at odds with that which has been determined by those who “supply” what they think we have, or should have, “demanded”.

I would suggest that it is this fear of consumers which is prompting those who want to supply alternatives to the services we use (like cash) to consider the district possibility that, as Lambert would put it, the dogs won’t eat their new dog food. Or we won’t eat all of it, all the time.

Surely that is ridiculous though. In a market, suppliers create a product or service and if customers demand it, they will produce more of it, if customers don’t want it and don’t buy it, they’ll stop producing it and that will be the end of the matter. That is certainly what the economic textbooks tell us should happen. But if, within the context of a particular industry, suppliers keep trying to supply the same product or service, those products or services keep being met with the same level of consumer indifference yet the suppliers insist on trying to foist the service on us, it is suggestive that some other force may be at work rather than market discipline.

Demonetisation — the 20 Years War

Mondex — Here’s One We Made Earlier

I am so old, I was involved with the original “Mondex” development in 1990. Now consigned to history, this was the first serious attempt at demonetisation using stored-value cards.

Mondex (this was the name given to the service in Europe, the Visa Cash brand was deployed in the rest of the world, we’ll refer to the underlying platform as Mondex from here for the sake of brevity as they were essentially the same) was designed as a cash replacement.

A transition phase was envisaged whereby the public would migrate their physical cash by “charging up” their Mondex (or Visa Cash) cards either by feeding their existing notes and coins into automated deposit taking machines or directly at their banks where tellers would dispense Mondex recharges rather than cash. At the merchant, you’d make your purchase in the same way that Chip and PIN debit or credit cards are used today — you insert your card into a reader and it would have the balance on the card reduced. PIN verification was optional — the trigger point for PIN entry could be set according to the transaction value.

Eventually, so the scheme promoters hoped, Mondex would become universal and cash would disappear from circulation. Several large scale pilot schemes were started. A few years later, they were quietly wound down, in the face of public apathy.

The reasons it failed, as per conventional finance industry wisdom, dwelt less on the ho-hum public ambivalence and were around the need for point-of-sale infrastructure installation and maintenance. Stored-value transactions need a different software stack than those generated by the conventional card schemes, such as VISA, MasterCard or AmEx so even if you’ve got EPoS devices in the store (merchant) already, they have to have additional code and physical properties in the card reader, and someone has to pay for the development and support of that.

The existing card schemes won’t because stored-value cards are a revenue stealer for them, so most likely you’ve got to have another device in your store. You also have a dependency on being near a power supply wherever you take payments and a telecoms backhaul at the devices where you “charge up” your stored-value card to check for cards reported as lost or stolen or have been tampered with — plus physical hardening, secure locations and cash-handling overheads for where you want users to be able to “feed in” notes and coins to transfer to their stored-value card and, finally, major increases in customer average handling time at the merchant when compared with cash (at least 25%, often 50% lengthier). So-called “contactless” cards reduce average customer handling time but trade reductions in transaction speed for increased risk of loss — to both the card user and the merchant.

There’s also lack of flexibility — if I have cash, if I’m grabbing a coffee on the way to catch my train which is about to depart, when I know the coffee is £1.85 I can just throw a £2 coin down and say “thanks, keep the change” and make a run for it. You cannot do that with stored value cards, you have to go through the palaver of putting your card in the reader, the merchant has to register the sale, process the debiting of the card, I have to wait for the card’s balance to be updated and so on. Similar situations happen all the time to real people in real life (i.e. not things that tech consultants preaching by PowerPoint would consider).

But there’s another reason which isn’t so widely quoted. That is the cost of the card. Early implementations of stored-value cards were, by today’s standards, appalling crude. They were cheap and cheerful in terms of on-card security and easily hackable at the card-reader end too. Later generations improved but even later card chip cryptograms were jailbroken — cards that are 10-year old specification can be compromised, it isn’t easy to do but they are now considered insecure. So, fine, the industry upped its game and developed more secure card solutions.

The snag is, these are not cheap. The current “gold standard”, MasterCard’s  M/Chip Advance specification, requires long-winded and costly certification for cards and readers. The real pain though is in the cost of the card. M/Chip Advance cards cost $5 to $10 in white plastic (depending on quantity), embossing and logo’ing adds another $2 – $3, card carrier and distribution another $2 to $3 and, finally, PIN generation, mailing and PIN services for the user at activation up to $5. That’s potentially over 20 bucks to get a single operational stored value card — to a robust security specifications — in the hands of one user. Trying to roll that out to a user base of 10 or 20 million gets expensive, perhaps prohibitively so for a low income country.

With cash, the government pays for the cost of issuing and maintaining physical cash. It’s a universal “free at the point of use” service and will need to maintained for backwards compatibility for decades, even if a country went “cashless”. But rolling out a stored-value system would add to a country’s cost base.

Who pays? If governments and the big banks are so confident they could, like the capitalists the claim to be, roll out the stored-value cards and the merchant infrastructure as a start-up venture. If — and as I’ve already suggested, it is a very big “if” — users of cash could be persuaded to migrate away from physical cash then cash could indeed be decommissioned.

The very notion of governments acting like they know better than the market is an anathema to the neoliberal thinking which has most of the US and European governments still held firmly in it thrall. So that forces the big banks to foot the bill and take the investment risk. But as has been documented many times here at Naked Capitalism, business really isn’t that interested in investing in anything, unless it can be guaranteed outsized returns.

If this looks like a catch-22 situation, that’s because that’s exactly what it is. Governments cannot press too hard on decommissioning physical cash (unless they’re willing to throw their economies under a bus, like India) unless and until the demonetisation has been delivered by “the market”. But “the market” isn’t remotely interested in making the necessary investment while it is “threatened” by the competition from the established market player, namely physical cash.

Rest in peace, then, stored value cards as an alternative to cash. But don’t we have an app for that, now?

Gadgetry Has its Limits — Even in Gadget-Loving Japan

We’re well-accustomed nowadays to the cliché that, faced with such a knotty problem, “disruptive” technological innovation is precisely the sort of thing that comes along and displaces inconvenient realities like physical cash. FinTech PR hacks like to present gewgaws such as ApplePay or Android Pay as the futures of payment systems. While Apple, Google and all the usual suspects might like to think so, history suggests otherwise.

In Japan there have been attempts to introduce a similar service and those attempts have been going on for twenty years plus. The big push came from NTT’s mobile division DoCoMo. For the time, in the late 1990’s, the technology was incredibly advanced. It was based in DoCoMo’s proprietary iMode protocol and hardware specification. In effect, it was ApplePay — Near Field Communications (NFC) exchange of payment credentials.

But it ran into the same problem that afflicts ApplePay: where are the funds for the transaction held and on whose ledger is the accounting done? If it’s not yours, you, like ApplePay (and like DoCoMo’s effort in Japan in the 90’s) end up being merely a dumb pipe. And that’s a tough business model to make work for you. DoCoMo used the metro system’s stored value card products (Tokyo metro’s Suica being the biggest and most widely accepted — lots of retail outlets in the stations and also the huge footfall “駅前” (“around the station”) convenience and department stores accept Suica cards) to try to get round this problem.

But from a customer proposition perspective, once the novelty had worn off, NTT got the “what, really, is the point?” usage decay. You have to transfer your funding into bank where you can get your income credited e.g. your salary. You then have to transfer that to your NTT DoCoMo account. You then have to ring-fence some of the balance on your DoCoMo account to the Suica pool. NTT DoCoMo tried to push the line that customers could, in effect, go overdrawn on their DoCoMo account then settle up when they got their monthly billing. But that put NTT in the position of needing credit decisioning expertise — they didn’t have this. They also needed capability and a system to handle standardized disputes resolution. They didn’t have this either. If you’re in the business of lending, you also need capital.

NTT finally decided that they didn’t want to be a bank, after all. DoCoMo still market the smartphones and the Suica capability but it isn’t actively promoted to any great degree. They’ve decided to let Apple and ApplePay find out the hard way the same lessons they learned a long time ago.

Outside Japan, the failure to propagate iMode and thus the potential to use its payment system was blamed on it being an example of the Galapagos phenomena. But I never bought that. My thinking was always that it was a solution in search of a problem. I think the same about ApplePay — and the various smartphone app  “cash replacements”. If they don’t offer something that makes users of the existing payments systems see that it is such an overwhelmingly and consistently convincing proposition that they would willingly and irrevocably forsake cash — forever — they are always going to be at-best just another offer in the marketplace for payments and at-worst a niche product.

Conclusions

If payments systems users were that eager to adopt non-physical cash, they would have done so by now. Attempts to provide alternatives date back 25 years or more. Yet physical notes and coins remain in circulation and are the only legal tender in most jurisdictions.

Physical cash’s variable unit costs are progressive — the less wealth you have, the less of the systemic costs is passed onto you as a currency user. Stored-value card systems impose a cost on users and that cost is regressive — the less wealth you have, the higher the unit cost becomes.

Smartphone, “app” and NFC/virtualisation based systems impose an even bigger cost on users due to the high up-front purchase price of a smartphone. Even in cultures which have exhibited a fondness for novelty, technological advances and gadgetry like Japan, a payment system based on smartphones, apps and NFC technology have not proved to be transformative to the payments systems in that country.

As market participants — users of physical cash — have baulked at accepting governments’, banks’ and technology companies attempts to achieve voluntary demonetisation for a generation, government and industry actors now seem intent on subtle approaches to dissuade people from using cash, such as via media messaging. This is increasingly being combined with more coercive strategies like restricting access to higher denomination banknotes. India has been in the vanguard of this move, but other central banks have indicated they are to pursue similar initiatives.

