Business Report

The Slow Death of Cash

In a new book, author David Wolman argues that cash costs society far more than we think it does.

The End of Money reads like a late-night walk through the seedier corners of the global economy. There’s the small-town Baptist minister who calls electronic commerce the “Mark of the Beast,” the North Korean printing presses turning out counterfeit $100 supernotes, and the strange German ATM that spits out gold coins. End times are a-coming.

Paper currency: Writer David Wolman at a book signing near Harvard University.

For author David Wolman, it’s paper money that is due for a rethink and possibly a decommissioning. In his book, he assembles some convincing arguments that good old cash is much more expensive to society than anyone realizes. It’s not only the monumental cost of printing money, but also the cheaters who use cash to avoid $130 billion in taxes—in Italy alone.

The alternative is electronic money. To make the case, Wolman presents characters—like the pushy Indian mobile-money entrepreneur who calls himself the “assassin of cash”—who sometimes seem as likely to be charged with treason as they are to reinvent commerce.  Yet doubts over paper currency are shared by the mainstream, too, including the Gates Foundation and the U.S. military, for whom the downsides of cash—it pays for insurgents’ bombs, for example, and keeps the poor downtrodden—are increasingly a part of a strategic rethinking of how money should work, or what Wolman calls a “quiet uprising against cash.”

Wolman stops just short of advocating against paper money. Paper bills account for so much economic activity that it’s hard to argue the world is ready to live without them. And because any substitute would need to be electronic, it also raises questions about what would happen if the lights ever went out. It’s precisely such profound, even apocalyptic, questions that The End of Money succeeds at provoking. Technology Review business editor Antonio Regalado spoke with Wolman during his book tour.

TR: What’s the big picture? How much cash is out there?

Wolman: When it comes to U.S. dollars in circulation, the estimate finally broke the $1 trillion mark a year ago. But of course “in circulation” is a bit of a term of art. Most of it is locked away in briefcases, vaults, and safety deposit boxes. Much of it is gathering dust out there and losing value.

In your book, you write, “we may very well be on the brink of a monetary revolution.” What did you mean?

One way to think about the end of cash is the death-by-a-thousand-cuts idea. A lot of people have the false impression that there will be this formal ceremony for the end of cash. But it may be more like the death of payphones, right? They gradually become obsolete. For cash, what is happening is it is just getting attacked from so many sides. One area is innovation in alternative currencies, or virtual currencies, and another is new payment technology, especially involving mobile phones. And maybe there is an emerging third category, which is added attention to the true cost of cash. Although we are programmed to love the stuff, when you look at the back story of that $20 bill in your wallet, in fact it’s not so simple, it’s not so cheap, and it’s not so safe. When you combine all those forces, it’s safe to say that how we think about money is going to be incredibly different five, 10, or 15 years from now.

You spent some time in India and wrote that cash is “crushing” for people in that society. What does India tell us about the problems of cash?

Ignacio Mas calls cash the “enemy of the poor.” You and I have the luxury of toggling between electronic money and cash as we see fit. Electronic money is faster, it’s cheaper, and it’s safer, usually. But the poor are stuck with cash, and that is crushing, because they are trying to climb out of poverty. Cash is not helping when it comes to the climb out. Cash is “turbo liquid” … it’s very slippery. It can get stolen. And that is a problem when it comes to people’s efforts to save, to build security against financial shocks, which when you are teetering on the edge of poverty can be anything from a broken-down moped to a sprained ankle. And you need to be saving for those big-ticket investments—farming equipment, education—that make the climb out of poverty both possible and permanent.

I went to one of your book readings at Harvard, and there was one lady who sounded a little bit angry. Are you being cast as an enemy of cash?

In the book I make an argument: we are in the twilight of cash, and maybe we should welcome that. Maybe it’s time to say good night to it. You can’t be simplistic. Credit cards catalyze a lot of financial problems for people. People are more careful of their budgets when they use cash. That is not something that I can dismiss.

But are people kind of coming after me and seeing me as the enemy? Absolutely. In radio interviews I am doing, most callers do not call in and say, “Wow, this is illuminating, I never really considered the idea that cash is most punitive to the people who have so little of it,” even though that is true. Instead, what they call in to say is, “You are going to have to pry it from my cold dead hands.”

