The Problems Of Cash: Would We Be Better Off Sticking To Plastic?

In his new book on the future cashless society, David Wolman discusses the litany of problems with physical currency and the benefits of transitioning to a society where money is represented digitally, instead of with paper and metal.

David Wolman doesn’t like cash. Not money, just cash. He doesn’t like that it’s covered in bacteria, that it uses up precious materials, that producing, transporting and securing it is expensive and environmentally harmful, that counterfeiting and bank robberies add to the cost of cash, that cash aids criminals and enables tax evaders––all of which we end up paying for. And he doesn’t like that cash disadvantages the poor by keeping people trapped in the informal economy, with higher transaction costs and less access to financial services. Which is all to say, he really doesn’t like cash.

"At minimum, I would like a more honest accounting of cash, and cash management," he says. "I’m not certain that doing away with cash would be better in the aggregate. But we should be talking about it." Studies have shown that countries could save 1% of GDP by eliminating cash completely—for the U.S., that would be about $150 billion a year.

Cash remains highly popular in the U.S., despite the prevalence of plastic. The volume of U.S. dollars in circulation grew from $70 billion in 1970, to more than $1 trillion now. And, people have turned to cash since the financial crisis. Forty-two percent of Americans used more cash in 2010 than 2009, according to one survey. "Saddled by debt, Americans have turned their back on credit cards, and even debit cards," says Wolman. "They have retreated into the arms of cash again."

"In the U.S., it’s as if we are so consumed with anger toward credit card companies, and overpaid investment bankers that we don’t have the energy left to fret, complain about, or even notice the liabilities from cash," he writes.

In the book, Wolman explains how cash’s longevity is undergirded by patriotism, a desire for independence and anonymity, and by commerce. He shows how the cash industry profits from a strong cash supply—including sole-suppliers of currency paper and ink, and minting, cash delivery, and security firms.

He notes that about a fifth of all coins fall from circulation, so that mints have to continue to make new ones. And Americans waste a tremendous amount of time fiddling around with pennies, despite pennies being essentially unnecessary, and calls for their removal. Countries like Israel, Brazil, Australia, Finland, Argentina, and New Zealand have all eliminated their lowest denominations. Norway, Denmark, and Sweden have killed everything less than 50 ore (like 50 cents). But the U.S. has refused to follow.

Cash is also wrapped up with religion, believe it or not. For example, Wolman meets a Baptist pastor who tells him Satan will replace God by doing away with cash—because it is untraceable—and taking control of the economy. Many people think of cash and liberty as practically synonyms, he writes.

To prove that it’s possible to live without cash, Wolman spent months using only credit cards. Most of the time, he saw no difference in his life—though he did have to pay extra to use his card at times, and ordinary transactions were impossible in less developed places (like India).

Wolman insists he’s not boosting credit cards as cash’s alternative, though he admits a fondness for air miles, and other perks. He knows that cards are a "marvelously efficient catalyst for personal debt." And that cash helps people budget. "It is harder to part with physical representation of value, than the digital representation," he says.

But, Wolman says we shouldn’t be fatalistic that giving up cash would necessarily lead to more debt and further pain. He thinks we could quite easily come up with something better than cash or credit cards. His point is that cash is analogue in an era of huge digital advancement. "I’m optimistic about technology’s ability to help end-around the problems, and our biases for different forms of money."

And he thinks technologies are already opening up that potentially offer fixes. In a second post, we’ll look at these, and what impact they might have.