But the interests of governments, banks and the technology companies do not align with those of us who stand to gain little or nothing, should those agents get their wishes fulfilled and decommission physical cash.

We are, however, in an especially privileged position. Caught in a free-market-fundamentalist dogma, those who are in positions of power are having to rely on us to change our behaviours and eschew using cash. We merely need to resist that call. It’s as easy as spending some money.

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120 comments

  1. Altandmain

    This is class warfare, pure and simple.

    The banks want to get rid of cash so that they can extract economic rent from the rest of society and make the money off transaction fees.

    It is coercion. It’s purely about having the banks steal a bit more from the rest of society. We are in a position where a small, wealthy elite are profiting off of the plutocracy that is our society and they are quite willing to step on democracy to get their way.

    1. fresno dan

      Altandmain
      December 22, 2016 at 10:02 am

      Agree entirely. Cash, a government service that has worked practically flawlessly for centuries now, practically free for all users, is suppose to be replaced by a system THAT YET AGAIN BENEFITS the FINANCIAL sector. All and nothing but the financial sector all the time.
      20 years from now we will learn that all our organs belong to Goldman Sachs and we are just leasing them…

    2. JohnnySacks

      The banking industry is a large and growing population of ticks expecting to continue to get fat off the same population of dogs. A postal system could alleviate the cost of maintaining a currency, but the negative aspects of the implementation costs are well documented by Clive’s article.

      But there’s also an authoritarian aspect of it too insofar as the rather large benefit to the security state being able to see where a suspect is spending their money, or, in the neo-fascist post-911 world, simply being able to hoover up all transactions for data analysis of spending patterns.

      1. Clive

        Thanks-you for bringing up a point which I wanted to add to the post but didn’t want to end up being too longwinded. One of the reasons the central banks want to get rid of cash is that the security state absolutely hates the anonymity it provides. Now, I’d be the first to say that where that anonymity is used by criminals and tax evaders, then the state should come down like a tonne of bricks on those sorts of bad actors. But criminalising everyone because we use cash would be even worse, in some ways, than the sum total of the crime that cash makes a bit easier.

        And some of the cash-alternatives — ApplyPay and Android Pay I will single out here for a special dishonourable mention — go way, way beyond what they need to in terms of data capture when we use those services. Did you know that, for example, geo-location is not something you can opt out of when you use ApplePay? The commercial banks are as you can imagine very — understatement ! — keen to get their hands on that data in (yet another) example of your data being harvested to monetise against you.

          1. Clive

            No, the bank will only know the merchant’s location very broadly (town or city) and often not even accurately because the merchant may list the office they process payments in which might not be the real location of the merchant’s premises. ApplePay and its ilk will send your exact locations, down to usually a few meters. You cannot get that from the merchant and the merchant is under no obligation to share detailed premises data with the card issuer.

            But the real value of the information is in card-not-present transactions (ApplePay in-app and similar) — the bank will know exactly where you make card-not-present purchases. The combination of where you are, when you are there and what you are buying gives a treasure trove of information about when and where you are most disposed to buy goods. This makes you easier to target with “surprise” offers of extra lines of credit. You’ll also be more susceptible to taking them up on their kind offers as a result.

            1. templar555510

              For those in positions of power the cashless society is the Holy Grail of control over everything . In the case of money just imagine, accountancy would be eliminated ; every transaction would be recorded in real time . You cannot function in this society without money – whatever its form. The push for this has its enablers – Rogoff with his absurd book ‘ The Curse of Cash ‘. Sadly there is a generational disconnect here . My customers under the age of forty rarely go out and about with so much as a pound in their pocket, whereas those of us in the NTBR belt wouldn’t dream of doing so because we still believe in money as a ‘ thing ‘ whereas our young people do not . They are the ones who will be co-opted into this move to eliminate cash willingly.

            2. OpenThePodBayDoorsHAL

              Great article Clive. I’d just note a few things:
              1. Cash is roughly 85% of all transactions worldwide, Visa/MC, CUP, PayPal etc combined are 15%
              2. CBs can’t impose negative interest rates with zero-interest rate cash floating about
              3. Cash has advantages that can’t be touched by electronic money: zero cost to the user, very small denominations, portable (not just in cellphone and wifi range), settlement immediacy, settlement finality, and anonymity
              4. MC through the Better Than Cash Alliance sees the opportunity to get everyone on the planet a CC. This is about creating debt slaves, not “financial inclusion”
              5. I think the Mondex software got sold to a group who took it to HK and founded the wildly successful Oyster Card scheme with it

        1. Skip Intro

          And he didn’t even mention the ability to make negative interest rates really effective! Having cash is not just suspicious, but practically stealing from the banks! Property is theft, after all.

        2. jsn

          Note that this “security” focus is totally internally focused. That nation that most succeeds in this push place all commerce on line, that is what all the “cashless” goals are about, will make itself the most subject to external vulnerability: the complete, hostile, shutdown of an opponents payments system would be more militarily effective than a neutron bomb.

        3. efschumacher

          Clive,
          I’m a dedicated believer in the convenience, anonymity and apparent transaction-costlessness of using cash. But I worked for that very same bank back in the 70s. A large part of the daily business, and cost of doing business for the bank, was the handling, balancing and securing of cash. If you were a business customer, you were specifically charged extra cash handling fees. Retail customers were not (but of course they were dinged in other ways). Most retail businesses just eat this in passing on to customers, ie without separately making a transaction charge. With the rise of credit and debit cards, they could hypothecate the transaction charge separately.

          The point is that cash transactions are not free, it’s really a question of who pays, how and when. Though I do like your use of the ‘free at the point of use’ description. Cryptocurrencies are honest in that they explicitly recognize a transaction cost (and make it competitive, to keep it minimal).

          1. Moneta

            The thing is that the option of holding cash gives the currency legitimacy.

            If they were to outright ban cash and start imposing other nefarious sanctions, the trust in the currency would drop… and these nefarious sanctions would quickly appear because the banks and other leading organizations would have free reign.

            Trust has a cost because it means you have to give and take. Banks and an increasing share of the population just want to take. Short-termism at it’s best.

          2. Clive

            Agreed — cash as a payment system is definitely not “free”. I took pains in my post to (hopefully) make that clear. But the costs are far more transparent to users than any of the alternatives and you have far more control of the costs and the security/cost trade-off which is inevitable in any payments system.

    3. Clive

      Yes, I agree and I wish I’d figured it all out a lot sooner. What I could never get my head around was why the need for central banks to be complicit in the commercial banks’ efforts to migrate us away from physical cash. The commercial banks have pricing power — especially over the merchants — they could simply make it increasingly expensive to handle cash takings. And for retail customers, nudging and incentivising the use of non-cash payment systems — plus closing braches in low-income areas — would push it from the other direction. It seemed an inevitable conclusion.

      What I’ve only just worked out (taken me 20+ years!) is that, so long as the central banks continue to provide the physical cash payment system, this sets the ceiling price on transactions. The commercial banks can’t price-gouge while-ever we’ve still got physical cash on our person. If the fees — either to us or to the merchants — become excessive, we’ll all simply switch back to using cash. Cash does not need to involve the commercial banks — the commercial banks provide cash handling services, but they are not essential. Taking an extreme example, WalMart could switch over to being cash-only, if not perhaps tomorrow, certainly within a year or so. It has the size to run its own bulk cash handling service without inducing a huge cost-per-transaction overhead. If it turned its mind to it, it could probably end up being not massively higher than processing a card payment. WalMart has demonstrated that it is perfectly willing to use its dominance in groceries to push the commercial banks around if they get too big for their boots in terms of fees or other demands for processing card payments.

      This low profitability ceiling deters serious investment by the commercial banks in demonetisation-enablers. While they have a love-hate relationship with the card schemes, they don’t hate them enough to pony up the big money for developing alternatives. And with pesky old cash still hanging around, they don’t want to slice the pie up any thinner.

      Of course, if the “public option” (cash) were to disappear, this would reduce competition in the payments systems. Hence the central banks attempts to introduce their own demonetisation measures.

      1. Altandmain

        To be honest, I am thinking that in a sane society, there would be a not-for-profit nationalized or public bank (kind of like what Ellen Brown describes) that would oversee these transactions. That would resolve most of these issues. It would be designed to serve the public needs, with the only goal being to just break even. Needless to say, the big banks would oppose that tooth and nail.

        I’d imagine if they get what they want, the next thing they’d tried to do is to wage war on credit unions and smaller banks (many of which failed during the 2008 crisis).

        In theory, if enough people began moving their money into the credit unions, a few of them, or perhaps a consortium of credit unions would be able to challenge the banks with more favorable treatment of customers and businesses (particularly small ones where the margins eat away profits).

        The problem is that the current system is not for our benefit. It is to benefit a small number of rich people at our expense.

      2. lyman alpha blob

        “…WalMart could switch over to being cash-only…”

        If governments tried to ban cash against the wishes of the populace, what would stop businesses, municipalities or newly formed co-op type entities from producing their own scrip? Back in the day many countries has competing currencies including the US if I’m not mistaken. Sure government could crack down on offenders but if a new scrip works better and is cheaper to use it would be very difficult to keep it from proliferating I would think. If people trust a new scrip more than they trust the government issued money, it seems that that’s what will be used.

        David Graeber’s book Debt also comes to mind. His theory was that credit evolved first, money came about later, and contrary to conventional wisdom the barter system only emerged from time to time when things went pear shaped (for example like when a country starts confiscating cash). I suspect that barter is making a comeback in parts of India as we speak.