There are a few categories of people who are not that happy with me. One group fears things electronic, and hackers generally. And this is so odd to me, because so much of our financial lives exist in the electronic realm already. Yet when you remind people of that, suggesting that we go from 98 to 100 percent electronic, they freak out. They start to worry about financial crimes in cyberspace. Well, getting rid of cash will get rid of the bank robbers. There were 9,000 bank robberies in 2010. That is a lot. If you didn’t have paper money, those costs would vanish. Instead people say yeah, yeah, yeah, but people are going to still steal from banks electronically.

And then there is a group that are realists, or maybe defeatists, who say, “Look, we can’t even get rid of the penny, and you think that you can get rid of cash?” I actually think we could get rid of the penny and the nickel. And with a little more scrutiny about how $100 bills are being used out there, I think we could get rid of the $100 bill sooner than we suspect. That brings me to another category of people who are not writing in, but by default I assume are not happy with me: mobsters, drug dealers, and tax evaders.

Right, you seem to argue that $100 bills are pretty much only used for crime. Why do we print them? Who benefits?

We benefit. The taxpayer benefits. The Federal Reserve profits from issuing money, and that money is transferred to the Treasury for whatever the government wants to spend it on. But other people who benefit from $100 bills are people who want to conceal income or hide resources, or facilitate illicit transactions. You can fill in the blanks as to which category of criminals you want to illustrate—it’s all of them.

One thing in the book that proved really interesting is how the Pentagon is talking about a “cashless battlefield,” and how cash is so problematic for U.S. forces abroad. They were flying in billions in cash during the Iraq war to pay for sandbags, informants, and so on. But then they are watching those bills essentially circle back to bite us, from insurgents or other dark forces out there who want to buy materials for explosive devices and use them on Americans. That was the kind of thing that I never imagined bumping into at the beginning of this project. There are so many back alleys to the story of cash’s role in our world.

Where do you keep your own money?

I keep $80 in low-denomination bills in my earthquake preparedness kit. So whatever the incentives to get rid of cash, it’s clear we are not there yet. Where else do I keep my modest wealth? In a checking and savings account, to build a little security fund. Financially, we are behind on our retirement savings, but we’re doing more than nothing, and we’re wondering what will hold value, not 10 years from now, but 30 years from now. What I love about the cash question is it leads you down that path of thinking, what gives money value? It’s faith in the government.

People seem to have less faith now, at least in the dollar. The price of gold has soared. Do you think gold is more or less important in a cashless society?  

I can’t believe that the gold bugs get away with saying gold is real money, and say it with a straight face, as if gold was handed down from on high. That is funny to me. I say that money is an idea. Money is what we say it’s going to be. That said, even though everyone thinks that going back to the gold standard is unrealistic and a really bad idea, central banks hoard gold and keep buying more of it. And you don’t see them doing that with coal or land some other commodity. So that is a bit of a paradox.

We’ve heard promises about mobile-phone money, but it seems to be arriving pretty slowly in the United States.

Actually, I think it’s coming fast. It will vary by country and by region, but where the value proposition is glaring, people are jumping in. You see it with M-Pesa in Kenya and the Eko program in India that I featured in the book. So here’s a young guy, an electronics repairman in a slum, and the agent comes out and explains how he can send money to relatives in the countryside via cell phone instead of taking a bus. It’s stunning ease-of-use compared to how he had to send that money before. And so he jumps in. For you and me, Google Wallet is not going to make or break us right now. But once those tools provide a value proposition that is undeniable, then you and I will also jump in. I don’t know precisely what it will be—maybe tying in discounts, or Groupon kind of offers.

What technology do you see as being the one that finally replaces cash?

I don’t know what the decapitation stroke of the death-by-a-thousand-cuts is going to be. The whole issue of “no more electricity” is tricky. You might need something that was solar-powered, with solar cells on one side. That would be a way to end-around the doomsaying.

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The Future of Money

Money has gone from seashells to gold to paper bills to digits in a computer. Now money is about to evolve again as the mobile Internet unlocks new consumer behaviors and business opportunities. This month, Business Impact explores the ideas, companies, technologies, and new concepts of value that are redefining the future of money.

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