Wednesday, May 27, 2009

A Cashless Society

I just read an interesting article in Wired which takes a thought I've had before to its logical conclusion. I've always wondered why we still deal with small change. Pennies are nearly worthless. Nothing costs just a nickel or a dime. Even pay phone calls, the last bastion of the quarter, now cost more. Why not do away with at least pennies and nickels? Everything can be rounded to the nearest 10 cent increment without costing the consumer that much extra. I would even argue that we could scrap the dime, too. We'd keep quarters of course, and create 1$ and 5$ coins to replace their paper analogues. Coins are more durable than paper bills. Replacing the workhorse bills of our econony with coins would save money in constant reprinting.

But the article I read took the position that we ought to do away with physical currency all together. The argument is awfully compelling. I'll attempt a quick summary.

First of all, most of our daily transactions are already cashless and electronic. According to the article the number of card-based payments exceeded cashed-based payments for the first time two years ago. Almost 15 percent of online transactions are conducted through Pay Pal. FreedomPay and EagleCash, Smartcard technologies, allow college students and military personnel to pay for items without cash. And how many people have SpeedPass-type chatzkes on their keyrings to instantly pay for gas cashlessly. Cashless, checkless payments are getting to be the norm. I pay all of my bills online, almost negating the need for a checkbook.

I use my Visa Checkcard for most of my daily "in-person" purchases. There really isn't much need to carry cash. I do it only so that I don't have to use my card for very small amounts. And for person-to-person transactions, when a Visa card isn't workable. And that's really the last hitching point holding back a fully cashless society. Wired put it best. In order to completely migrate from cash, we need, "a ubiquitous and secure network of places where people can transact electronically, and that system has to be as convenient as - and more efficient than - cash." That system? Cell phones. There are already apps written that allow people to "flash" money from one person's account to another's instantly using the wireless cell network. With cell phone penetration at 50% of the population and steadily rising, cell phones will soon enable cash to disappear.

But why go to all the effort? Is cash really that bad? Yes. It's an antiquated system that, like the system of barter that came before it, is due to be replaced. First off, money is dirty. Passing from person to person it picks up germs, chemicals, drugs, and other filth. Physical money is also expensive to create. In 2008 alone, the printing and coining of money cost taxpayers 848 million dollars, just to replace degraded and decommissioned bills and coins. That strikes me as awfully wasteful.

A cashless country is one thing. Imagine a cashless world. You'd never have to worry about exchange rates. They would be worked out automatically, on-the-fly as transactions were carried out. No more travelers checks. No more exchanging currencies as you travel. You can pay with eDollars anywhere when the exchange is automatic.

From most vantage points, phasing out physical money seems like a pretty positive thing. The only people in our society that could suffer as a result of the switch are the homeless and panhandlers, people dependant on cash handouts. I don't think that's a good reason to hold onto our inefficient, expensive cash system. I'm sure, with the money the government would save no longer needing to mint physical money, we could figure out a better way to help our lowest income members of society.

It just makes sense.

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