        In my job I deal with companies that are inventing new payment systems and it seems to me they are trying to reinvent the wheel and dazzle the rubes with fancy marketing campaigns about the ‘efficiency’ of their systems when all they are really doing is inserting themselves as a third, fourth or fifth party in the payment process so they can get their vig too. In my personal experience payments have not become more efficient but they have become more costly for merchants who use the extra layer of payment processing and also way more annoying. Still haven’t seen the promised efficiency.

        1. Waldenpond

          Local communities have used cash, but there are regulations on extending the boundaries. Many states ban practices that try to get around the parasitic oligarch class and would likely ban all scrip at the same time. If banning cash happened, it would be nice to see stores revert to client accounts… one transfer a month to reduce fees, no break out of purchases etc or treat it like a market share a person purchases through a local farmer.

          There will be a heads up, so clients could prepay the first month with cash so the store would not be fronting the cost.

        2. uncle tungsten

          Many years ago I was actively involved in establishing a Local Exchange Trading System: LETS (https://en.wikipedia.org/wiki/Local_exchange_trading_system)

          This eventually morphed into a credit union that effectively managed cash and LETS. It was mighty successful and VERY timely as cash poverty abounded while time poverty was unheard of mostly except among the ’employed class’. We used to refer to the employed class as those on the super dole. People who left the district donated their LETS accruals to the pool and they were utilized to assist cash + time poor people: read parenting strugglers.

          My guess is that if a cashless heist were ventured by a state/bankster cabal, we would see an immediate resurgence of LETS (in the west anyway, as I have limited experience of the non first world).

    4. jgordon

      Let’s not forget the corporate state’s desire for a complete virtual panapticon. They obviously won’t be satisfied until they can peer into every aspect of our lives, like Big Brother peering into the living room through the TV.

      (Not so) funny how a lot of liberals have been coopted into all-seeing and all-powerful national security state bandwagon by convincing them that certain beliefs with regards to economic and social issues are “progressive” and for “safety” or “the greater good”. We’ll just ignore the tiny little inconvenient fact that they also lend themselves to the creation and maintenance of an all powerful authoritarian corporate surveillance state.

      Be willing to decentralize! Give up on the dream of micromanaging everyone into correct thought and behavior, and we’ll all be a lot happier for it.

  2. McWatt

    I sure wish my business model included receiving 2.75% of every transaction on the planet. Also, how about the privatization of credit card payments to the U.S. Treasury?

    1. Clive

      They could do that. But possibly simpler to just cap the fees, at least in the first instance (with the real threat to nationalize the card schemes if they don’t clean up their acts).

  3. AntonyB

    ApplePay is not just a dumb pipe – there is one additional angle to the new entrants (ApplePay, Google Wallet, etc): receipt data. Visa & Mastercard know how much was spent at a given retailer, but not what was purchased. Apple & Google want to know what was purchased to prove the efficacy of their advertising, and build a deeper offline profile of their users, hence their offerings require detailed receipt data to flow through their pipe. But receipt data is a valuable commodity to retailers, and there’s no way the larger retailers will give that up for free.

      1. Clive

        True, Apple, Goole et al do get to mine the data. But the banks are hot on their heels with expanding their own ability to capture and analyze ApplePay/Android Pay transactions. So Apple and Google don’t have a monopoly on that. And the commercial banks have vastly richer data to combine it with (FICO scoring, income, address and time at address, other product holdings, relationship status…).

        Perhaps describing ApplePay and Android Pay as dumb pipes is a little harsh; “not especially clever pipes” is definitely about right though.

        1. AntonyB

          My point was more that many retailers – particularly those who do actively monetise their shopper data – will refuse to accept Apple, Google pay, etc because they’re effectively leaking away an asset for little/no upside (I worked for one such retailer in the UK & was involved in these negotiations with Google). This will have the effect of limiting the spread of these payment methods.

          Also, I’d quibble with your point that the banks have vastly richer data about you than Google does. It’s different data, certainly, and with a different purpose. None of this fundamentally detracts from your argument, though.

          1. Clive

            I’d agree that overall Google has a much richer data set than the banks. But the banks do have some totally unique data that Google can only dream of. Banks know with precision your income. They know how regular or variable it is. They know if you live within it or routinely spend over it. They know if you are in financial distress and if so how much. Crucially, they are also in a position to exploit (monetize) that information– junk fees, forced-placed insurance, high priced credit and so on.

            What Google has, conversely, that the banks can only lust after, is the power to target ads. I think it was FT Alphaville who — rightly — described Google as an advertising agency masquerading as a search engine. The banks increasingly see what Google (and Apple, Microsoft plus others) are up to and want a bit of that action. I wouldn’t like to have to say who will win in this battle or even if it won’t just end in Godzilla vs. Mothra so you do make a very valid point.

            1. Steve H.

              Clive, great post and comment threads. This is really opening up a world of int*r*-corporate competition and its relations with the state and political choices. Well done.

    1. beth

      I once had a visa card that itemized my purchases and organized my statement to show what each purchase type was. I am not so sure that some banks do not do this for their own purposes w/o showing the customer. I would give some examples if I still had those statements.

      1. AntonyB

        Amex categorizes purchases as “travel”, “entertainment”, etc. but that’s done at the retailer level (if it’s British Airways then it’s “travel”, etc). Store credit cards can link purchases at that store so itemise those. I’d be surprised if a regular visa or MasterCard could get receipt level data, though could be wrong…

  4. flora

    Great post.

    We can also practice a pattern of usage that is completely at odds with that which has been determined by those who “supply” what they think we have, or should have, “demanded”.

    Yes. I use cash as much as possible with local merchants. They like not getting dinged the card fee on a sale. I like using cash. It’s quick. It’s a complete and final transaction with no wait time for approval or end of month billing or worry that the transaction might result in a hack on my credit card or debit card.

    Anecdote: In the US, store of value cards are being used by some High Deductable health insurance plans that feature a Health Savings account. The savings account payments to medical providers is done via the specialized store of value cards. These cards can be hacked. I know of a few instances where card owners had their health saving account balance wiped out by their prepaid card being hacked.

  5. Light a Candle

    Good article, thanks for writing it.

    Several years ago Canada suddenly did away with the penny under the horrid neoconservative/fascist Prime Minister Steven Harper. (Unfortunately, the new PM Justin Trudeau is a third way neoliberal albeit well meaning and charismatic.)

    I had no doubt, then or now, that is to gradually but inexorably shift Canadians off cash.

    It has taken a conscious effort but I use more cash now. A gesture of defiance to TPTB! Like using more Duck Duck Go and less Google.

    Thanks again, interesting post and comments.

    1. polecat

      I’m sorry, but ‘well meaning’… and ‘third way neoliberal’ are mutually exclusive !! … Justin’s coif not withstanding …..

  6. Ed Seedhouse

    Well, around here where I live everyone uses cash cards. The credit union I bank with provides them free, no fees and no transaction fees. It also provides free online banking, so I pay my bills directly on line. I do generally take out a hundred bucks in notes each month, but about 95% of my direct purchases are made with the cash card.

    90% or so of the time the customers ahead of me in line also pay with cash cards. It’s pretty ubiquitous in Victoria B.C. but I can’t say what happens in the rest of British Columbia of course.

    If the credit union starts levying transfer fees then I’m outta there and back to cash. But if they can do it this way and stay in business (which they have for 50 years) regular banks can do that too, surely.

    So I don’t see cash cards ipso facto as the problem, though obviously if the big banks use it as just another way to funnel money out of people’s pockets then it’s a different story.

    1. JustAnObserver

      Ed:

      Do you have to recharge your cash card periodically ?

      If not then I think you might be referring to what I’d call a debit card i.e. when swiped or chip&PIN’ed it just instructs your CU to transfer $X direct from your account to the merchants. What Clive was discussing were card systems where the card itself “carries” a certain amount of (hopefully well encrypted) virtual $$$.

    2. bob

      Debit card. They are not good. Not nearly enough protection. None, really. They came about after gov stopped doing regulations.

      It’s a good way to get your bank account cleaned out, and have no recourse. Will the bank “work with you”? Maybe, but they are not required to do this. Any and all theft and mistakes are yours to deal with, first.

      There are stories about people who “loved them” until they found out how little they offer.

      1. Ed Seedhouse

        I have had a bank card with my Credit Union for over 20 years and have not lost one cent to theft. I keep track of my expenses locally and always check on line shortty after a shopping trip. If the bank’s balance doesn’t tally with my account balance in Quicken (entered by me from the receipts) I take the time to find out why. So far every time this has been an entry error on my end of things.

        The only part of a bank note or a coin that is actually money is the number on the front denominating the “value”. I see no reason why the number can’t just as easily be kept in a computer as on paper. Paper notes and coins can be forged, and I don’t see them as being particularly more secure than the numbers kept in my local Credit Union’s computer.

        1. bob

          So, it is a debit card?

          The money is gone from your account when it happens. It happens a lot. See target. I don’t think they called that “theft”. But, words don’t mean much anymore — Cash card.

          The rest? Can it be secure? Maybe. I’d still rather have the option of saying “I’m not paying until I see my signature on a receipt”, instead of “please give me my money back”.

          That pretty well demonstrates the difference between “credit” and “debit”.

          1. pricklyone

            May I put my little anecdote about “debit” cards here?

            For years, I have used ATM machines at branches of US Bank to do nearly all of my bank transactions. I deposited payroll checks, (yes paper checks) and withdrew cash sums to cover my needs day to day. Bank issued ATM card, and interest paying checking acct.(until the 2007 crash).

