by Jeremy Craig
When the Treasury Department announced in April that Harriet Tubman would replace Andrew Jackson on the $20 bill, some joked that all cash will be gone by 2030, when the new bills would reach wide circulation. After all, with credit and debit cards, along with technologies such as Apple Pay that let you make purchases with your phone, fewer Americans carry paper currency.
Don’t be so sure, Georgia State experts say.
Not everyone has a bank accountEven with modern banking, don’t assume everyone has a checking account. The Federal Deposit Insurance Corporation (FDIC) reported nearly 9.6 million U.S. households lacked a traditional bank account in 2013.
Don’t believe the FDIC? Take a look at the number of check-cashing businesses concentrated in low-income and minority communities, where a lack of branches and fewer opportunities to build credit history have allowed check cashers to thrive.
“If you don’t really have good credit, the banks aren’t going to open a checking or a savings account for you,” said Don Hunt, a Ph.D. candidate at the Andrew Young School of Policy Studies.
Others might not have an account because they’re not authorized to work in the U.S., said Greg Gimpel, clinical assistant professor of computer information systems at the Robinson College of Business. Even for a non-bank-affiliated, reloadable prepaid debit card, you have to submit personal information such as your Social Security number.
That means eliminating cash might push people toward an alternate currency, Gimpel said.
We’d just end up using something else as hard cash.Let’s back up a minute. What do we actually mean by “cash” when we talk about a cashless society?
It could be anything that serves as a means of exchange—something you can trade for a good or a service—that holds value so it can be used later for other transactions, Gimpel said.
That means, theoretically, it could be a sea shell, if people conduct trade with it. In the modern world, a casino chip could be considered a form of physical currency, albeit within the confines of the casino.
If paper money and coins go away, something will inevitably replace them, even if the government isn’t the supplier.
Private currencies aren’t new. Private banks once issued their own bank notes as a means of exchange.
Governments could lose the ability to ward off economic calamity.
If people start flocking to alternate currencies, governments could wind up losing much of their power to influence economic issues such as inflation and unemployment. The government can’t set an interest rate for institutions lending in a currency it doesn’t control.
“There is a likelihood that if they try getting rid of cash, the Bitcoins of the world will gain substantial market share,” Gimpel said. “If that happens, central banks will not be able to enact meaningful monetary policy.”
How going paperless affects crime
During the mid-1990s push for welfare reform, Missouri embarked on an experiment: in certain counties, it switched from paper checks to electronic benefit transfer (EBT) cards to distribute welfare benefits.
Officials wanted to cease production of food stamps and benefits checks to save on huge printing costs, increase efficiency in getting benefits to recipients, prevent loss of paper checks or food stamps, and crack down on fraud.
Georgia State’s Department of Criminal Justice found there may have been another, unexpected benefit: street crime, including robbery, actually went down after EBT cards were introduced.
“It turns out the idea behind electronic benefit transfer cards had benefits in terms of crime,” said Don Hunt, a Ph.D. candidate at the Andrew Young School of Policy Studies, who recently received the U.S. Bureau of Justice Statistics Graduate Fellowship Award.
First, because benefits come at a regular time each month, criminals knew when and where to rob their neighbors. Because many of them had no bank accounts, benefits recipients went to check-cashing businesses instead.
Second, after recipients paid their bills, because they didn’t have bank accounts, they stored leftover cash at home.
“If they didn’t rob you, they would burglarize you when you left home,” he said.
But that doesn’t mean going paperless will eliminate all crime. Hunt and his colleagues are looking into something called crime type displacement.
“What we suspect is that the sophistication of crime is going up,” he said. “Somebody is going to figure out how to duplicate or hack credit or debit cards, and get money that way.”
Cash is essential in a crisis.
U.S. currency holds a special place in the world economy: for all its ups and downs, there’s still enough confidence in the U.S. dollar that other countries use it as a reserve currency to back up their own currency’s value.
It’s critical to have reserve currencies in physical form, Gimpel said, especially in the event of a natural or economic disaster.
Take Zimbabwe, for example. The African country had its own dollar, but hyperinflation devastated its value. By 2008, the inflation rate was estimated at more than 231 million percent, according to the Federal Reserve Bank of Dallas. By 2015, the country dumped its own dollar in favor of the U.S. dollar and other global currencies, exchanging 35 quadrillion Zimbawean dollars to $1 U.S.
During the crisis, Zimbabwe needed physical U.S. dollars flowing through its economy in the absence of its own currency.
“When there is a disaster, the responders ship pallets full of cash—paper or coined money, in euros or U.S. dollars,” Gimpel said. “If there is a natural disaster that shuts down your communication system, you need to be able to use money, and these global reserve currencies are usually the money that is flown in to support it.”
We thought we’d have a cashless society before. It didn’t happen.
When checking accounts gained mainstream acceptance in the 20th century, cash could have gone the way of the Pony Express. And with each successive evolution in payment method—credit cards in the 1970s and ’80s, debit cards by the 2000s—America could have tossed paper money away.
These days, card readers for iPads allow people to buy popsicles in Atlanta’s Woodruff Park with their Visas. But we’re still pulling $20s out of ATMs to pay for funnel cakes at festivals around town.
“There’s been generation after generation of technology that could have led to a cashless society, and it didn’t,” Gimpel said.
The ‘cash-low’ society
While we won’t go completely cashless, we will probably live in a “cash-low” era, according to Gimpel. Physical currency will still be around, but more transactions will be digital.
Cash may be used to keep transactions private. In other cases, “businesses will dissuade us from paying for small-value transactions electronically, because the transaction fee and discount percentage they would pay becomes a substantial portion of a low-value transaction, like buying something off a dollar menu at a restaurant,” Gimpel said.
“Most of our transactions will be handled electronically, but we will still intentionally choose to make certain transactions in cash.”