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The End of the Cash Era
In the spring Adam Smith will replace Sir Edward Elgar as the face on Britain’s ￡ 20 note. The first economic thinker to be so honored could well be the last. Not because economists are especially undeserving, but because cash, after millennia as one of mankind’s most versatile and enduring technologies, looks set over the next 15 years or so finally to melt away into an electronic stream of ones and zeros. If an era is represented by its money, the information age is at hand.
Notes and coins are already a small fraction of the money in most rich countries. But going by the number of transactions rather than their value, we still live firmly in a cash society. The European Payments Council estimates that the European Union’s 360 billion cash transactions cost at least ~50 billion a year; others put the bill at ￡200 a head. Visa, a huge credit-card alliance, reckons cash accounts for most of the $1.3 trillion spent a year across the world on small-ticket items. Whether queuing to get money out and queuing again to spend it, or breaking a $100 bill with an irate (发怒的) cab driver one minute and having your pockets and purses fat with coins the next, cash is plainly still king.
Yet signs of the new order are everywhere. On February 12th, 19 telephone operators with networks in over 100 countries said that people would be able to use their handsets to send money abroad. MasterCard will operate the system in which remittances (汇款) will be sent as text messages. For people without bank accounts, the credit can be converted into pre-paid cards which can then be used to buy things. "It will revolutionize the money-transfer business," said Sunil Bharti Mittal, boss of Bharti Airtel, one of India’s biggest mobile operators. The idea is to tap into the more than $250 billion a year that immigrants and migrant workers send to relatives and friends back home.
Britain’s Vodafone and America’s Citigroup are also launching an international money-transfer service developed from the M-PESA remittance service which is already operating successfully within Kenya. Sir John Bond, formerly chairman of the HSBC banking group and now chairman of Vodafone, has long been convinced that payments and mobiles would somehow converge. "Mobile phones have the ability to make a dramatic change to village life in Africa," he says. He also thinks phones loaded with credit will make many of the payments people use cash for in rich economies. For banks with high infrastructure costs, says Sir John, it has always "been hard to make money out of small payments". But lower-cost business models, some of them from developing countries, are opening up new opportunities. The big attraction of the mobile phone as a purse is that so many people have them - even children.
Both MasterCard and Visa have recently introduced plastic cards in America that do not have to be swiped for purchases under $25. Later this year a "dual interface" system will be tested in London. It will involve a single plastic card which combines an Oyster for travel, a standard Visa card issued by Britain’s Barclays Bank for "chip and PIN" payments and a new "wave and pay" Visa for instant transactions up to ￡ 10.
Nobody can be sure how fast bits and bytes will drive out metal and paper. A hundred years ago you could still pay your taxes in Uganda in cowrie shells. Perhaps hard cash will always find a niche, tucked away in children’s birthday cards and as money for the unbanked and phoneless. But most of the time a phone or a smart card that can be waved over an electronic reader will beat notes and coins hands-down. The doubt - and the remaining obstacle to digital money - concerns a third property of cash: its anonymity.
Gresham’s law vs Moore’s law
Rendering cash as pure information is the final denial of the notion that money has intrinsic value: what was once a carefully weighed piece of gold, silver or bronze has become simply a token. That is a hard-won truth. As John Maynard Keynes once lamented, when it appears governments are able to deceive their citizens by depreciating the currency.
Yet when money is minted (铸造) from silicon something remarkable happens. The economics of handling cash - which today involves thick-necked men in crash-helmets - is suddenly embodied by Moore’s law, which has seen the cost of computer-processing power fall by half every 18 months or so. Electronic information is instantaneous, weightless and exact. No longer the miserable fumbling through coat pockets while a line of waiting customers quietly fumes. Shopkeepers can do away with expensive cash floats and elaborate ruses to stop cash fraud - such as charging $4.99 so that the $5 bill most people hand over has to pass through the till (现金出纳机 的抽屉) for one cent change rather than being trousered by a shop assistant.
Information-money can be handled by any information-processing device. That includes the mobile phone, which can add to money’s utility in that its screen can display information clearly and it can link to your bank as a mobile ATM at any time. Visa thinks a contactless digital transaction takes less than half the time of a cash one and that people liberated from what happens to be in their wallets spend a fifth more.
Which is why digital cash is now solving its chicken-and-egg problem. In the past shopkeepers would not install systems unless shoppers had electronic cash. And shoppers would not use electronic cash unless they had something to buy. But smart cards and readers have become cheap and consumers now possess mobile phones in droves. The trillions of payments that are too small to bear the fees of paying by credit card have come within reach and almost everyone stands to gain. Some Japanese merchants have already begun to offer discounts to people using electronic cash. Others will follow.
The buck stops here
Except there is that nagging question of anonymity. It is well known that privacy has a lot going for it. The firms running payment systems might sell information about what you buy and when. Prepare yourself for a barrage of e-coupons and offers designed to fit your profile and uploaded to your phone. And there are more serious concerns. In the cash world, anonymity can be a cloak for wrong doing. The suspicion clings that where you find anonymity you find drugs, fraud, money laundering, terrorist financing and a huge amount of tax evasion.
No wonder governments have long sought to control anonymous financial instruments. The state is certain to limit the amount that can pass through an anonymous card, phone, or other means of business. Eager to collect taxes from builders and nannies, it will also be tempted to monitor electronic-cash payments.
Whether it does so is a political question, not a technological one. You can design payment systems that protect against fraud and yet preserve anonymity, just as you can design open systems or those that keep your identity secret unless the authorities demand that it be revealed.
When it comes to trading convenience against privacy, most people seem to back convenience every time. With cash, however, it might be different. The more the state intrudes into electronic cash, the more it encourages inefficient notes and coin. From the first slave who bought his freedom, money has been what Dostoyevsky called "coined liberty". As Adam Smith would no doubt have observed, just because the state can pry into electronic cash does not mean it should.
According to Visa, transactions by mobile ATMs can encourage spending by ______.