            Now on one fine day I receive a letter from the bank with a new ATM card. Only, it is not an ATM card, but a debit card which also serves for ATM access. Hmm, says I, no advantage to me, as I like my cash! I’ll just refuse this card, not activate it.
            Nope. No can do. Old card set to expire end of month. I need ATM access, so I resolve to go to the bank branch after the weekend, and politely tell them my needs are not served by this change, and give me a ATM only card, or I will take my fairly large balance to another establishment, no probs…

            I come home from work 3 days after receiving the mailer, and within 20 minutes of my arrival, the phone rings. Security department at US Bankcorp calling.
            Them:” Hello Sir, did you purchase two first class tickets to the UK on BlueJet” ?
            Me: I sure the f**k did not!
            Them: ” Someone tried to use your debit card to purchase the tickets, but don’t worry, we disallowed the transaction as it did not fit your debit card use profile”
            Me:” I have no debit card use profile, as I have not signed up for any debit card”!
            Them: ” Oh, yes, I see that. Well, we disallowed it, so you won’t be charged”
            Me: Damn right I won’t!” ” By the way, how can someone even attempt to use this card, as I have presumably the only card, and they have no PIN number, and I have not activated the card, Hmm?”
            Them: ” Well they just guess at the PIN numbers, until they get them right, I guess.”
            Me: ‘Oh, really! You give them unlimited tries to guess the PIN?” ” And they don’t have the physical card, yet they somehow have the number on the card?”
            “Sounds like an inside job to me, butch, and I will in no way be keeping your little card”

            Fast Forward 20 minutes, I am now at bank branch up the street. I am PISSED.
            “Take this card, cut it up here in front of me, and give me a receipt, absolving me of any responsibility for charges against the damn thing. And either give me a straight up ATM card, or a check for my current account balance, so i can go see your competition across the road”.
            They issued me an ATM card, but of course, it had to be mailed to me, so I was bankless for several days while waiting. Of course no formal letter could be procured.

            Now fast forward 6 months. Another letter, another Debit/ATM card! Out the door I go, straight to the bank. VERY PISSED again. Same scenario, only no phony charges this time. “We will issue you a regular ATM card, but look at all the wonderful benefits of our Debit Card product…”
            No! Damn your hide, just give me the ATM card and I need a new PIN, again!

            Lasted about a year, and then guess what I got in the mail…?

            Cue fuming, screaming, nasty me…”you will note somewhere on that computer of yours, that I never want to see another Debit Card from you.”

            Been about 3 years or so. Still watching the mail like a hawk.

            See @bob just above for main reasons why I want no part of it, and give some thought to just how those airline tickets could have been purchased. That was, at the time, about $4700.00 transaction! And they were under no legal obligation to return it to me.

  7. Susan the other

    That was prolly the most complex thing I’ve read on money. The damn stuff. Really. I apologize in advance for this off-the-cuff first reaction: We’ve created a system that is too simplified. We should stop and sort it out. We could have different kinds of “money” for different things, for starters. Each with a payment system of its own. Like those things that are socially necessary – the basic human needs – could be paid for automatically; other lesser necessities could be obtained maybe by something convenient at the point of sale like instead of a cash register we could have a spit register – your DNA is your bond. (seriously) – And for big transactions between rich counter-parties for high-stakes purchases of stock and interest then of course some digital letter between banksters will do. We’ve thrown all our transactions into the same bucket and we need to sort that out first. I personally would do anything that was convenient bec. I’m really lazy. And I think money is a convenience, or it should be.

    1. flora

      Like those things that are socially necessary – the basic human needs – could be paid for automatically

      Banks in my area offer free automatic bill pay for those recurring expenses if you decide to setup auto-pay. (requires a bank account of course.) Lots of people have done this for things like paying utility bills – electric, water, etc. Then it came out that one local careful person (not me) was reconciling her received mailed bill with the amount being auto-deducted from her bank account. And lo and behold, the utility company had been adding on a bogus “late fee” on every single payment, even though the bank withdrawal setup was correctly to avoid late fees. The utility company claimed ‘unfortunate mistake’. Then it turned out they weren’t the only utility or auto-payee doing this “late fee” two-step. Now, it could just be my area where these sorts of things happened (and weren’t corrected in a very timely manner, but with enough press finally were corrected).

      shorter: I love the transparency of cash payments. no hidden fees. no hidden got’cha in the transaction. ;)

      1. flora

        I should add: it wasn’t just one person who was being charged a bogus late fee. The local paper investigated and discovered everyone who setup auto-pay to these utilities was being charged bogus late fees. It was systemic.

        1. Clive

          And every survey I have ever seen says the same thing — card, automated bill payment and “one click” sale options and other similar non-cash transactions where you don’t get to actually make the payment without making some sort of concerted physical and mental effort in the process means you end up spending more even in like-for-like situations. Not sure about the US but in the U.K. the most common cause of unauthorized overdraft (with the subsequent late / junk fees) is automatic bill payments hitting your account that you’d forgotten about. Conversely, 95+% of people check their balance first before making an ATM withdrawal.

        2. lambert strether

          There’s absolutely no way I’d ever allow anybody but me to move my money. Auto-pay strikes me as being insane. As you show, it’s structurally a phishing equilibrium (“If there can be fraud, there has already been fraud.”)

  8. cnchal

    But the interests of governments, banks and the technology companies do not align with those of us who stand to gain little or nothing, should those agents get their wishes fulfilled and decommission physical cash.

    It’s a criminal conspiracy, until it’s the law and you are the criminal.

  9. Watt4Bob

    I’ve never had a business hand me back my cash and say “It’s been refused.”

    OTOH, it doesn’t matter how much credit you have in your account, if the system says you can’t pay, you can’t pay.

    In a cashless society, ‘they’ can turn your ability to pay for life’s necessities off-and-on at whim.

    In the future, cashless society, if you run afoul of the law, ‘they’ll’ will simply turn-off your account, and you’ll have to turn yourself in, become a beggar, or starve.

    1. RUKidding

      Yep. This.

      It’s often the case when I go to pay for something, the store worker has already started ringing up the sale as either a debit/credit card sale. If I hold out cash, they have to back out of that sale “type” and re-ring it as cash. So I witness this bifurcation of transaction types with some trepidation.

      If your bank or credit union provides cash cards with no fees attached, that’s not a bad way to go, but I am more and more paying for things in cash. I’m never refused, but some of the sales associates have problems figuring out the change. Sigh. Another sign of our poor educational system.

      1. Portia

        I stopped using banks and pay everything by post office money order now if I have to mail it. It works just as well after making some due date adjustments. I use cash for everything else. It’s the way my parents did it, and it still works. And yeah, never give a young cashier something like a penny so you can get a nickel back in change instead of four pennies. They just don’t get it.

        1. hunkerdown

          “Solid quarters” are rarely given out as change in the Detroit area. Which is really aggravating when one has coin laundry in the basement.

      2. polecat

        Yep ..slowly inching towards idiocracy, at least for the plebs …. one … predatory / regulatory … decree … at … a … time !

    2. Lord Koos

      Eventually the goal is to have everything on a chip that is inserted under your skin. Then if you break the law or do something they don’t like, they can just cancel your chip. Interesting interview of Aaron Russo where he talks about meeting Nicholas Rockefeller and about bankers running the world — https://youtu.be/oygBg6ETYIM yes, it’s Alex Jones, but Russo is a credible person.

    3. Teddy

      How do you become a beggar in a cashless economy? I doubt the connoisseur of cheap beverages who asks me for spare change when I pass a liquor store has the means to accept electronic payments. But of course he should just go away somewhere “else”, or wither away and die, Silicon Valley world doesn’t need hobos. Things like these make wonder if these oligarchs even know how the society works outside their bubble.

  10. Disturbed Voter

    General strike! Stop shopping for Christmas … that is 1/2 of retail per year. Pay cash, don’t use credit or debit card. This is in the people’s hands, just like it is in regard to sourcing everything from China. Stop buying stuff, crash the world economy.

    1. Dave

      DV, on the demand end, we have so much stuff in our house that we could go on a consumption diet for over a month and not run out of anything but perishables. Your post has inspired us, we are going to do exactly that, buy nothing and use up, wear out and made do with what we have as part of our Christmas and New Year.
      i.e. bottles of different kinds shampoo under the bathroom cabinet. Cans of tomato sauce, dry pasta, jams and jellies, gift wine, more clothing than we can ever wear out. If you haven’t worn something in over a year, what are the odds you ever will? Donate it to the Salvation Army, there are people who need it.

      What you actually and truly need at the consumer level will be on sale super cheap in January and February. You’d have to be insane, or carelessrich, to buy a car before February. A couple of days ago there was a story in NC about the vast number of lease returns be resold by new businesses in February. Not only will this make very inexpensive used cars available but this will also hammer down new car prices.

      http://www.autonews.com/article/20160201/RETAIL01/160209997/surge-in-end-of-lease-cars-seen-pressuring-prices-in-record-sales-year

      http://www.autonews.com/article/20140124/RETAIL06/301259997/hyundai-dealers-prep-for-launches-surge-in-lease-returns

      I like the political sentiment too. If people are upset about Trump’s election they can do exactly what you are recommending as a protest.

  11. Spencer

    Small businesses routinely loan their customers cash (under the table). The cash economy is largely undocumented. And cash is necessarily recirculated back thru the banks (the payment’s system).

    Hoarding cash is just like monetary savings (commercial bank held savings). It has a payment’s velocity of zero.

    The Treasury will garner more tax receipts if it permits consumers, etc., to use cash (not the other way around).

    1. lambert strether

      Or small businesses allow you to deposit cash in good times so you can buy necessities in bad times.

