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Is cash really going to disappear?

by Peter Andrew
Is cash really going to disappear?

There’s really nothing like the feel, smell and look of a new $100 bill in your hand. In fact, the only thing better than holding one of those crisp Benjamins is holding a thick wad of them. There’s something visceral about banknotes. They mean different things to different people (security, power, independence, a pair of new Jimmy Choos…), but few of us fail to get a buzz from being in possession of a large number of them.

The case against cash

Of course, our relationship with dollar bills is pretty much entirely emotional and irrational. Most of us — except for drug dealers or the otherwise criminally inclined — haven’t actually needed high-denomination banknotes for a long time. We have checks and debit and credit cards that can buy us what we want without the risks of carrying quantities of cash around. (See Seven reasons why credit cards are better than debit cards to discover why credit cards could be your best choice.) Even the unbanked now have access to prepaid cards.

In a January blog, David G.W. Birch, who is a director of Consult Hyperion, an independent IT consultancy that specialises in secure electronic transactions, argued that central banks around the world are crazy to keep printing high-value bills:

When I was last in Canada, I noticed that many shops were refusing to accept $100 bills. None of these shops, as far as I can see, were going bankrupt because of this so the $100 bills are clearly, therefore, not needed for commerce. So why is the Bank of Canada wasting time and money (three hundred million of their Canadian dollars) on creating notes that will only be used for tax evasion and various criminal enterprises?

Meanwhile, high-value bills are well worth counterfeiting, posing risks to our economy. Birch believes “they are an obvious attack vector for our enemies! I couldn’t tell a real [one] from a fake sent in by Kim Jong-un to devastate our economy through a pandemic of unauthorised, freelance quantitative easing and I doubt that you could either.”

What about small transactions?

You might accept Birch’s arguments for dumping high-value bills, but how could we cope without small-value bills and coins? Imagine the long lines if every newspaper, cup of coffee and bus or subway ticket had to be bought with a card or a check.

That’s where near-field communications (NFC) technologies come in. Both MasterCard and Visa already have significant installed bases of payment terminals that allow you to wave your enabled card or smartphone near the device to complete a transaction. For small-value purchases, these may not need PINs or signatures, thus actually reducing checkout lines in stores as clerks don’t have to make change. Both payment processors also have “roadmaps” in place that should see NFC terminals becoming near-universal in this country over the next few years.

Already, you can use NFC to ride on public transit networks run by New Jersey Transit, The Metropolitan Transit Authority (NY) and The Port Authority of New York and New Jersey. ACS, the Xerox subsidiary that implemented the technology solution, claimed in January: “Rider satisfaction surveys showed the majority of riders liked the new payment technology and most preferred it over the current cash, coin, and ticket-based transit payment system.”

But what about interpersonal transactions: you know, when you need to lend your friend a few bucks? Well, the technology exists to enable that, too. In February, Barclays, a British bank, introduced Pingit for its UK customers and their friends. For now, only Barclays customers can send money (though that’s set to change soon), but anyone with any bank account can receive it. You just download an app onto your smartphone, register on the website, and send or receive cash. In fact you don’t even have to own a smartphone to receive payments — and it’s all free. Surely, it can only be a matter of time before U.S. banks offer something similar.

Rewards points and other virtual currencies

Of course, in recent years, many Americans have already grown used to working in virtual currencies besides the dollar. Also in February, Glenbrook Partners, published a report on these that included a list of eight well-known virtual currencies:

  1. BitCoin
  2. Facebook Credits
  3. Microsoft Points
  4. PlaySpan Ultimate Points
  5. Second Life Linden Dollars
  6. Tencent Q Coins
  7. World of Warcraft Gold
  8. Zynga (various currencies)

Presumably you could add a ninth: the points you earn on your rewards credit cards. Are all these helping to get us used to living without cash?

Is cash obsolete?

The fact is, we could become a cashless society within a very few short years. All the necessary technology is already available. What’s stopping us is our emotional attachment to banknotes and coins, and the unwillingness of some of us to embrace change.

Will the added convenience, security and law-enforcement benefits that going cashless could bring wean us off our love of folding money and jingling coins? Who knows? But there’s a good chance that one day during your lifetime you may suddenly realize that you haven’t seen a bill or a quarter for months.

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