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Should We Be Allowed to Have Cash?
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(September 14, 2002) Reading the popular business press this month, we witness an attack on the idea of the U.S. cash dollar. Forbes and Business Week both ran articles that demonize the simple idea of cash currency in your wallet. They describe a brave new world wherein VISA handles all of our transactions through their computers, takes their cut, and cash is further marginalized in our society. Can we ask why?
At a time when the U.S. dollar internationally is being beaten up by the strengthening Euro, the growing international usefulness of the 500-Euro note, and the disdain that the world holds for the easily-counterfeited U.S. $100 bill, now we are reading proposals to eliminate the U.S. $100 and $50 bill in order to deliberately hinder the practical use of cash.

As if our money wasn't already enough of a mess. Today, the Treasury doesn't even produce a circulating coin that will buy an average-priced candy bar, let alone a whole lunch. And if they were to do away with fifties and hundreds, then your wallet wouldn't be big enough to carry the money you might spend on a weekend in New York City. Is this really what we want our money to become?

Lewis Braham in a Business Week article entitled "Abolish Paper Money" asserts that of the hundreds of billions of dollars of U.S currency in circulation "About half is circulating abroad, and the other half is used in illicit activities, such as tax evasion and drug peddling."

The article goes on to state that "If present trends continue, criminals and tax bilkers will be the only big users of cash. The mere possession of a big stash of the stuff will attract the attention of cops, just as the inability to produce a satisfactory ID does now."

And in the September 16th edition of Forbes magazine, in an article heralded on the cover "Cash is Dead, Long Live VISA - Why Tech Will Trump Greenbacks," Carl Pascarella, chief executive of VISA USA is quoted as saying "Our goal now is to displace cash and checks." And there is no denying that VISA in an enormous entity – it handled 35 billion transactions last year, totaling over $2.3 trillion, with over 9 million miles of cable in its network, and the capacity to handle 4000 transactions per second. Writer Daniel Lyons was certainly impressed, and demonstrates a gee-whiz state of mind when he writes that "While banknotes remain the medium of choice for drug dealers and people dodging taxes, for above-ground transactions they are technologically inferior."

So now Business Week and Forbes, two of the most respected business publications in the country, are asking us to believe that cash is essentially trash, a vile and outmoded invention suitable today only for the drug trade and tax avoidance. Cash, by which I mean that folding stuff in your wallet - paper money, greenbacks, benjamins, ferns, simoleons, long green - we are now to believe truly carries the stain of filthy lucre.

But, oddly enough, we are not supposed to revile cash for the old moralistic reason that its pursuit is the root of all evil, but for a more modern reason - actually, the reason being modernity itself. Why would you actually want to have old-fashioned currency when plastic is so much more convenient? The question is put to defenders of cash this way: which are you, a drug dealer or a tax cheat? Otherwise, why else would you actually want to have money? What causes you to want to spend money anonymously, outside of the banking/credit/debit system of financial plastic? Please, olden one, tell us before you finally sink into the tar pits, just what sort of dinosaur were you?

But before we bury dear old cash completely, let's pause for a minute and consider the source of these quotes. Braham's one-page article in Business Week has the air of an assignment tossed off with scant little research and no visible reflection whatsoever. Its whole tenor is bold and outrageous (i.e., the title "Abolish Paper Money"), much like Jonathan Swift's "A Modest Proposal for Preventing the Poor People in Ireland from Being a Burden to the Parents or Country, and for Making them Beneficial to the Public," which in 1729 shocked many, and amused some. However, a careful reading of Braham’s article reveals that he is dead serious, whereas Swift’s proposal for the culinary dispensation of unwanted infants was, thankfully, satirical.

Lyons' article in Forbes, on the other hand, was actually a well-researched and lengthy piece about the VISA system and its virtual rivalry with the U.S. Treasury in becoming the medium through which we place the majority of our monetary transactions. The Treasury, with its old rag-paper technology, is rapidly being overtaken by the convenience of plastic, aided by the VISA's computing power, which becomes cheaper and more efficient by the day.

There’s no denying that the VISA banks consortium and the U.S. Treasury would both benefit from the elimination of the cash transaction. Articles in the popular press that champion the idea that cash itself is both the cause and the tool of outlaw behavior certainly serves both their interests.

