We Don’t Take Cash Here

It is coming to this….a cashless society.  Well, almost a cashless society, as defined by the use of paper currency and coinage.  As a physical medium of exchange, they will continue to wane in usage.  There were debates not long ago about discontinuing the coining of pennies because their manufacturing cost was greater than value in trade.   In less than 10-years, if the trends continue, most all transactions will be calculated to the penny using electronic payment methods—thus, obviating minting costs as well as printing costs of old-fashioned folding money.  Where are we going with all this?

More and more, merchants are posting prominent signs advising, “We don’t Take Cash Here.”  Remember when you would see “No Checks, Cash Only” signs in various business establishments?  Back in the day, the merchant had to decide the trade-offs of the risk of non-collection of a possible bad check with the persistent cost of bank fees to clear all other checks versus the service carrying-cost of paying a credit card company a percentage of the transaction’s value as a fee (like a sales tax) for intermediating and guaranteeing the exchange.  With the card-user seeking more convenience (which has a cost), these credit card transaction fees (and sales taxes) are always passed on to the consumer.

Like a check, the credit card was a form of cash.  Credit Cards have crowded out  the use of cash and checks into smaller specialized circumstances.   Remember, credit cards were first imprinted carbon-copy paper systems that were later negotiated at the bank.  Now, the credit card has an embedded security chip with loads of personal credit information stored thereon enabling transactions over secure virtual private networks.  Even more, with smart phones, the new software “App” is handling payments between persons and merchants.

The whole payment market system was driven by convenience, safety, risk and privacy.  It still is.  Even at greater risks, like a ominous bad check being passed, electronic methods now run the persistent loss-risk of being hacked, both on the payment and receipt sides.  Even worse, the hacker can get into and purloin the  monetary balances and not just diverting the transactions.  With growing connectivity, financial intermediaries must always worry about safety and risk, while convenience and privacy is the persistent demand domain of transacting parties.

In the past, cash and coin transactions were most trusted.  Now, cash has turned into the legal tender for illegal transactions facilitating the Gray Markets and the Black Markets.  The Gray Markets and Black Markets range from unreported transactions, like paying for undocumented day-labor and service gratuities (tips) and for controlled substances, to unreported larger new and used goods and services transactions not taxed (dodging sales taxes or income tax evasion).  Being unreported is the operative term here.   On the other hand, electronic transactions are always and everywhere reported—except for crypto-currency transactions.   Remember the term unmarked bills?   This is the promise of Crypto-Currency.  It is the ultimate combination of convenience and privacy.

Here is a useful summary in this monetary milieu.  All these issues can be visualized.  Keep it in mind.  Two demands have emerged regarding money.  The market always wants rights-of-privacy and convenience.    As shown in the table, this is the current State of Money.

Cash usage will continue to diminish leaving the conveniences of Electronic Payments and Crypto-Currency standing and growing.  The Federal Reserve will continue its money monopoly for Electronic Payments, but will face expanding competition from Crypto-Currencies.   For example, birthed in the Cash box, a projected fixed quantity of Bitcoins (like a theoretical fixed quantity of mineble gold) to be used in trade started out as a Private-Inconvenient medium of questionable exchanges.  It has broken out and moved quickly to the Convenient box with such recent developments of its Crypto-Currency acceptance being announced by large online merchants such as Overstock.com.  Bitcoin to them is nothing more than another improved civilization operating system.  Chainlink is another digital asset token that is also immerging as a payment platform for convenience and safety.   See https://www.overstock.com/bitcoin.

To control the money supply and the interest charged for its usage, the Federal Reserve will go to great lengths to maintain and control its exclusive world-wide reserve-currency King Dollar status.  To exert more short-sighted control, the Federal Reserve may lower its regulated $10,000 daily electronic transaction limit running the risk of driving more transactions into Crypto-Currency venues.   Raising the limit would make their King Dollar more liquid.  We shall see.  Self inflicted erosion of their monetary control status is a concern to them.  Ironically, to protect their monopoly, the Federal Reserve should have invented Bitcoin, et. al.

The better news for the Federal Reserve is that the greater the electrification of currency the greater the quantity of data and meta-data generated by Electronic Payments.  More information is more power, especially for Monetary Policy.  This electronic concentration of monetary activities and derived information will provide greater control mechanisms for the so-called financial economy to know how money of one type or another is likely to affect and appear on both sides of any trade.  As such, the velocity of money and the quantity of transaction volume will be more and more confirmed as independent variables of our monetary system.

Also, seen as a move to more fully legitimize the cryptocurrency to be very much commodity money-like ultimately reducing its bid-ask spread, the Chicago Mercantile Exchange (CME) has established a futures trading market in Bitcoin.  Others will be announced and established.  (see: https://www.coindesk.com/price/chainlink)  These cryptocurrency trends are being well researched.  With a pun intended, it would pay for the reader to understand many of the cashless forces converging in the money market place.  A recent prescient study was published in 2016.   See: 2016 U.S. Consumer Payment Study.

https://www.tsys.com/Assets/TSYS/downloads/rs_2016-us-consumer-payment-study.pdf

This following research publication might be self-serving, but the commercial bank that published it is trying to be a leader in the market for electronic money.  To that end, they predict that Digital payment platforms are primed to topple cash.  See:

https://www.usbank.com/newsroom/news/digital-payment-platforms-primed-to-topple-cash.html.

Summary:  Given all the foregoing and leading to a prescient conclusion, the banking thesis of Federal Reserve Notes and the non-banking antithesis of Crypto-Currency, the Federal Reserve will eventually combine, subsume and create the ultimate synthesis using dialectical thinking (innovation) to position and establish its fiat bank notes as exclusive U.S. crypto-currency using block-chain technology to absolutely maintain the quantity (money supply) and quality (pricing and inflation management) of its contemporaneous reserve currency status.