The ghost of cash
"It's not enough to speak well of digital money," Geronimo Emili said on Wednesday. "You must also speak negatively of cash." Emili has a pretty legitimate gripe. In his home country, Italy, 30 percent of the economy is black and the gap between the amount of tax the government collects and the amount it's actually owed is €180 billion. Ouch.
This sets off a bit of inverted nationalist competition between him and the Greek lawyer Maria Giannakaki, there to explain a draft Greek law mandating direct payment of VAT from merchants' tills to eliminate fraud: which country is worse? Emili is sure it's Italy.
"We invented banks," he said. "But we love cash." Italy's cash habit costs the country €10 billion a year - and 40 percent of Europe's bank robberies.
This exchange took place at this year's Digital Money Forum, an annual event that pulls together people interested in everything from the latest mobile technology to the history of Anglo-Saxon coinage. Their shared common interest: what makes money work? If you, like most of this group, want to see physical cash eliminated, this is the key question.
Why Anglo-Saxon coinage? Rory Naismith explains that the 8th century began the shift from valuing coins merely for their metal content and assigning them a premium for their official status. It was the beginning of the abstraction of money: coins, paper, the elimination of the gold standard, numbers in cyberspace. Now, people like Emili and this event's convenor, David Birch, argue it's time to accept money's fully abstract nature and admit the truth: it's a collective hallucination, a "promise of a promise".
These are not just the ravings of hungry technology vendors: Birch, Emili, and others argue that the costs of cash fall disproportionately on the world's poor, and that cash is the key vector for crime and tax evasion. Our impressions of the costs are distorted because the costs of electronic payments, credit cards, and mobile wallets are transparent, while cash is free at the point of use.
When I say to Birch that eliminating cash also means eliminating the ability to transact anonymously, he says, "That's a different conversation." But it isn't, if eliminating crime and tax evasion are your drivers. In the two days only Bitcoin offers anonymity, but it's doomed to its niche market, for whatever reason. (I think it's too complicated; Dutch financial historian Simon Lelieveldt says it will fail because it has no central bank.)
I pause to be annoyed by the claim that cash is filthy and spreads disease. This is Microsoft-level FUD, and not worthy of smart people claiming to want to benefit the poor and eliminate crime. In fact, I got riled enough to offer to lick any currency (or coins; I'm not proud) presented. I performed as promised on a fiver and a Danish note. And you know, they *kept* that money?
In 1680, says Birch, "Pre-industrial money was failing to serve an industrial revolution." Now, he is convinced, "We are in the early part of the post-industrial revolution, and we're shoehorning industrial money in to fit it. It can't last." This is pretty much what John Perry Barlow said about copyright in 1993, and he was certainly right.
But is Birch right? What kind of medium is cash? Is it a medium of exchange, like newspapers, trading stored value instead of information, or is it a format, like video tape? If it's the former, why shouldn't cash survive, even if only as a niche market? Media rarely die altogether - but formats come and go with such speed that even the more extreme predictions at this event - such as Sandra Alzetta, who said that her company expects half its transactions to be mobile by 2020 -seem quite modest. Her company is Visa International, by the way.
I'd say cash is a medium of exchange, and today's coins and notes are its format. Past formats have included shells, feathers, gold coins, and goats; what about a format for tomorrow that printed or minted on demand, at ATMs? I ask the owner of the grocery shop around the corner if his life would be better if cash were eliminated, and he shrugs no. "I'd still have to go out and get the stuff."
What's needed is low-cost alternatives that fit in cultural contexts. Lydia Howland, whose organization IDEO works to create human-centered solutions to poverty, finds the same needs in parts of Britain that exist in countries like Kenya, where M-Pesa is succeeding in bringing access to banking and remote payments to people who have never had access to financial services before.
"Poor people are concerned about privacy," she said on Wednesday. "But they have so much anonymity in their lives that they pay a premium for every financial service." Also, because they do so much offline, there is little understanding of how they work or live. "We need to create a society where a much bigger base has a voice."
During a break, I try to sketch the characteristics of a perfect payment mechanism: convenient; transparent to the user; universally accepted; universally accessible and usable; resistant to tracking, theft, counterfeiting, and malware; and hard to steal on a large scale. We aren't there yet.