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October 11, 2010

Comments

Martin Geddes

Black economy, drugs money, dodgy deals, and simple mistrust of anything non-tangible - trying to stamp out cash may prove harder than you think!

That said, how would a government cope with a proliferation of private digital currencies, some potentially offshore and beyond easy regulation?

Matthew Artero

Tomi, very good, pointing out the benefits, and those already using it. Shows there really is no argument/debate on the subject as it is already happening. I agree with you that it is ridiculous to think cash will survive when MP3 players and camera makers could not.

Martin, that's baloney. Black economy and drugs will not be affected at all. They hide in plain sight and will continue to do so. Lots of drugs are sold in restaurants, bars, and other ligitimate businesses and not on the streets. The waiter and bartender will tell you they live as well as they do because they get great tips; yeah right. But all that secret society stuff makes better movies so they always portray a drug underworld when it is actually all around us. Most people are not going into a dark alley in the wrong side of town to get their fix. If it was that easy everyone would get caught and it would be easily controlled. Also, who says the offshore thing is not already happening with hard currency changing hands/accounts based on a phone call. The only difference here is digital; the cashflow is still all the same.

E.Casais

A very informative article. Let me raise a few issues that you might want to address if
there is a follow-up.

1. There are fine distinctions between cash, money, money accounts and payment methods.
You are obviously aware of them, but you often get carried away when writing. Thus,
Paypal does have properties of a current account but not those of cash. Tokens used in
Cyworld are not money -- neither are the chips in a casino or the pearls at the Club
Med (try redeeming them for anything outside their environment).

2. Overall, the migration from cash payments to various forms of electronic fund
transfers has been going on for a very long time. Thus, the complete shift from cash
transactions to electronic transfers occurred much earlier than with parking lots, in
an economically much more widespread and important sector: tax payments. There was a
time when one could go to the local State Treasurer office and pay one's taxes with
cash. This is has been abolished in most countries for at least a generation now.

3. There have been several attempts to introduce (hygienic) electronic cash in the past
decade, such as Mondex/Moneo: direct end-user to end-user transfers without debiting
and crediting accounts at a third party, quasi-anonymous (but not quite). Banks hate it.
The State does not like it. Hence, the total amount that one can deal with those e-cash
systems is usually ridiculous. The real reasons why State and financial institutions
want to get rid of cash have nothing to do with concerns about public health (how often
did anybody get sick from handling a banknote?) They are:
a) Banks can only grant (profitable) credit when people deposit their money on banking
accounts. When people rely upon cash, banks lose a monetary basis to grant credit --
and lose commissions on fund transfers as well!
b) Electronic transfers are by definition not anonymous. Marketing departments love to
know who pays how much to whom. Similarly, a non-cash money system makes it easier for
the State to impound assets. In a country like Korea, if the State wants to seize all
money of a person, it is just a matter of toggling remotely an electronic authorization
in the SIM card; one can no longer access, transfer or even receive money from anybody.
If you think this is an exaggerated fear, a quick search about the abuses of asset
forfeiture by local and federal authorities in the USA will prove instructive.
c) On the other hand, and in opposition to (b), once money gets converted from cash to
an account, the State gets to insure the money thus deposited, even partially -- which,
given the recent experience with financial institutions and its growing liabilities, it
is loath to do.

The recent evolution with mobile phones is an acceleration of processes that have been
going on for decades. Your example about Korea shows that it tends to subsume most other
payment methods -- and can do so damn rapidly. No wonder that some incumbent parties
are scared. On the other hand, as long as I will not be able to drop my 2€ into the
"electronic hat" of some buskers, without forcing them to stop playing to enter or
activate some e-money application, then coins and banknotes will live on.

Joey1058

I totally believe in an e-commerce society. I live by my debit card, and rarely use cash. And when I do need to rely on cash, I'm inconvenienced by needing to look for an ATM. So I could easily switch to SMS/mobile transactions. But as you point out, the entrenched systems will not go easily.

@E.Casais: You mention "Tokens used in Cyworld are not money -- neither are the chips in a casino or the pearls at the Club Med (try redeeming them for anything outside their environment)". You are quite correct. But such trinkets have a set value established by the company that issues them. What is the difference between Cyworld issuing ten tokens, the casino issuing ten poker chips, and Club Med issuing ten pearls via your phone? Your bank, or even your phone will be the determining factor in the exchange rate between all of them. If I need to go buy a loaf of bread and quart of milk at my local grocer, and my bill totals, say, $6. But I only have $4 in my account, and 1300 tokens from Cyworld? the phone simply calculates the real world value of the Cyworld tokens based on the daily exchange rates. I tap my phone to the box, and I suddenly have enough to pay for my purchase. In theory, I could "carry" dozens of different currencies from several countries, virtual worlds, and businesses. With that kind of monetary power, who needs cash? People could become well off rather quickly simply from everyday enjoyable activities. It also gives new meaning to employment.

Magnus

While the gist of your post is sound, you have the situation regarding buying tickets on the bus in Sweden wrong. Unfortunately, this throws the rest of the post and the examples you give into doubt, as it is difficult to shake off the notion that you are being "creative" in your use of the examples for other countries as well.

First of all it is important to note that it is not Sweden, as in "the whole of Sweden" that have stopped cash transactions on the buses. It is mainly in the larger cities, such as Stockholm and Gothenburg.

Secondly, it isn't the government who decides if people pay with cash on buses or not. It is the transport companies themselves, and the final say is with the board. So it isn't the government that mandated no use of cash on buses.

Instead, the chain of events started with the unions demanding that bus drivers wouldn't handle cash, for safety reasons. This turned into a conflict, which resulted in the local transportation companies setting up solutions for buying tickets before you get on the bus.

Now that the solution is in place, it works well and people don't often miss being able to pay with cash on the bus. But the process wasn't simple, it wasn't easy and it wasn't mandated by someone saying "hey, all Swedes have mobile phones!".

Simple. Elegant. Obvious. Yes, in hindsight. Not before or during the process.

But don't take my word for it. Check with your sources in Sweden to verify my account.

/M

Credit Card Application

Yes, I agree with Joey that e-commerce is probably only going to get more prevalent. And that Cyworld prediction is very interesting.

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Paul Jardine

The key to replacing cash is empowerment. If I can transfer balance easily and at any location from my 'account' to someone else AND I have the ability to easily, and with negligible cost, transfer that balance to another form of money, i.e. my bank account, then cash may be a thing of the past.

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my comment got eaten. Anyway I wanted to say that it's nice to know that someone else also mentioned this as I had trouble finding the same info elsewhere

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I think the end of cash and use of cards can reduce crime is a singular idea well worth pursuing. A survey to determine this and a graph of reduction of such crimes would help.

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