Shostack + Friends Blog Archive


The War on Cash?

cross-of-gold.jpgThere’s a war on cash? Who knew? Dave Birch uses the phrase in “More from the war on cash” without a whole lot of surprise. Here he’s quoting a McKinsey study. (Unsurprisingly, you need to login to read it.)

I liked this gem:

Cash needs to be priced appropriately. The fact is that, today, the pricing of cash is not in line with its costs. Consumers and merchants in most countries do not pay the real cost of cash, and so merchants and consumers have no reason to reduce their use of cash. One problem is that there is no clear ownership of cash. Another is that governments often position cash as a public good — to be offered free by banks — thereby inhibiting an economic debate on cash versus other instruments.

That’s a problem now, is it? While I agree that cash having government backing creates a barrier to entry, cash is also a highly evolved product, and the risks are assigned reasonably efficiently. This is in stark contrast to some newer payment methods, like credit cards, which may be “efficient,” but carry surprising side effects, like “Buy Gas, Get Busted for Pedophilia.”

Having the government provide a means for a reasonable functioning economy, and removing the costs of worrying about the gold content of a coin, or the solvency of DavidBucks adds huge efficiencies. There’s quite a few things that I’d take the government out of before I took them out of coining currency. (Know thy customer regulations, for example.)

To put it another way:

…we believe that the right to coin money and issue money is a function of government. We believe it. We believe it is a part of sovereignty and can no more with safety be delegated to private individuals than can the power to make penal statutes or levy laws for taxation.

Photo: Cross of gold, courtesy of Ewtn Religious

[Updated: Clarified that the quote was McKinsey, not David Birch.]

6 comments on "The War on Cash?"

  • Iang says:

    yup! (manual trackback) although I’m mystified on your apparent anti-FC stand!

  • Adam says:

    Having the government issue cash provides an (ahem) default system. That doesn’t mean others shouldn’t be allowed to compete. As you point out, the competitive space is strangely shaped by rules, and simply removing cash while leaving other rules in place isn’t making for free competition in payment systems.

  • Dave Birch says:

    Aren’t two different things getting mixed up here? It isn’t a debate about whether money should be issued by the government or by private industry, it’s just a debate about whether the use of notes and coins that are issued by the government should be cross-subsidised, if you see what I mean. As for traceability, I have consistently argued that we should (as society) choose a limit and stick to it, whether its $50 or $5000, so that low-value payments become cheaper and available to everyone because they can be exempted from AML/KYC and other expensive: I have never argued that cash should be replaced only by bank-issued credit and debit cards.
    I do agree with you about the rules, though. The way forward is by providing space for more competition and more innovation.

  • Adam says:

    I’m not sure I do see what you mean by cross-subsidised. Could you explain?

  • Dave Birch says:

    In the UK, as in many other countries, consumers do not pay for cash. If I get money out of an ATM, it doesn’t cost anything. Banks lose several billion euros on cash in Europe. So cash (and cheques) are subsidised: consumers do not pay the full cost. More on this here…

  • Adam says:

    Are banks required to deal in cash, or is it a feature customers want?
    In the US, ATMs may or may not be fee-free. Depends on the bank. (Fee free is also a misnomer, given that most current accounts don’t pay interest..)

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