And the question of complicity between banks and the Treasury is a time-honored concern going back to before Andrew Jackson’s day - 19th century populist rhetoric often stressed the theme of the banks’ stranglehold on the working man. And the question of cash is certainly an issue involving the VISA banks' interests. The Forbes article shows an interesting chart comparing the net income of the Federal Reserve compared to the fees collected by VISA International Worldwide. VISA fees in 1991 were a bit north of $6 billion, and by 2001 they had matched the profits of the Federal Reserve at some $28 billion.

There’s a lot of money at stake here, and monetary policy concerning our currency is likely to be made by the Treasury, the Federal Reserve, or VISA International without much attention to the well-being of the working person. If the concept of cash money gets in the way of these institutions, then the future of cash may well be in danger.

But really, we should take a minute to consider just how useful cash is to ordinary, law-abiding citizens. Without cash, how would you buy your significant other's birthday present anonymously? Or loan your brother some small sum without your partner's knowledge? Or enjoy a wild weekend somewhere without having your every expense electronically tracked? Or buy any number of items that you would just as soon keep your name off the registry of users, for whatever reason, whether personal, principled, prudish, or even political?

And while we're on the letter "P," what are the odds that you could get the gang together for a private evening of poker if nobody has any cash?

Let’s give a little consideration, please, for the casual cash economy that we take for granted. Impulse purchases are an American tradition, a driving force in our economy, and often one of life's joys. And nothing lends itself to such transactions like cash green money. When you freely spend your money at a yard sale, retail shop, art gallery, roadside stand, hobby gathering, auction sale, watering hole, restaurant, or a host of other possibilities, it shouldn't be your job as a private citizen to make oh-so-sure that each dime is reported by the recipient as taxable income.

But the implicit premise of a cashless society is exactly that – every transaction neatly tagged electronically, with no secrets, no privacy, and no purchase or sale without a database trail linking the buyer and the seller, essentially forever. And of course, under this premise there is no way afforded for a person to hoard or hide money in private, as doing so essentially becomes an economic crime against the state.

These are big changes in the idea of “money” as it has existed for thousands of years. And the VISA consortium and other electronic payments facilitators would certainly like to grab a piece of every monetary transfer on earth.

But before we blindly stumble into a totally electronic system of payments, shouldn’t we pause to think about what we might be losing?

First of all, the almighty U.S. cash dollar is the most stable and accepted money known to many parts of the world. And the dollar’s usefulness would be reduced if we eliminate the higher denomination bills. This would threaten the very utility and therefore, the actual value of the dollar. There’s a very delicate balance involved in maintaining the value and legitimacy of a strictly fiat currency such as we have. Remember, there is no gold backing our dollar, only what we call ‘the full faith and credit of the U.S. government.’

Which means, simply, that the government calls it a dollar, therefore it is a dollar. The Treasury and the Federal Reserve put a great deal of effort into maintaining the integrity of that artificially constructed dollar. And one of the great functions of the dollar, both domestically and internationally, is that it exists in a form (greenbacks) that is fungible, portable, and anonymous. That’s what 'cash' means.

To theoreticians, the idea of cash may be an old-fashioned abstraction. To them, paper currency is simply an inefficient medium which we would be better off replacing entirely with an electronic system of debits and credits.

But for the millions, possibly hundreds of millions, of people worldwide whose personal economy is tied to the cash American dollar, it would be an unfamiliar, unwanted, and often unworkable intrusion to try to substitute a virtual electronic dollar for a pocketful of greenbacks. Such an attempt would lessen or even eliminate the usefulness of the U.S. dollar as a means of exchange and store of value for millions of people.

If we disparage the use of cash as suited only for druggies and tax evaders, as did both of these articles about electronic money, and then start to alter our policies on currency and money accordingly, a whole raft of unintended consequences arise for the world economy, the U.S. economy, our society, and our private lives. If we decide that cash should be eliminated simply because it is sometimes used for tax dodging and the illicit drug trade, we have taken a giant leap into the unknown. Such a leap is not to be taken lightly.

Among other effects, the act of electronically wiring together the U.S. money supply into a closed electronic system will greatly degrade the utility of the dollar as a store of value, and only enhance alternative currencies such as the Euro.

And, of course, gold itself.

 

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