Cash is an antiquated concept. It originated thousands of years ago as a banking receipt that bearers could exchange for stored grain or gold. Today it's little more than an abstract concept, its value tied to perception instead of goods.
Yet we still exchange these slips of paper, and redeem them for goods and services, just as the ancient Sumerians and Chinese did. David Wolman thinks it's time to end all that. His new book, The End of Money, looks at — and longs for — the emerging post-cash world.
Gizmodo: You know about my profound love for dollars. Why am I crazy for loving cash and what kind of harm does it cause?
David Wolman: At the most macro level it's really, really expensive. Cash is the currency of crime. Even though there's a bit of an anti-Robin Hood thread to this thinking — especially when it comes to tax evasion — I would say it's not quite so cranky and whiney to worry about cash's role in Juarez, Mexico, right now or in human trafficking or the 10,000 bank robberies in the US in 2009 and 2010.
It's not only that my tax dollars are paying for law enforcement to take down bank robbers, or to secure facilities, but our tax money also has to cover all those wider impacts of prosecuting and incarcerating people who are involved in those crimes. Financial crime is a reality and a bummer, and yes, the lion's share of financial crime by dollar is certainly electronic already. But that is a bogus defence of cash itself. It's like saying, "Well we have this other bummer over here, so we should also keep this one around."
What's interesting is that the government profits from "issuing" currency globally. But one theme I brought up in the book that a digital money expert in London introduced to me was the idea of accounting across government agencies. What I mean by that is, yes, Treasury is making about 20 billion dollars a year because everybody likes to hide Benjamins in their mattresses or in their steel briefcases. But at the same time, the FBI is trying to hunt down terrorists who use dollars because it's an anonymous payment mechanism. They use it to buy materials for improvised explosive devices or something far, far nastier, and the DEA is dealing with cash-fuelled drug crimes all across the land. And I think there's something to be said for that.
We have so many other technologies that are all moving to digital. Cash has ticked along completely uncontested for so long. We have these other payment technologies and credit cards and all that, but there's this quiet presumption that cash will always have to be king. I kind of wanted to needle that notion a little bit.
Gizmodo: You're talking about how the Treasury can make money but I was also surprised to see just how expensive it is to maintain our cash supply. How would going digital reduce costs?
DW: Exactly! It's huge. I mean that's why I lovingly said, you've got your head up your arse. [Referring to my previous pro-cash post; we both laugh at my ignorance.] You were like, "Hey these bills last up to 40 months now!" You're a tech writer, dude. Atoms and electrons; they last a lot longer. But our built-in adoration of cash is pretty profound in terms of the behavioural economics in psychology. The Federal Reserve does these studies about what people think about different forms of money or payment mechanisms. Everyone always thinks cash is cheap and fast and safe. It's not cheap, and it's not fast, and it's not safe!
It can seem to be fast. If I owe you $10 for lunch and we're sitting right there, and I give you the $10 bill, that is fast. But if you unpack that a little, to do that you have to make that 10 available in an ATM from which you withdrew it, you have to secure the building that has that ATM and to make sure that money is circulating back to a place where it can be inspected so ensure it's not deteriorated too much and has to be pulled from circulation. Every concentric circle outward, there are all these greater and greater costs. Distributing, inspecting, securing, reinspecting, threading, reissuing. And then eight years later, say we need some souped up security features. So let's redesign and then we can reissue and reprint and reinspect and ship it all out again in our Belgian cash trucks. It's one of those things — and that was why I wanted to do this project and the kind of writing I'm excited about — that's staring you in the face and hiding in plain sight.
When I got to India, you see front and centre how devastating the cost of cash can be when you are trapped using cash and you have no alternatives. Not being a development person or an economics person, these ideas were just totally foreign to me. When I think about poverty, I think about things like hunger and healthcare. And yet a lot of development people right now are talking about the financial services for the poor, like mobile money and mobile banking. These are the technologies that are pushing cash further and further to the periphery and pulling people into the formal economy.
This is about banking in the boring, old-fashioned, public service sense: a safe place to store your wealth so that you can build your stability in your life. People who are covered, I think, never think about the safety that provides us. It is just there. You only think about it if someone asked you to do a bizarre experiment of living only with cash only for a year.
Gizmodo: In India, when you bring up mobile payments, you have that anecdote of a guy who makes a cash transaction, then crosses the street deposit his money via mobile phone. Is that where you think the future transactions going to be, via mobile phone or text message?
DW: I think it is a combination of mobile money and NFC type of technologies, and probably stuff we cannot envision yet. That is exciting. I do not want to bill myself as some sort of futurist. But mobile money seems like safe bet. With NFC and mobile you're talking about 1.1 trillion dollars of transactions carried out by 2014. Pretty nontrivial stuff. Cash is even being pushed to the side in the final mile of the low-value purchases we're always talking about, like a Snickers bar or a pack of gum or a pack of cigarettes. Things where people say "How are you going to do that Mr Pro-Cashless?" As soon as my phone and your cash register-like device can handle that $US1.09 Snickers bar purchase, I am just going to hit send, and that is that.
