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Cash might be grungy, unfashionable and corruptible, but it is still a great public good, important for rich and poor alike
I recently found myself facing a vending machine in a quiet corridor at the Delft University of Technology in the Netherlands. I was due to speak at a conference called ‘Reinvent Money’ but, suffering from jetlag and exhaustion, I was on a search for Coca-Cola. The vending machine had a small digital interface built by a Dutch company called Payter. Printed on it was a sentence: ‘Contactless payment only.’ I touched down my bank card, but rather than dispensing Coke, it beeped a message: ‘Card invalid.’ Not all cards are created equal, even if you can get one – and not everyone can.
In the economist’s imagining of an idealised free market, rational individuals enter into monetary-exchange contracts with each other for their mutual benefit. One party – called the ‘buyer’ – passes money tokens to another party – called the ‘seller’ – who in turn gives real goods or services. So here I am, the tired individual rationally seeking sugar. The market is before me, fizzy drinks stacked on a shelf, presided over by a vending machine acting on behalf of the cola seller. It’s an obedient mechanical apparatus that is supposed to abide by a simple market contract: If you give money to my owner, I will give you a Coke. So why won’t this goddamn machine enter into this contract with me? This is market failure.
To understand this failure, we must first understand that we live with two modes of money. ‘Cash’ is the name given to our system of physical tokens that are manually passed on to complete transactions. This first mode of money is public. We might call it ‘state money’. Indeed, we experience cash like a public utility that is ‘just there’. Like other public utilities, it might feel grungy and unsexy – with inefficiencies and avenues for corruption – but it is in principle open-access. It can be passed directly by the richest of society to the poorest of society, or vice versa.
Alongside this, we have a separate system of digital fiat money, in which our money tokens take the form of ‘data objects’ recorded on a database by an authority – a bank – granted power to ‘keep score’ of them for us. We refer to this as our bank account and, rather than physically transporting this money, we ‘move’ it by sending messages to our banks – for example, via mobile phones or the internet – asking them to edit the data. Money ‘moves’ to your landlord if your two respective banks can agree to edit your accounts, reducing your score and increasing your landlord’s score.
This second mode of money is essentially private, running off an infrastructure collectively controlled by profit-seeking commercial banks and a host of private payment intermediaries – like Visa and Mastercard – that work with them. The data inscriptions in your bank account are not state money. Rather, your bank account records private promises issued to you by your bank, promising you access to state money should you wish. Having ‘£500’ in your Barclays account actually means ‘Barclays PLC promises you access to £500’. The ATM network is the main way by which you convert these private bank promises – ‘deposits’ – into the state cash that has been promised to you. The digital payments system, on the other hand, is a way to transfer – or reassign – those bank promises between ourselves.
This dual system allows us the option to use private digital bank money when buying pizza at a restaurant, but we can always resort to public state money drawn out of an ATM if the proprietor’s debit card system crashes. This choice seems fair. At different times, we might find either form more or less useful. As you read this, though, architects of a ‘cashless society’ are working to remove the option of resorting to state cash. They wish to completely privatise the movement of money tokens, pushing banks and private-payments intermediaries between all interactions of buyers and sellers.
The cashless society – which more accurately should be called the bank-payments society – is often presented as an inevitability, an outcome of ‘natural progress’. This claim is either naïve or disingenuous. Any future cashless bank-payments society will be the outcome of a deliberate war on cash waged by an alliance of three elite groups with deep interests in seeing it emerge.
The first is the banking industry, which controls the core digital fiat money system that our public system of cash currently competes with. It irritates banks that people do indeed act upon their right to convert their bank deposits into state money. It forces them to keep the ATM network running. The cashless society, in their eyes, is a utopia where money cannot leave – or even exist – outside the banking system, but can only be transferred from bank to bank.
The second is the private payments industry – the likes of Mastercard – that profits from running the infrastructure that services that bank system, streamlining the process via which we transfer digital money between bank accounts. They have self-serving reasons to push for the removal of the cash option. Cash transactions are peer-to-peer, requiring no intermediary, and are thus transactions that Visa cannot skim a cut off.
The third – perhaps ironically – is the state, and quasi-state entities such as central banks. They are united with the financial industry in forcing everyone to buy into this privatised bank-payments society for reasons of monitoring and control. The bank-money system forms a panopticon that enables – in theory – all transactions to be recorded, watched and analysed, good or bad. Furthermore, cash’s ‘offline’ nature means it cannot be remotely altered or frozen. This hampers central banks in implementing ‘innovative’ monetary policies, such as setting negative interest rates that slowly edit away bank deposits in order to coerce people into spending…