Is Hard Currency Becoming A Thing Of The Past?

Doug Bernard | Washington DC

Daniel Suelo is a man who has figured out how to live without money. Making his home in a high cave near the desert outpost of Moab, Utah, Mr. Suelo lives, eats, sleeps, scavenges and does just about anything else he likes, all without any money. (Yes, he even blogs.) In the fall of 2000, Suelo says he took all the cash he had in the world (about $30)  and left it in a phone booth. He’s been walking away from money ever since. “Money represents lack,” Suelo writes in his journal, kept at the Moab Public Library. “Money represents things in the past (debt) and things in the future (credit), but money never represents what is present.”

Daniel Suelo (Hyoung Chang, AP)

Few of us may have the desire to live as simply, or starkly, as Daniel Suelo. But according to a new report by the Pew Research Center, a growing number of Internet & economic theorists believe the idea of actual physical money – banknotes and coins and such – may be going the way of the typewriter and the buggy whip.

Imagining Money

“There is nothing more imaginary than a monetary system,” writes Harvard professor Susan Crawford in the report. “The idea that we solemnly hand around printed slips of paper in exchange for food and water shows just how trusting and fond of patterned behavior we human beings are.”

In the truest sense, Crawford is correct.  Money itself is imaginary. It can be anything two or more people agree that it is, and it’s worth nothing more than what others are willing to exchange for it. Our paper notes and metal coins are, in fact, just symbols that societies collectively use to represent a complex system of debts, payments and wealth transfers. And being symbols, money can change and evolve. A signed check is a form of contract guaranteeing a future monetary exchange, or a symbol of a symbol. Credit or debit cards are just another, electronic form of that – a digital symbol of a symbol, of a symbol.

The Pew report, “Smartphone Swiping in the Mobil Age,” explores the expanding use of mobile devices such as smart phones or tablets to make payments or transfer funds. This, says report author Aaron Smith, goes far beyond logging in to your bank accounts or making electronic fund transfers. Think of your phone more like your credit or debit card: electronically holding a certain amount of “money” inside that you can use at a store with just a swipe.

A person tries a smart phone loaded with Google Wallet.(AP Photo/Mark Lennihan)

There are a variety of ways this can be done. Kenya’s M-PESA system has been around for years, allowing users to text payments directly to each others’ accounts. It’s low-tech but highly successful; money totaling 20% of  Kenya’s GDP annually flows through M-PESA. On the other end, Google has been experimenting with its “Google Wallet”, which uses a tiny radio signal – called near field communication or NFC – to “talk” to other nearby devices. Ideally, using NFC, a smart phone user could type in a code or just wave their phone near a merchant’s register and the sale would automatically be logged.

Officials in Sweden have begun a public push for the national adoption of just such a program. Proponents argue a cashless society reduces robberies, limits illegal activity and is just more convenient for everybody. Says former ABBA singer and cashless advocate Björn Ulvaeus, “I can’t see why we should be printing bank notes at all anymore.”

Even with the many understandable security worries,  NFC or ‘smart device’ payment services are rapidly expanding in other places, such as Canada, South Korea and other advanced economies. So fast that in the Pew survey a healthy majority – 65% – of participants agreed with the statement:

“By 2020 most people will have embraced and fully adopted the use of smart-device swiping for purchases they make, nearly eliminating the need for cash or credit cards.“

As surprising as that may be, some even consider that timetable too slow. “This trend is already overwhelmingly clear in many parts of the world,” says David A.H. Brown of Brown Governance, Inc. “Virtually all purchases will be made by hand helds and it probably won’t take ten years to get there.”  Echoes Jerry Michalski, founder of Relationship Economy Expedition, “Cash and credit cards as we know them are on their way out. Automation is here and will keep rushing in.”

Cash, Credit or Crock?

If all this sounds a little too much like science fiction, there’s good reason. For decades, writers like Isaac Asimov in his classic “Robot” series imagined a future where cash didn’t exist; instead people earned “credits” that were traded electronically. In a June 1991 article, writers for Omni Magazine claimed “…cash and credit will soon be obsolete.” A few years later author Joel Kurtzman in his book “The Death of Money” asserted:

“Few people realize that money, in the traditional sense, has met its demise. Fewer still have paused to reflect on the implications of that fact.”

Sounding familiar? Yet, two decades later, cold hard cash money is still very much with us, for a variety of reasons.

Some of it may just be habit: we use cash because we’ve always done so. In our minds we all probably know that banks don’t actually have tiny cubicles where they physically store all the cash we have in our account, but in our hearts we may still wish that it were so. Physical cash, except in times of hyper-inflation, is secure, while NFC technology – we are continually reminded – is less so. A few high-profile instances of people having their bank accounts wiped out, and people would likely shy away from adopting it.

Another reason may have less to do with who loses money than who makes it. At present in many nations, there is a highly complex system of fund transfers in which banks, retailers, manufacturers, customers and electronic networks all try to make a penny or two off every credit or debit purchase.  (In the U.S. this used to be the province of the Federal Reserve Bank, which still has sole authority to clear written checks, but technology changed all that.) In the Pew survey, Microsoft’s Jonathan Grudin opined “The driver here will virtually 100% be whether or not the credit card industry decides it can make more money through changing technologies.”  Flinders University researcher Paul Gardner-Stephen agrees, saying smart-device purchases “introduce(s) costs for retailers that will slow its adoption, especially in light of the lack of a compelling problem for NFC to solve.”

Distrust of banks or technology may be wax and wane, but it hasn’t stopped the relatively rapid adoption of technologies like the ATM, the credit card or the debit chip, embedded in a variety of devices. Radio frequency ID technology like NFC is fairly widespread, monitoring everything from the groceries we buy to our train tickets. Says Microsoft engineer Christian Huitema, “We have already witnessed the transition from cash to debit/credit cards.  The electronic wallet is not much more than a ‘virtual card.’ ”

Perhaps. Yet there’s still something cash can provide that electronic ‘credits’ can’t: anonymity.

There's nothing like cold cash money

My Money, My Life

Björn Ulvaeus may not see the need for cash any more, but many still do.

Think for a moment: in a world where every monetary transfer is logged and recorded and stored in the cloud, anonymity disappears. Every thing you buy or sell, from a car to a gallon of milk, will be marked and recorded. And critics worry that same system that logs and records your every financial move could also, potentially, have the power to block them all. Argues San Jose State University’s Ted Coopman: “This is especially true in the United States where fear of the government has always been part of our political culture.”

Will smart-device purchases made with NFC ultimately replace cash money? Did the Internet replace newspapers, or radio? Not so much. It’s probably less a matter of all or nothing, and more of introducing a new technology living side-by-side with a very old one.

Ultimately, it’s probably impossible to eliminate cash, as anything two people agree upon can become ‘money.’  Says Robert Ellis of Peterson, Ellis, Fergus & Peer LLP: “Cash will never disappear because there will always be a demand for it – for anonymous transactions, illegal transactions, and transactions in far-flung areas where the non-cash technologies haven’t been implemented.”

Daniel Suelo hasn’t had any money in his pocket for years by choice. In the future, we may all soon have the same option. Hopefully, we’ll have the choice.