  12. Steve

    I think something that has made smart phones so ubiquitous is that they are an excellent toy. Many people get a lot of fun out of using them. Payments don’t seem to be fun enough yet.

    So what if, when you made a payment, there was a bit of extra reward possible *at the point of sale*. Sort of like gambling, but I doubt the payment system would be allowed to do double or nothing. Maybe you get a special gift once in a rare while, maybe just a gold star on your display. A lot of people would use the payment system just to play the game. I admit to worrying about whether I should post this idea–I’d hate to see V or MC pick up on it.

    Caveat: I have a dumb phone. I do have a nice tablet, but only use it for reading, music and a bit of browsing.

    1. Mark P.

      ‘Payments don’t seem to be fun enough yet.’

      The systems in the U.S. are just more primitive. Phone banking is really big in Kenya and East Africa — something like 70 percent of global use happens there now. Obviously, Africa is a different situation: they’ve skipped over landline infrastructure and gone straight to cellular, and roads on which to drive around armored bank trucks carrying cash are next to nonexistent there. So phone banking is almost all they’ve got.

      Still, interestingly, the systems seem more advanced, robust and user-friendly than in the U.S.

    2. hunkerdown

      Prior art: Chinese tax receipts (fapiao), given to customers in appropriate amounts with every purchase, also serve as lottery tickets.
      That is, the customer is paid (in chance) to enforce tax compliance.

      If Niantic gets into the payment systems business, I’ll cry.

  13. Leigh

    Unfortunately, in light of the wealth inequality we face in this country, a large percent are already forgetting what cash looks like….

  14. JustAnObserver

    Clive:

    I remember Mondex & I remember holding back from trying it till I could see some serious take up on the part of the merchants starting with – maybe – the big department stores.

    I waited … waited … waited … decided I couldn’t be bothered.

    One question though: I can’t remember but I think it was some kind of primitive Chip+PIN ? If so then, from a technology viewpoint, its descendants live on as the current C+P systems (well not yet in the US but …)

    1. Clive

      Yes indeed. The conventional card schemes took on the unloved orphan that Mondex-spec cards had become when they needed to move away from the hopelessly hackable (clone cards had become epidemic) mag stripe cards. In reality, it was a bit half-baked because off-line authentication was still permitted which means you have the dog’s breakfast situation of having a “card PIN” and an “account PIN”. These two can — and do — get out of sync and ultimately the presence of the “card PIN” presents an attack surface. While it is very, very difficult to hack the “card PIN”, it is possible and will become easier as the hacking technology becomes more affordable. Eventually the whole thing will need to be moved over to online authentication and authorisation only (this is the industry’s stated direction of travel), but that will increase systemic fragility because without the availability of a telecoms backhaul, you will not be able to authorise card payments.

      Cash, of course, has none of these drawbacks (although I’d never claim it was a panacea).

  15. Dave

    The credit card parasites want to continue skimming that little layer of cream off the top of every transaction that adds up to hundreds of billions of dollars. Of course they are going to create all manner of rationalizations and propaganda in furtherance of that, disguised as public policy.

    If you believe in small business, if you believe in Main Street, if you believe in your own right to privacy, your own freedom, you will put your money where your mouth is and walk into your bank and withdraw cash, or use an ATM if you don’t give a shit about bank tellers and their families, to buy things from small businesses. Screw corporations, who cares how much they get ripped off by credit card companies.

    Here’s an example of why cash is freedom and what could happen to people when there is no cash.
    “Military whistleblowers find their credit cards and bank accounts frozen.”

    http://thefreethoughtproject.com/drone-pilots-bank-accounts-credit-cards-frozen-feds-exposing-murder/

    If government really wants to eliminate cash, then the treasury should issue debit cards that work with absolutely no profits to private businesses as part of the transition with all data erased at the end of the transaction.

  16. Steve C

    I use a credit card now for pretty much everything. I find it easier to keep track of spending that way. It costs me nothing because I’m a deadbeat and pay off my balance every month. I still write checks for a few things. Usually I don’t carry cash. Why is this not the future?

    1. Dave

      Because when cash competition is gone, they will eliminate your checking account, or charge you per check and you will be charged a mandatory per swipe use of your credit card and or a monthly fee. The IRS will question the tallies of your spending vs. your declared income with the burden of proof on you to forestall them from freezing your credit card except to buy a minimum number calories to keep you from starving.

      I’m modifying a Benjamin Franklin quote just for you Steve:

      “Those who would give up essential privacy to purchase, deserve neither privacy, nor freedom.”

      1. Steve C

        I totally get your point but Clive is saying cashless payment schemes have foundered on the rock of consumer choice. Credit cards, for all their potential dangers, have passed that test. As for the dangers, I’ll probably get around to dealing with that someday but I may not get around to it until several years after I’m dead or the stuff you forecast really does come to pass. Not to belittle your point, but consumer behavior and preferences are powerful and not very open to hortatory pressure.

        1. Dave

          Preferences require at least two choices;

          “cashless payment schemes have foundered on the rock of consumer choice. Credit cards, for all their potential dangers, have passed that test..” Yes, as long as there is the choice of cash as an alternate. I think what’s inferred in title of this article is “The potential elimination of cash”.

          Merry Christmas

        2. Moneta

          When cash is gone, you won’t be left with one less choice, all choices that are not advantageous to the finance cos or government will disappear.

          The right to cash is THE stabilizer.

          Considering the size of the services economy, I can just imagine the ballooning of the underground economy if they ban cash. Ironically one of their top arguments for banning cash is to stop the tax cheats. It’s a farce therefore they just want to ban cash to skim every transaction or to control our spending.

      2. different clue

        ” Those who would give up essential privacy to purchase, deserve neither privacy, nor purchase.”

    2. Adam1

      Because not everyone is like Steve C. If there is anything I have come to realize in my life that is so important, it’s that you can’t possibly analyze another person or a macro situation from just one own personal perspective and actually come to a good conclusion.

      Your situation works fine for you, but likely works because you have a fairly consistent and stable income and you are likely middle to upper middle class. You are highly unlikely to be a working class person whose income is likely very inconsistent and or fluctuate greatly. You are credit worth, hence you have a credit card, and so should your income or expenses not match in any given short period of time you have access to credit to cover these moments. You also likely live in a neighborhood where electronic transactions are the norm. And it doesn’t bother you or significantly impact you negatively when it takes 2-3 days to settle some electronic payments, for others this can create accidental overdrafts that they can’t afford or overspending because their balances may not actually reflect their the funds which they actually have available to them. You’re also not likely a renter or if you are your landlord accepts checks and doesn’t require cash payment each month.

      I could go on with examples but hopefully this helps you reflect on situations millions actually face. People facing a life like this typically choose to be all cash transactors because it is the least risky for them and provides them with the most stability versus the inherent instability/inconsistency within the current electronic financial world infrastructure.

    3. RicRadio

      Oh dear.

      Steve, I’ll hazard a response at the risk of being bleedin’ obvious.

      First it’s not the future, it’s the present. Second, you’re not paying a transaction cost, the retailer is. Which in the long run means that you pay for the service anyway, as they pass on their costs in price rises.

      And then there’s all the other reasons put forward by the comentators above.

      So…

      1. Ed Seedhouse

        “Which in the long run means that you pay for the service anyway, as they pass on their costs in price rises.”

        Of course you pass your cost along to your employer either by successfully demanding more pay or by doing less for the money he gives you. Money goes around and around, that’s it’s whole point.

        1. RicRadio

          Thanks Ed, you’re so right and thanks for making the point.

          It’s just that I’m beguiled by Michael Hudson’s argument that this is all a matter and form of ‘Rent Seeking’. I’m for cash, in preference, but I get why others are not. It would surely be a step backwards to revert to ‘credit notes’ without the ‘full grace and favour’ of a Central Bank with its backstop of tax receipts – but it would be so much more ‘personal’, wouldn’t it?

          Merry Xmas to all The Commenteriat,

          Ricardo

    4. lambert strether

      > It costs me nothing because I’m a deadbeat and pay off my balance every month.

      And that paperwork is a tax on time, right?

  17. Bruce

    Dostoyevsky said “Money is coined liberty” and the perennial tension between central state controllers and individual liberties is zero-sum. First they came for the soda, but because I don’t drink soda, I didn’t speak out. They’re coming for the alcohol, fat, sugar and meat next. How convenient it will be for the elite do-gooders who know what’s best for us when they can monitor my alcohol purchases and impose a 100% surtax for my own good when my retail + bar tab goes over $100/month, and when they can tweak my healthcare premium upward when I buy the whole milk mozzarella instead of the skim. When cash can no longer defeat geolocation at gas stations, not only will all your fillups be geolocated, they will know who you are in real time so they can direct personalized ads at you while you wait beside the pump, and may the gods help you if you have an embarrassing medical condition.

    India is putting on a show. When will that show come over here? Some people say never, that there’s a federal law against it dating from the 1960s, but there’s been millions of pages of federal laws since, and you know how a line here or a clause there will get unaccountably inserted by mysterious agents, and how its contemporaneous ambiguity and opacity will subsequently be revealed as a laser beam directed at your liberty. For those of us who have a few Bens in a jar, what’s the correct risk profile for this event? I don’t think “never” is the right answer.

    1. Dave

      “When cash can no longer defeat geolocation at gas stations, not only will all your fillups be geolocated, they will know who you are in real time…” And local government will be able to apply a local driving surcharge to be withheld from your jobpaycredits going into your electronic account. It’ll all be automated, think of the “convenience”.

      1. Moneta

        And they will increasingly be able to charge different people different prices for the same service because they will have the data to know how desperate you are…

  18. craazyman

    I don’t take cabs often.

