Could you go cashless?

Canada has already started replacing its paper bills with polymer — but could our new currency soon be passé? With debit cards, credit cards, online banking, e-commerce and the trend towards digital wallets, we’re already moving away from physical currency.

But could we go completely cash-free? Yes, says author and journalist David Wolman. After penning a controversial article for Wired about ditching physical currency, Wolman took up two challenges to investigate our attachment to cash.

The first: not to use cash for a full year to see what he would be missing out on. How would not using coins or bills affect his life?

The second: to travel the world and talk to people about money. Not just the bankers and academics, but business people, preachers and even notorious counterfeiters. The results — published in his book, The End of Money — reveal some interesting reasons why we’re not ready to let go of cash even as we’re moving away from it.

“A monetary revolution is already afoot,” says Wolman in a talk at ideaCity 2012. For a lot of people, that’s a frightening proposition.

Cash: why do we love it?

There’s something about the tactile experience of cash, and many of our memories and habits are wrapped up in the stuff. It’s hard to imagine a world where the Tooth Fairy doesn’t leave coins under pillows and we aren’t feeding parking meters or vending machines. A national currency can even be part of national identity — like our beloved toonies and loonies.

In the course of his travels, Wolman notes there are many reasons we can’t let go:

– It’s secure. Even if you don’t expect a major catastrophe, chances are you have a few bills stashed somewhere for emergencies. A $100 bill is liquid and can be spent, notes Wolman. You can still use cash when the power goes out. We don’t need to worry about “dropped transactions” on a mobile phone like we worry about dropped calls.

Some people take this view to extremes, Wolman notes in his talk — as evident in the response of some of his Wired audience. “I’ll keep my guns and my cash and my gold,” some readers told him. “You can keep your electronic payment tools.”

– Anyone can use it. Not every has a computer, smart phone or internet access. Critics worry that if we eliminate cash, it’s a serious disadvantage to people who don’t have access to technology.

– It’s anonymous. We’re already worried about the all the information about us that large companies like Facebook and Google are compiling. If we go cashless, will our finances and spending habits be open to scrutiny from financial institutions and credit bureaus? How safe is our information? Using cash doesn’t expose us to identity fraud.

“Cash is an anonymous means of transaction,” notes Wolman. “And that is valuable to a lot of people.”

– It makes it easier to budget. If you’ve been following the financial media recently, you’ve likely heard some key advice: 1) cut up those credit cards and 2) pay for everything in cash. For some people, it’s all too easy to swipe a plastic card — but much harder to break that $100 bill. In jars or envelopes, cash is a visual cue that can help people better manage their budgets.

What’s not to love?

Cash certainly has its benefits, but it has its pitfalls too.

“Cash can be very quick, very convenient and rather safe,” says Wolman. “But bank notes and coins have this huge back story and they’re rather cumbersome and expensive.”

Why might governments want to move away from cash?

It’s expensive. As the recent demise of the penny illustrated, coins and bills cost more than their face value. Not only do we have to spend money to make our money, we’re also paying to manage and distribute it — not to mention secure it every step of the way.  

It’s the currency of crime. There’s a downside to anonymity: cash makes it easier to criminals to operate. It buys weapons and drugs and it’s why people rob banks. Untraceable wire transfers are the hallmarks of many a scam, and expensive technology is needed to head off counterfeiting.

And if you thought identity theft was a costly problem, consider this number: There’s a $400-500 billion dollar gap between what Americans owe in taxes and what they actually pay. Paying with cash makes it easier to hide income and dodge “the taxman”.

It’s cumbersome. If you’ve ever been short a few dollars or carried a purse full of loonies and toonies, you know cash isn’t always the most convenient way to pay. Debit and credit aren’t the only payment methods we find easier — we also opt for automatic transfers and bill payments. New technology even allows us to use our smart phones to make a purchase or transfer money to a friend.

It’s dirty. We can’t ignore the “ick” factor: cash gets handled a lot and can transfer viruses and bacteria. (Though the same thing could be said about debit card terminals.)

Innovation is shaping the monetary revolution

Right now, it may seem like a shock to the system to even contemplate a cashless society, but Wolman notes we’re already moving in that direction.

“We have already marginalized cash very much in our everyday lives,” he explains. “And to a great extent we have said yes to the electronic money proposition.”

After all, how many people make mortgage or car payments with a suitcase full of cash? How many businesses can afford to be without debit and credit card terminals?

“Most money nowadays is ones and zeroes on a computer,” he adds.

Cash isn’t going anywhere in the near future — but the revolution is something we should be pretty excited about, Wolman argues. You might be right to be skeptical, but new technologies like smart phones and payment systems like PayPal and M-PESA are already shaping how we do business. We’re experimenting with alternative currencies like Facebook credits and Air Miles, and bitcoin is making headlines as some nervous Europeans transfer their money to this new digital currency.

Perhaps the most exciting thing about this revolution is that we’re finally getting what Wolman calls “an honest accounting of the costs of cash.” We’re seeing all the advantages and disadvantages, and we’re talking about what cash means us to us and how much it really costs. It may be something we look at everyday, but now we’re looking at it a little differently.

For now, there’s no need to panic about cash disappearing.

“Will we get rid of cash in four to five years? Of course not,” concludes Wolman. “But I think you’re kidding yourself if you think that 20 to 25 years down the road you can predict what we can and can’t do with technology… Soon enough, cash will be as anachronistic as the pay phone.”

We may not be able to predict what’s going to happen in the future, but it will be interesting to follow the changes and innovations.

ON THE WEB

Catch Wolman’s talk at ideaCity 2012 in this video:

Do you think we can — and should — go cash-free? Weigh in on the debate in the comments.

READ MORE
Searching for safety
Lessons from the past
The debt bomb
Spend smarter – and save more
Avoid debit card fraud