The cost of smart phones is coming down and it is making then accessible to more people who are not as wealthy. That guy in India used a simple Nokia phone, but because he has texting capabilities with that, that's all he needs to access his bank account. I don't think people, for very long, are going to need $300 souped-up smartphones to be able to make low value purchases by way of NFC.
Gizmodo: You talk about alternative currencies. One thing I found fascinating was this idea of paying with kilowatt hours. Can you explain the Kilowatt Card to our readers?
DW: Yes! Its tricky though. The guy who invented it is an entrepreneur, a chemist and an aviator in Virginia. He's one of the people I wanted to talk to in this book, not necessarily because Kilowatt Cards are going to work, but because I just love this idea of people who look at the monetary system and say "Wow, that's bizarre! Maybe I could come up with something better."
The way the Kilowatt Card works is the unit of the currency is the amount of electricity required to power a light bulb and his total deal is that we need a currency based on real value. I'm looking at one pinned to my wall here; I will just read it to you. Its a 10 kilowatt card — Electricity Gift Card — that pays for 10 kilowatt hours of electricity in any residential account when redeemed at kilowattcards.com. No expiration date. Then it has an authentication code that I have to punch in on a website so I can't use it again and again and again.
I'm not going to marshall a giant defence of this guy, but I'm just saying it's a really provocative idea to take money back to real value that gets to the stuff that is of real value to a biologist, like food.
You hear gold bugs talking about that all the time, but the reality is that gold doesn't have real value either. Gold is just heavy and it has played the role of "real money" for so long, people think that it has real value. However, food and electricity and blankets, these things have real value.
There are hurdles that he faces, especially with the current cost of paying for distribution being variable. That's a big problem. But I am surprised that we don't see that idea a little more. You know people talk about using fresh water as a form of currency, or at least charging for it. It will be interesting when you and I are old men. Will some of these basic basic commodities or utilities be used as units of currency?
Gizmodo: Your book touches on BitCoin, which must have been a nightmare because it was changing so much last year when you were writing. But you also cover all these other alternative digital currencies like Facebook Credits. One thing that came out of the Facebook IPO filing is that it probably needs to make a lot more money per user. It seems like Facebook Credits could be the answer for that. You suggest that you'll eventually be able to pay for just about anything with Facebook credits.
DW: That's the issue with an alternative currency, right? As long as they aren't stepping on the government's toes in terms of counterfeiting they're totally legal and legitimate. The issue is: Are they widely accepted? There's this very problematic chicken and egg deal of getting people to trust a currency and making it widely accepted.
The thing that makes Facebook Credits kind of instantly powerful is there are so many people already on Facebook. So whereas the guy who innovated Kilowatt Cards or the issuers of Ithica Hours, they have to essentially invite people into the tent. But Facebook has — whatever it is now, 800 million? A billion? — people in the tent already. And so I think that's pretty provocative as far as the power of that kind of alternative currency to take hold in sort of a non-cutesy, non-fringe sort of way.
Some other alternative currencies, it's like you use 25 of these peaceful universe card points for a massage and I'll give you my graphic design input. And that's sort of like the only kind of things that you can exchange. So if you want to pay your auto insurance or anything else you've got to go back to dollars. And maybe things like Facebook Credits will blow that out of the water. You can see that a little now, for example people using airline miles to pay for real things, like a hotel reservation or what have you.
Just one more thing because you raised a good point about this being such a moving target. As I was filing and researching and with the Bitcoin thing it came up again with Iceland. I was there trying to explore the wake of their banking collapse and the talk was like get rid of the Krona. Then fast forward and the Euro crisis hits and places like Iceland are like "thank God we don't have the Euro!" On one level, editorially speaking, that's difficult because it threatens to make my book look dated quickly. But for this macro point I like running into that. It was just an incredible reminder to me. The monetary system is like this moving target and it's incredible that the dollar is so relatively stable and that most people I know just think it's the only kind of "real" money there is. Yet we've only really been on a dollar not tied to gold for 40 years, kind of 90 years, but really with no connection to gold for 40 years.
In the Euro crisis this past year has shown us that too that the whole thing about currency units and real value and government issued money versus alternative currency, is this whole unknown. That was illuminating for me as someone again who never studied economics and took this stuff for granted that it's solid, it's stable, it's here, that's how it works. That's not necessarily the case. It just feels that way when it's ticking along pretty well. Does that make any sense at all?
Gizmodo: It does! David, thank you so much. Have a great time on your holiday.
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