    But I took two this week — 1 in New York and 1 in Washington DC. About $20 and $35.

    In both cases I paid by cash. Each driver actually seemed a bit vexed. Both times they had to fish around in several pockets and in various compartments in the taxi, taking a few minutes, just to pull together the required change (i.e. I gave $30 for a $20 fare + tip and said “here’s $30 just give me $5”. In one case he had to give me a dollar in coins which took him about a full minute to fish out of various locations.

    It was a little surprising to me, as I would have thought cabbies would still be used to cash. In each case the driver said few people pay with cash anymore.

    How could Harry Chapin have written the Taxi song if there wasn’t cash? It’s inconceivable!

    She swiped $20 dollars for a $2.50 fare
    And said “Harry, I swiped $20 so when you settle up with the taxi company make sure you get credited for $17.50 extra for this ride, OK?”

    Now other man might have been angry
    And another man might. Have been hurt
    But another man never would have let her go
    I thought “whoa! I can buy a new shirt.”


    It’s not as good without the cash.

    1. different clue

      They don’t want to be robbed, mugged, etc. Perhaps the passenger section should be walled off from the driver section by bank-style bulletproof ultratough plastic slabs. And there can be one of those little slots to push money back and forth through, if the passenger really wants to use cash in a cab.

      And if the passenger tries to thread a poison gas nozzle through the cash-slot, the driver should have a switch leading to a tazer-cushion under the passenger’s butt . . . so the driver can tazer-abort the passenger’s attempt to thread a poison gas nozzle through the cash slot.

  19. shinola

    The “cashless” society idea has been around for at least 36 years.

    In 1980, new employee orientation at the FRB (Kansas City) included a basic introduction to what the Fed. is tasked with, how it goes about it now & goals for the future (short & long term). One of the future goals was the elimination of physical cash by 2020.

    The reason given at the time was that this would reduce the cost of handling cash and reduce/eliminate “the float”. The float being 100’s of million$ that the Fed. couldn’t account for at any given time due to it being held in wallets, cash registers, safety deposit boxes, sock drawers, etc.
    The FRB reasoned that the better they could track the money supply, the more efficiently they could do their assigned job.

    Sounded vaguely sinister to me at the time, but 2020 was a long way off…

  20. Tim

    LoL – that poster in the window of the bank.

    That should be used as a litmus test for suckers:

    “Do you have any issue with this poster being in the window of a bank?”

    “No” – SUCKER!
    “YES” – Not a sucker!

  21. linda amick

    Anecdotally, I live in Athens, Ga and worked for some time at the Lowe’s here as a cashier. I was very surprised that around 60% or more (I am being conservative) of the transactions I processed were cash!!!
    Athens, Ga is home to the University of Georgia and has a local population of around 100k.
    Also while there I conducted polls with customers since I had them captive for a few minutes. I found that the huge majority of these people, though rural and in the lower socioeconomic groups were surprisingly informed about Fed Govt corruption, needless wars and they did not trust the Federal Institutions.
    Many times I wondered how the banks would eliminate cash in the US. Bravo to citizens using cash.

  22. sharonsj

    I never use an ATM because I refuse to pay a fee to access my own money. I never sign up for automated bill payments because I want to keep tabs on my bank balance; I pay on line instead. I pay locally by check or by cash for what I buy.

    But here’s what you are missing about the push for a cashless society: the underground economy. This is money passed between individual parties which cannot be tracked, which isn’t reported, which federal and state governments cannot tax, and which banks cannot profit from. Therefore the participants can’t be controlled nor can the powers-that-be extract ever more fees from a recalcitrant and ever more unwilling populace. What’s next: the penny police showing up to count all the coins I’ve been saving in jars?

    1. human

      System D has been mentioned in these pages any number of times. Those in the system (or out of it depending on your point of view) are necessarily wary of discussing their participation (or lack of).

      The “penny police” have already showed up in Canada which has begun to remove their single unit from circulation.

      You already pay increased fees through your insistence on paying in cash (mind you I’m on your side) as there are evermore offers to “save” by using digital transactions. Probably the most visible place where this does not work is at a gas station. If the oil companies ever begin to reimburse their distributors their digital payments fees, we will all be in a world of hurt.

      1. lambert strether

        > The “penny police” have already showed up in Canada

        Can any of our Canadian readers expand on this?

        1. Moneta

          Latest news is they want to retire the nickel.

          Right now I doubt Canadians in general see many ulterior motives. I think most Canadians have bought into the reasoning that producing these coins is a waste of money.

  23. DJG

    Clive: Many thanks. This is a great explanation, as are your additional comments. I recall your posting about India and the exchange of bills and how it would make a mess of calibration of ATMs. It is the only article that I have ever read that explained the mechanisms and flaws of ATMs understandably.

    The issue, especially as I read other comments, is privacy:
    –You mention Japan. But East Asians like to give cash gifts. Traditionally, when one gives a cash gift it is to let the recipient do what the recipient wants. So I’m wondering if the lack of “agency” in use of one’s funds became an issue, in the sense that the Suica card didn’t lead to much leeway. (Or are we all supposed to give gift cards to the Cheesecake Factory?)
    –Craazyman mentions cabbies and cash. If you look at the credit card screen in a taxi, you’ll see that it helpfully calculates a tip. Recently, I noticed that none of the suggestions are for a 15 percent tip. They started at 20 percent in NYC. So the cabbie wants to coerce you. Besides privacy and cash, there is the problem of digitized money and coercion.
    –Steve C mentioned paying all bills by charge card and why we all should do so. I run my car-share service through my charge card. The company makes a point of charging at time of reservation rather than at time of service. So if I reserve a car, and a week later the bill arrives from the charge card, I have to pay it, even if I have reserved far in advance, say, a particular car for Christmas Day. So you have lack of privacy, coercion, and the detachment of payment from sale.
    –Finally, you have Ventra in Chicago, which insists on payment with the Ventra card but doesn’t issue receipts with account balance on them and doesn’t display the fare at the point of purchase. So you have lack of privacy, coercion, detachment of payment from the fare, and inability to account for a transaction.

    What could possibly go wrong for the harried “consumer” (no longer a citizen with the right to keep cash in the house)?

  24. sgt_doom

    Outstanding blog post — much appreciated!!!

    I really grew scared once I read that Blythe Masters had left Chase to work on block chain technology — a horrific read on the future!

    This goes hand-in-hand with what Aaron Swartz was working on — or what the full force of the US gov’t came down on him, leading to his suicide [first rendering him penniless from legal costs, leaving him no way out — thanks Obama Administration scoundrels!]. Mr. Swartz was discovering the tip of the iceberg: how the legal system is far more than two-tier, it can be and has been manipulated at many unseen levels — from false legal precedents inserted online (or “in the cloud” so to speak) to false legal published articles to bolster upcoming cases, etc.

    That together with their command and control once all financial transactions on “in the cloud” or “on the cloud” and the situation goes beyond dire!

    Thanks again . . . it only gets more and more depressing . . .

  25. tyaresun

    http://economictimes.indiatimes.com/news/economy/policy/committee-of-chief-ministers-led-by-chandrababu-naidu-seeks-cut-in-card-transaction-charges/articleshow/56091895.cms

    The committee constituted by the Centre had asked Nilekani to prepare a paper on realigning transaction fees. As per the structure proposed by Nilekani, total MDR on transactions through cards and pointof-sale (PoS) machines should be 0.5% for purchases below Rs 100 to cover utility costs and a maximum of Rs 10 for higher transactions to facilitate larger ticket transactions. It has proposed MDR of 0.3% or Rs 6 for transactions through the unified payment interface (UPI) — an online payments pla ..

  26. flora

    re: NatWest ad
    warning: following comment contains indignant huff.

    So Nat West thinks it best to tell children that penny wishes in a fountain are bad, depriving both children and their adults alike a of a delightful and charming and inexpensive tradition that harms no one and gives young children, in their pre-rational stage of life, a sense of both agency and wonder. Nat West means to teach them otherwise. To which I can only ask Nat West , and particularly ask them 3 days before Christmas: What the hell is wrong with you Nat West people?

    http://www.newseum.org/exhibits/online/yes-virginia/

    This isn’t sentimentalism. If the young can not dream and be encouraged in their dreaming there would be no progress.

    /end huff

    1. local to oakland

      Agreed. This echoes the song ‘Feed the Birds’ from Mary Poppins. Cash is to enable life, not vice versa.

  27. Jason V

    In Shanghai and some other cities in China, wechat pay and alipay can be used for almost any purchase (in stores, online, rides, etc).

    If you buy something more than about 20 USD and have to pull out 100 RMB notes, the bills will be examined for quite a while since rumor has it counterfeits are common.

    This system “works” well for everyone with a smartphone, I have no idea how the rest of the population manages.

    I used to see Apple payment options at a lot of stores but haven’t seen it recently.

  28. The Rev Kev

    What happens in a cashless society when there is a power outage? We had a whole state in Australia that was blacked out recently for several days and where I live a disastrous flood back in 2011 killed power for several days in our area. No power, no transactions. With cash you can still buy stuff though a lot of businesses close because they cannot even process cash without power – saywhat?
    Does that mean that people will have to use bartering to survive? Hope that they have enough groceries in their cupboards at home till power returns? Run up an account with a store willing to trust you? I am not going to even mention the power grid being hacked by someone. Anyone here want to volunteer for that kind of scenario?
    Hey, that could be a challenge! Live for a fortnight without cash or cards and see what you have to do to survive (no power for stored food remember!). It would be just as good as “Survivor”.

