Let's dump the greenback! *
Illustration: Stephen Doyle * Two years ago, Hasbro came out with an electronic version of Monopoly. Want to buy a house? Just put your debit card into the mag-stripe reader. Bing! No more pastel-colored cash tucked under the board. Turns out it wasn't Lehman Brothers but Parker Brothers that could smell the future. At least, that's what participants at this year's Digital Money Forum believe. In March, after a long day of talks with titles like "Currency 2.0" and "Going Live With Voice Payments," forum attendees at London's plush Charing Cross Hotel gathered for drinks—and, yes, a few rounds of Monopoly Electronic Banking Edition.
Unfortunately, the world's governments remain stuck in the past. To maintain our stock of hard currency, the US Treasury creates hundreds of billions of dollars worth of new bills and coins each year. And that ain't money for nothing: The cost to taxpayers in 2008 alone was $848 million, more than two-thirds of which was spent minting coins that many people regard as a nuisance. (The process also used up more than 14,823 tons of zinc, 23,879 tons of copper, and 2,514 tons of nickel.) In an era when books, movies, music, and newsprint are transmuting from atoms to bits, money remains irritatingly analog. Physical currency is a bulky, germ-smeared, carbon-intensive, expensive medium of exchange. Let's dump it.
Markets are already moving that way. Between 2003 and 2006, noncash payments in the US increased 4.6 percent annually, while the percentage of payments made using checks dropped 13.2 percent. Two years ago, card-based payments exceeded paper-based ones—cash, checks, food stamps—for the first time. Nearly 15 percent of all US online commerce goes through PayPal. Smartcard technologies like EagleCash and FreedomPay allow military personnel and college students to ignore paper money, and the institutions that run dining halls and PXs save a bundle by not having to manage bills and coins or pay transaction fees for credit cards. Small communities from British Columbia to the British Isles are experimenting with alternative currencies that allow residents to swap work hours, food, or other assets of value.
But walled-garden economies are a long way from a fully cashless society. As Wiredfirst noted 15 years ago, to rely exclusively on an emoney system, 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. The infrastructure didn't exist back then. But today that network is in place. In fact, it's already in your pocket. "The cell phone is the best point-of-sale terminal ever," says Mark Pickens, a microfinance analyst with the Consultative Group to Assist the Poor. Mobile phone penetration is 50 percent worldwide, and mobile money programs already enable millions of people to receive money from or "flash" it to other people, banks, and merchants. An added convenience is that cell phones can easily calculate exchange rates among the myriad currencies at play in our world. Imagine someday paying for a beer with frequent flier miles.
Opponents used to argue that killing cash would hurt low-income workers—for instance, by eliminating cash tips. But a modest increase in the minimum wage would offset that loss; government savings from not printing money could go toward lower taxes for employers. And let's not forget the transaction costs of paper currency, especially for the poor. If you're less well off, check-cashing fees and 10-mile bus rides to make payments or purchases are not trivial. Yes, panhandlers will be out of luck, but to use that as a reason for preserving a costly, outdated technology would be a sad admission, as if tossing spare change is the best we can do for the homeless.
Killing currency wouldn't be a trauma; it'd be euthanasia. We have the technology to move to a more efficient, convenient, freely flowing medium of exchange. Emoney is no longer just a matter of geeks playing games.
Contributing editor David Wolman(email@example.com) wrote about Dutch climate engineering in issue 17.01.
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How Bad is the Economy?
The credit crisis and recession has often proved to be much worse than expected. Just when you think things have reached rock bottom, along comes some more bad news - another retailer going bankrupt, more job losses, - new record low levels of mortgage approvals, recession deeper than previously thought e.t.c.
So the problem with writing a post like this is that it could soon look outdated and rather naive. Nevertheless, given the current state of the economy, how does it compare to previous recessions and the Great Depression?
In the great depression, things were really bad; in fact it is hard to imagine how bad things really were.
- Unemployment reached 20% in the UK and US in some areas it was even higher. To put that into context, it would mean an unemployment rate of 5-6 million today.
- There was widespread destitution with little support for the unemployed.
- It create large migrations of people, as the unemployed went in search of work.
There was little support for the unemployment. Benefits were very low and begrudgingly given. In the UK, means tested benefits meant someone would come round to see what you were eating. (allegedly if you were still eating meat on Wednesday you were too well off to receive benefits.
By comparison, the current recession doesn't compare. However, the extent of the decline in output, suggests that this recession will be deeper than any since the war. Unemployment is rising rapidly, and it will continue rising even when the economy recovers. It could take many months before unemployment stops rising.
A key issue is the extent of deflation. If deflation sets in (Like in the great depression and Japan in the 1990s) it will invariably exacerbate the recession and lengthen it considerably. If deflation is avoided the recession may hopefully last for just 12 months.
Government finances have deteriorated very sharply. But, in the UK, it has not reached a critical stage yet. I would be more concerned about the US economy. National debt is increasing rapidly and will deteriorate even more this year. Rising national debt and quantitative easing could be a bad mix.
The key issue is whether we see recovery by the end of 2009 - it will certainly be greeted with great relief.