Cash vs. cashless: A question of liberty?

Are bills and coins a thing of the past?

Have you ever been caught in crossfire? Me neither, but I got a taste of what it might be like on a panel at The Currency Conference in Kuala Lumpur in May.

June 28, 2017

A blog post by Margaret Doyle, partner, Deloitte UK

In one corner was David Wolman, a contributor to Wired magazine, who was so disgusted by cash that he wrote a book with the apocalyptic title The End of Money, about “the coming cashless society.”

In the other corner was Brett Scott, a self-styled “economic activist,” who argues that a society without cash (i.e., notes/bills and coins) is a society without liberty.

And in the middle was me.

Wolman first got embroiled in the cash debate in 2009, when he declared, in Wired, that it was “Time to cash out: Why paper money hurts the economy.” To his astonishment, he said, his polemic generated a “thunderous” reaction. “If there is no cash, how will I buy pot and tip strippers?” was a typical response.

Scott lobbed back that we want to live in a world that allows privacy, informality, and, yes, even deviance and crime. Scott accepts that cash may facilitate crime. But, as he argued in a recent article for online magazine Aeon, “In Praise of Cash,” cash enables positive things, too.

Scott railed against what he has termed “the war on cash.” Citing George Lakoff, the American cognitive linguist, Scott argues that an alliance of vested interests is “framing the debate” on cash. A cashless society, Scott says, is really “the bank payments society.”

The relationship of cash to digital currency has been likened to “the oxcart and the car,” he said, suggesting that cash will be replaced as inevitably as the oxcart was supplanted. But, he asked, why not liken cash to the bicycle, which exists in parallel with the car, instead?

Best of both?

Wolman invited the assembled executives from the currency industry to invent a “smart banknote,” an idea pioneered by Ignacio Mas, an MIT- educated digital money expert who worked on financial inclusion for the Bill & Melinda Gates Foundation.

The kernel of the idea is that a smart banknote—which can be activated or deactivated electronically by transferring value between a banknote and a bank account—preserves the “physicality of cash,” as Wolman explained in his book, but “also allows a real-time jump in value,” be that from one individual, or currency, to another. Wolman explained in a subsequent email to me that the real revolution of the “smart banknote” is that it would also allow value to jump from physical to electronic form.

At the time of his 2012 book, Wolman stated definitively, “My preference go digital all the way.” However, in 2017 while he continues to insist that there is “a lot to criticize” in cash, Wolman accepts that others ought to be allowed the choice of which medium of exchange to use.

Scott slammed the notion that digital money could be a replacement for cash. Money currently comes in two forms, he explained: cash and other instruments, such as deposits that make up the bank ledger money system. Digital cash is a contradiction in terms. Digital money is a form of ledger money. It is not, like cash, a bearer instrument, where there is no record of ownership and where the holder is assumed to be the owner.

It is this need for a record of ownership that sits at the heart of the critique of digital money. Not mincing his words, Scott declared a cashless society to be a “surveillance, behavior-controlling, bureaucratic, zero-privacy society.” Scott invoked the “panopticon,” an institutional building designed by the 18th century English philosopher Jeremy Bentham to enable all inmates to be observed by a single watchman, without their being able to tell whether or not they are being watched, for this dystopian future.1

Wolman conceded that privacy concerns are one of the forces driving what he termed the “attachment to cash.” He cited the “huge” venture capital investments in mobile money as likely to have a “profound world-changing impact.” However, he accepted that “mass data breaches—especially if mobile, may interrupt this march.”

Financial inclusion

Wolman also accepted that “physical representations of money [i.e., cash] are up there as a civilizing force, with the wheel and controlling fire. But,” he argued, “so is the internet.” Can’t we harness the digital money to enable the estimated 2.5 billion of unbanked people in the world to enjoy the benefits of financial services, he asked?

Citing Mas again, Wolman argued that the very fungibility and accessibility of cash—what Mas terms its “turbo-liquidity”—makes it difficult for the unbanked to save. “Everyone in your village has a claim on that money,” Wolman said.

Scott scoffed at the idea that getting rid of cash altogether could be the spur to development that poor countries need. In a later email exchange, Scott elaborated, “The lobby groups around this want to present a dualistic world where you have only cash or only digital, and then say the world of only digital is better than the world of only cash.” He added, “Arguing that digital money can be useful is very different to arguing that getting rid of cash is useful—it is the latter that I’m primarily fighting against. The cashless lobby is trying very hard to make out that these are one and the same thing.”

Scott opposes the view of some aid agencies and philanthropists that replacing cash with digital forms of money will solve financial exclusion. He sees this as a top-down, neocolonial approach that will simply wrench cash out of the hands of the poor without guaranteeing them access to the “privatized” world of digital money.

“Western countries developed fine without digital currencies. Why the fetish-isation of tech? Development happens when institutions are strong,” he told the Kuala Lumpur banknote-makers. He elaborated in a later email to me: “Western development occurred through a whole range of factors, and didn’t rely upon surface-level technology handed out to people.”

He adds, “Insofar as I do argue against digital in itself, I’m arguing against the starry-eyed picture put out by the ICT4D [Information and Communications Technologies for Development] community that somehow the tech will engineer away the structural and political causes of poverty.”

Addressing the specific argument that cash, as a bearer instrument, is vulnerable to theft, Scott told the Kuala Lumpur conference that, “Cash is unsafe because you could be robbed: but why are you unsafe? You are unsafe because [civil society] institutions are weak.” Scott, a South African of Zimbabwean extraction, said, “In rural South Africa, if your wallet is stolen, you lose your cash; but if you lose your password to your digital wallet, you lose your savings.”

The cashless society works in countries like Sweden, which finds digital currency a convenient way to reach a small population spread over thousands of snow-covered miles, Scott posited, “because institutions in Sweden are strong.”

In a subsequent email, Scott added, “In Sweden there is already a strong base upon which you can make a digital currency system work—and potentially have enough democratic accountability that it won’t be abused. But the argument in much ‘financial inclusion through tech’ scenes is that somehow the technology itself will convey benefits, regardless of the context in which it is being used.”

My take on the debate

In my view, it will be a while before the world is ready for a completely cashless system, if it ever is. I believe that alternative currencies may be a medium of exchange. However, while bitcoin hoarding is not uncommon, cryptocurrencies have yet to prove themselves in another key function of money (i.e., as a store of value). Also, I would bet on the resilience of central bank money/fiat currency.

Economic systems need a trusted authority to control the money supply, as one tool of monetary policy. As an individual, I feel confident when I use central bank money that the state will enforce legal tender, backed by its monopoly on the use of legal force.

1 Of course, in a digital, distributed ledger-based world, everyone would be watching everyone else.

QuickLook is a weekly blog from the Deloitte Center for Financial Services about technology, innovation, growth, regulation, and other challenges facing the industry. The opinions expressed in QuickLook are those of the authors and do not necessarily reflect the views of Deloitte.

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