  29. H. Alexander Ivey

    Clive

    Many thanks on your observation of progressive vs regressive PoVs. I’m wondering if that is a sign of whether an action is considered ‘good’ by a neo-liberal: the progressive is bad while the regressive is good (the neo-liberal is always the one on top of the social/economic/political ladder).

  30. Al Sera

    The Docomo Suica system works better than you suggest. The Suica card is, at base, used for public transportation, which is a big thing in Tokyo, and is popular enough that most station entrances now have only one or two gates that accept the traditional paper tickets. The transaction is almost instantaneous, and with these cards you can walk through the gates without slowing down. Commuters attach their commuter pass to the cards electronically, and life goes on.
    Then, there are the normal supermarket/coffeeshop/convenience store transactions. Again, the Docomo Suica is more or less instant, much faster than cash.
    I have my Suica connected to my credit card, so that when the balance goes under 2,000 yen, it automatically adds 3,000 yen, but anonymous cards are also an option.
    The result: all the train/bus journeys and a lot of the small purchases are done this way. The cards are very popular. Not sure how the Apple Pay will work out in Japan, as it is not connected to a part of daily life (the trains) the way the Suica is.

    1. Clive

      I’m not saying it’s a bad system. Actually there’s a lot to like in it, in terms of the technical implementation and genuinely device independence underpinnings. Plus the freedom from being ensnared in the convention card schemes. What I am saying is that it’s hasn’t been in any way transformative nor hugely popular. The Suica card is very popular or course, but DoCoMo’s phone-based Suica virtualization did not catch on.

  31. RichB

    Interesting that Nat West should use children in their promotion of a cashless society. What’s going to happen when kids start getting their allowance or pocket money on a card or phone instead of cash? There’s going to be some interesting legal issues regarding liability, when a person who is not an adult gets their device hacked or stolen.

  32. lambert strether

    Isn’t it true that in Africa many transactions are conducted by cellphone? How does that fit into this?

    1. Clive

      Yes, domestic payment systems have evolved — mainly in response to Africa being ignored by European and US big finance (the should count their blessings). M-PESA is probably the best known of these, not a bad system but the fees are fairly high (1.5% for registered-user-to-registered-user transactions, nearly 5% though if one party isn’t registered; these are not great sounding fee structures although without a proper understanding of the system’s cost base which I don’t have, you can’t tell for sure — hard to justify that 5% level however).

      As a private sector solution, whether it is going to be socially useful and unexploitative in the long term depends on the ethicality of the system owner. History isn’t exactly offering much cause for optimism here.

  33. Cry Shop

    The other end of the stick is the criminalization of cash in the USA. Even relatively small amounts can be confiscated by police without any other grounds than they “suspect” you were up to no good. I’ve been reading about horror stories where families have their entire life savings wiped out during a move to a new state to find employment because the cops pulled them over and shook them down. Once I pulled out a $50 to pay for a $38 ticket at the supermarket, and the cashier told me she could not make change. I think she was more interested in reporting me to the police. Probably gets a commission.

    This goes hand in hand with the poor being denied or priced out of regular banking services, so that the poor are dammed if they do and dammed if they don’t.

  34. Brooklinite

    Guys,

    I do believe in Cash. Indian situation is unique in itself. Its not a model or a precedent. Let me break it down. Indians have not been paying taxes for centuries. Income tax has been a part of the society till the 2000’s when the high tech jobs started invading India. Even after it was very minimal. That is one reason the government can’t do much in terms of services could be Infrastructure or public transportation upgrades, Police protection as such. People have been avoiding income taxes using cash transactions that are not going through the tax channel. Now all of a sudden real estate is down to earth when transaction tax is included. My dad who has been a life long Indian farmer has been the happiest. My grand father as a farmer has never paid his farm utility bills for electricity. He recommends himself that he should have paid and if not the .gov should have enforced. Let’s not go further into what the government is spending those taxes on. Once the structure, people are in then the discussion changes where to spend. That is where India is going. No one really understands this situation. India is a cash society. We need to pay our fair share to improve the country.

    Hate to say that this is not a conspiracy use case guys. Lets move on.

  35. Lune

    Clive-

    With all due respect, you and Ms. Scofield seriously misunderstand India’s demonetization scheme. While the arguments you bring up may hold water in the western world (including Japan), cash in India is an entirely different animal, and seeing it with western-colored glasses colors your view.

    In India, cash is a huge enabler of corruption. While that may just be a bogeyman in the West, used by banks and govts to scare people into giving up their cash, it’s a very real problem in India. Not only is cash used to anonymously store ill-gotten gains, but people who must transact in cash become victims of a predatory bureacracy. For example, if you’re a poor farmer entitled to a govt cash grant of Rs.500 / month, you must go to the local govt office (e.g. post office) to get your cash. Inevitably, the clerk there will only give you Rs. 400, and pocket the other 100. Protest, and the clerk will state that your identity card is invalid, making you go through several months of more visits to govt offices, with their inevitable bribes, to get your card straightened out, before you can start collecting your cash again. Inevitably, the farmer surmises it’s easier to just give up the Rs. 100.

    One of the ways to eliminate corruption is to reduce the number of times a citizen needs to interact with a govt. official. In a place with endemic corruption like India, every such encounter inevitably entails bribes / illegal transactions which soil both the citizen and the official. Moving people away from cash helps with this. For example, Modi made a big push last year to get every household to open a bank account. These accounts were completely free, with a free debit card, and free overdraft protection of upto Rs. 5,000. This was done because it would reduce the enormous corruption that all the various welfare schemes entail, with public officials siphoning money at every step before the money finally reaches its intended recipient.

    People in the West have no idea what it means to live under a predatory civil service, and Modi’s plan to reduce the use of cash really is intended to “drain the swamp” and reduce those predations. It’s why despite the challenges average people have faced in the demonetisation scheme, it remains incredibly popular.

    Furthermore, demonetisation is not the same as a cashless society. Modi didn’t ban cash. He only banned several currency notes. Anyone who wants to get the new notes can get them free of charge at any bank. You can still hold as much currency as you want (as long as it’s legally obtained, of course). The current problems are due to temporary currency shortages since Modi didn’t want to print a bunch of new notes before the announcement and risk tipping off corrupt people. Once the currency shortage (not the same as a cash ban) is resolved, people are free to transact with cash like they did before. Of course, Modi wants to reduce the amount of cash transactions, but he hasn’t banned them.

    The purpose of demonetisation wasn’t to ban cash, it was to force people to declare their cash holdings. That is, if you had a million rupees in 1000 notes, they would be worthless unless you took them to a bank and exchanged them for new notes. But the bank will record your identity when you do the exchange. If you obtained the million rupees legally, then there’s no problem. If you didn’t, then you’ll get a visit from the Revenue Department.

    At the end of the day, I get the sense western commenters on India’s demonetisation scheme are trying to fit it within their larger narrative of the ‘war on cash’ that I agree plenty of western countries are engaged in. But India’s scheme isn’t a war on cash, it’s a war on *undeclared* cash. Which is very different. And it’s for a different purpose. One that I support (if it isn’t obvious by now :-). BTW, I was in India when Modi announced the plan. The inconvenience to the average person, while present, is overblown by the media. Are you surprised that the same media that makes Chi-raq look like a burning cauldron also over-dramatizes the events in India?

    BTW, even in the West, the vast majority of transactions now occur electronically, with credit cards. By choice of the consumer. So your belief that electronic payment systems are doomed to fail has already been disproven. For better or for worse, the vast majority of our transactions are already electronic and tracked, and we happily allow it in exchange for 1% cashback or the equivalent of a 200% payday loan (take your pick). Even merchants who grumble about the transaction fee forget the cash processing costs they’d have to pay otherwise.

    The real question isn’t whether we’re moving to a cashless society. That battle (in the West) is already over. It’s whether we can implement some privacy controls (more likely to be legal / statutory than technological; sorry bitcoin supporters) and reduce the transaction costs to a bare minimum.

    1. Clive Post author

      The glib response is “so the operation (demonetization in India) was a big success, but the patient is on life support”.

      More nuanced, your arguments are essentially ends-justify-means ones. Now, those are not necessarily merit-less but the question, as always, is who is ending up as collateral damage? As usual, those who have the least and minimal resilience suffer the most and those who have the most suffer the least. These are not the hallmarks of a good strategy well executed.

      Now, I do have some sympathy because the world over, we’re faced with this kind of no good choices dilemma. Brexit, Trump — these are just two of these examples. But India’s demonetization is especially unconvincing as an answer to what is undeniably a genuine problem.

      For a start, I can guarantee you that, despite the change in physical cash availability and denominations, corruption will continue to be a problem. There is nothing in demonetization of itself that will be “tough on corruption and tough on the causes of corruption”. If the root causes are not dealt with corruption will simply reassert itself in other ways. In the US and certainly the U.K. there are stunning levels of corruption but rarely, these days, do officials get busted with suitcases stuffed full of bank notes. The revolving door between government and business is far more lucrative and much easier to get away with.

      Then there’s eminently substitutable alternates to cash like high value consumer goods, vacations (“international conferences”) and grace-and-favour apartments.

      Even if the currency changes causes some who have benefited from graft to eat some losses, they will simply adapt to the new constraints. It beggars belief that Modi’s administration has no answers to this conundrum other to pretend that, without large denomination notes, those susceptible to corruption will, overnight, apparently become reformed characters.

      Finally, as for non-cash payments becoming ubiquitous in the US and Europe and thus, hey-presto, we are therefore already “cashless societies”, please revise the subject again based on the material in my post above. I am *not* arguing that electronic (non-cash) payments are not popular nor am I arguing they don’t have a place in an overall payments ecosystem. What I am arguing against is this availability of non-cash payment options being used as an excuse to decommission physical cash — with all the negative implications that has.

      1. Lune

        Clive-
        I agree with your objections about Modi’s plans, but still view it as a success (Maybe I’m stubborn but hear me out :-).

        Firstly, yes, demonetization (I’m going to abbreviate it as DM from now on :-) only affects people holding significant undeclared income as cash. The truly big kahunas (including the top politicians) + people with significant Import/Export businesses, have overseas accounts and their money is safely stored in dollars / pounds / eur in Switzerland, Panama, etc. Modi will need to go after those accounts as well if he truly wants to stamp out corruption. However, given how much he has already done, I’m willing to give him another year or two and see what else he pursues.

        Second, I disagree that DM has hit the common person disproportionately. Modi set a limit of Rs 4,000 per week per person (now raised). The average lower-middle-class and below Indian does not spend that much money per week, especially not on essentials like food. Taking a few family members and spending an afternoon exchanging the full amount with each person will likely carry such a family through a few months of spending, at which time (hopefully!) the currency shortage will be alleviated. At the higher levels of shopping / spending (e.g. middle class malls, etc.), everyone accepts credit and debit cards, and there is no crunch in transactions.

        I do recognize that people who depend on cash sales (e.g. taxi drivers, road-side vendors, small shopkeepers, etc.) have watched their business drop. But believe it or not, the policy is still popular with them because they’re willing to get through it if it does hurt the corrupt class as well (although that patience can wear thin if the currency shortage goes on for much longer). That may be nothing more than schadenfreude, but it is real.

        You are also right that without follow-up policies, this will not stop corruption by itself. I view it like cardiac shock therapy. Yes, it might get the heart beating again, but that only gives you some time to treat whatever made it stop in the first place. DM is a one-time, flush-the-system, type deal. I fully agree that it must be followed up with policies to prevent people from accumulating the same black money. But again, this was an important first step to signal to the black market that Modi is serious, as opposed to every other politician who has been elected promising to stamp out corruption.

        Already, Modi has carried out additional operations, like going after gold / jewelry dealers who were allowing people to buy gold with black money, and even arresting corrupt bank officials who were helping their best clients evade DM. In addition, he has announced his next focus will be real estate, where tons of black money is exchanged. None of these measures would work without this one-time DM.

        So yes, DM by itself won’t stop corruption. But it’s the first step (making the ill-gotten gains of previous corruption worthless), which is far further than any other politician has gone. Ultimate success will depend on his followup proposals but so far he is making the right moves.

        Finally, I did read your headline and your article, which is why I felt the need to point out that India’s DM is not a war on cash. Heck, they introduced higher-value currency notes to replace the old ones. It’s a war on black market / undeclared cash, which is very different from Western central banks trying to force legitimate transactions to abandon cash. I don’t disagree with your analysis of Western efforts. I just disagree that India’s current DM is in the same category.

        1. Yves Smith

          With all due respect, you are utterly incorrect re the impact on ordinary people. Jerri-Lynn, who was in India when the demonetization happened, has written about this at length and said even more to me about it via e-mail. This has been an utter train wreck and has made most routine commerce difficult to impossible. It has led to suicides as well as left people scrambling to survive.

          And you are also incorrect re efficacy. It was billed as a war on hidden wealth, NOT on the black market. India runs on cash, so a war on the “black market” would (as it has) hurt people, particularly lower income people and the poor. Experts agree this measure has been ineffective, since the overwhelming majority of hidden wealth is not held as cash, but moved overseas or held as gold, real estate, and other assets.

          1. Lune

            Yves-
            I was in India too when this happened. I stepped off the plane 2 days before Modi’s announcement. I spent 2 1/2 weeks there during which time I spent time in rural areas, a mid-size city, and 2 large cities (hyderabad and chennai; plus I had family members travel to Mumbai). And I went to 2 weddings which proceeded as scheduled, despite being the poster child of the type of events that, according to the media, are impossible now with demonetisation.

            Yes, people were inconvenienced standing in line for hours on end. Especially the first week or so, when banks closed early because they ran out of new currency. But business was being transacted. Malls were full, people still went to work, etc. This isn’t to deny the macroeconomic effects. I have no doubt that there will be a decline in GDP (or at least a decline in GDP growth) this quarter. But this is likely temporary due to delayed purchases of large discretionary items, or delays in big events like weddings, not due to inability to buy essential stuff like food. Once the currency shortage resolves, those purchases will be made.

            And about those suicides: Over the past 40 days of demonetisation, opposition parties have claimed that the policy is responsible for ~80 deaths (not just suicides, but elderly who have died in lines, etc), in a country of > 1 billion. In contrast, in that same 40 days, 45 Chicagoans have been killed out of 3 million. Every one of those deaths is tragic but just because the media focuses on them doesn’t mean they’re an accurate picture of the country. Undoubtedly, some people have faced a crisis, but the vast majority of people are not scrambling to survive, nor contemplating suicide.

            The median wage in India is $50/month. That’s approximately Rs. 4000, which was the limit Modi set for exchanging at one time. That means that for 50% of the population, a single day spent at the bank waiting in line to exchange your old notes would yield enough new currency for you and your family’s average expenses for a month. Bring your spouse and you have 2 months worth. Note, you don’t need a bank account. Just an ID (which every Indian has: they have a mandatory national ID). With that, you can walk into any bank, present your old currency, fill out a form, and get new currency back (after waiting in line, of course :-) When I was in line, there were multiple people who didn’t even exchange the maximum Rs. 4000 because they had less than that in cash and regardless didn’t need more to fund their expenses.

            You’re right that a lot of hidden wealth isn’t in cash. But Modi has already announced measures against those too: he has already gone after jewelry shops which sold gold without registering the transactions and identifying the buyers, and he has announced his intention to go after real estate that was fraudulently registered. I can assure you that real estate transactions have nearly completely stopped, and prices have dropped as everyone is now refusing any payment in “black money” (undeclared money).

            Can this still fail? Of course. But for a policy this disruptive, IMHO, the operational chaos has been low. And given how much corruption and the undeclared economy saps India’s future and corrodes daily life there, most Indians are willing to accept even a large disturbance for several months just for the chance to reduce black money.

            IMHO, writing off this policy as a failure after 1 month, or evaluating it in isolation from the other measures Modi is taking (or has announced), is a very shortsighted and incomplete analysis, not to mention has nothing to do with Western central banks trying to force legitimate transactions away from cash.

  36. Dave

    What a great article!
    I made a short summary of commenters’ reasons to use cash:

    100% payment to small merchants with cash vs credit, debt or prepaid cash cards.

    No delays or reversals to merchants in repayment for fraudulent charges.

    No expensive card readers or chip upgrades, ~$900 per machine for merchants to buy.

    Customer credit data can’t be hacked, stolen used to empty account or fraudulent purchases as with credit and Debit cards.

    Customers using cash can’t be denied access to their money through bank mistakes.

    People with cash can’t be frozen out of commerce by government overreach.

    Privacy, No tracking of your purchases for ads or sold to third parties.
    Future penalties, fees, taxes, higher insurance rates can be ascribed to individuals based on their detailed credit card history.

    Cash works in a power failure and outside of cellphone and WIFI range.

    Cash has very small denominations with no minimums.

    Cash sets a ceiling price on credit card/debt/electronic transactions, if fees get too high, people can turn to cash. Central Banks can’t impose negative interest rates, or charge you a fee to deposit money, with zero-interest rate cash floating about.

    Here’s one that nobody has mentioned:
    Cash stays local and circulates within a community through the multiplier effect.
    Credit charges end up sitting on a server for a month before the bill is paid.

    A final quote I love from Fresno Dan:

    “Cash, a government service that has worked practically flawlessly for centuries now, practically free for all users, is suppose to be replaced by a system THAT YET AGAIN BENEFITS the FINANCIAL sector”

    1. SomeCallMeTim

      You’ve inspired an OT reply:

      Another reason to use cash – avoiding the ‘tricks and traps’ of financial institutions in imposing fees that drive up the effective interest rate you pay. This problem is reduced, but still exists, even post-CFPB. Maybe this is just a specific instance of Fresno Dan’s point.

      {h/t Elizabeth Warren and her daughter, in their personal financial planning book, “All Your Worth”}

  37. washunate

    Clive, enjoyed the read as always. If you’re still checking the thread, I’m a little confused about the notion of a 20 years war and what was special about Mondex? Maybe I just have a different perspective across the pond?

    The way I see it, cash was largely removed from the payments systems decades ago, long before 1990. In the US, we used to have a variety of notes and certificates with rather high values and diversity of forms (metal certificates, interest bearing, etc.) from the late 18th to early 20th centuries. With the standardization on FRNs for public usage, we still had $500 – $10,000 denominations through much of the first half of the 20th century. These items did not survive to the 1990s, however. Instead, we stopped printing new high denomination notes in 1945(!). We started actively destroying existing ones that hadn’t worn out in 1969. That’s not a 20 year war on cash. That’s a 70 year war, a much different phenomenon. On top of that, we massively inflated the value of the currency, so even though we still have smaller denominations ($100, $20, etc.), their purchasing power dropped substantially relative to pre-WWII times.

    The world of plastic is not, in the US context, replacing cash. Rather, it is replacing checks (cheques), an item that moved the American consumer away from cash long before the contemporary era. Credit and debit cards (the latter are even called check cards in some circles) are far more convenient than checks. That’s the key to consumer uptake. We’re not ditching cash for electronic payments. We’re ditching checks (and stamps and envelopes) for electronic payments.

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