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The Perils Of A Cashless Society

Zoe Pollack, one of the people filling in this week for Andrew Sullivan while he’s on vacation, links to this interesting piece by George Mason University Professor Jerry Brito that argues that the idea of a cashless society brings with the loss of one of cash’s greatest advantages, anonymity:

Moving away from paper notes and coins and toward a digital currency is a no-brainer, at least when it comes to cost and efficiency. But when it comes to privacy and freedom, cash can’t be beat. We must ensure that we protect our civil liberties by preserving some untraceable payment method.

Cash is anonymous, which helps keep one’s purchases private. Cash is also difficult to control: a $100 bill never gets “declined.” In a cashless world, however, not only would it be easier for governments and corporations to spy on our transactions, but also they would gain greater control over which transactions to allow at all.

(…)

Imagine if the only way to support unpopular causes was with easily controlled e-money. Certain transactions could be disallowed by law, political pressure or corporate fiat, and anonymous giving would be impossible. Each of your transactions would be tied to your identity. One could not make a purchase at a gay bookstore or a pregnancy clinic without knowing that somewhere there’s a permanent record of the transaction. And there might not be any transaction that couldn’t be subpoenaed in a divorce or other legal proceeding.

Some consumers worry about online tracking by marketers. They should be just as worried about “Know Your Customer” laws that today require banks and other financial institutions to report to the government what they believe are “suspicious” transactions — a flexible standard.

If we do move toward a digital currency, we should ensure that we retain some type of digital cash that is anonymous — or at least pseudonymous — and that is not tied to a financial intermediary that can control transactions.

A few caveats to Brito’s argument are worth noting. First of all, it’s likely to be a long time before we move to a truly cashless society where everything from the car you buy next week to the Diet Coke you picked up at the 7-11 last week can only be paid for electronically. Yes, I can use my credit or debt card to buy that Diet Coke or for any other low-dollar transaction as long as the merchant allows it (some stores still seem to have a rule that transactions must be above a certain limit for credit card use, obviously to limit the fees they incur), and sometimes I do if it’s convenient. Usually, though, it’s just easier to throw out a couple dollar bills and get change in return (of course, then the change gets stuck in my pocket and ends up in a jar at home never to be used again except as a bank deposit at some point).  Second, it strikes me that for some kinds of transactions were unlikely to ever see the day where everything will have to be done electronically. What about garage sales for example? I doubt you’ll see the Jones’s putting out a credit card terminal on a Saturday morning. The same thing goes for flea markets and farmer’s markets, where most merchants don’t take credit cards. As long as that’s the case, cash will continue to exist. Finally, a related point worth noting is that there is a cost involved for merchants who accept electronic payments and they are likely to be strongly opposed to any effort to move completely away from cash.

Keeping all of that it mind, Brito does raise some important points. There is an anonymity to cash transactions that simply does not exist with electronic transactions of any kind. When you pay or something in cash there (usually) isn’t any way of tracing it back to you, and unless the seller keeps some kind of sales ledger with your name in it, no record of what you bought. Sometimes, that anonymity allows people to purchase a good or service that would prove potentially embarrassing if it were to be made public. In the case of politics, of course, donations to candidates cannot be anonymous by operation of law but there are potentially other situations where people might be deterred from helping out a controversial cause if they knew their donation would become public knowledge. When transactions are conducted electronically, that anonymity no longer exists. Whether its by credit  card, debit card, or bank wire transfer, there is a record somewhere of what was done, a record available not only to the government, but potentially to, say, a spouse’s attorney in a particularly bitter divorce.

There are, as Brito notes, many things about a “cashless” society that would be convenient and far more efficient. However, it’s also the kind of world that would allow a whole host of people to track our activities even more closely than they do today. We should probably think carefully before we jump headlong into this brave new world.

Electronic Remittance Through The Internet image via Shutterstock

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About Doug Mataconis
Doug holds a B.A. in Political Science from Rutgers University and J.D. from George Mason University School of Law. He joined the staff of OTB in May, 2010 and also writes at Below The Beltway. Follow Doug on Twitter | Facebook

Comments

  1. Ben Wolf says:

    Better than 99% of transactions are already currency-less. As cashless societies go, were pretty much already there.

    Like or Dislike: Thumb up 2 Thumb down 0

  2. Vast Variety says:

    It’s simple enough to get a Square, Paypal, or Intuit ap and dongle for your smart phone or tablet and then you can easily take credit and debit card payments at a flea market, garage sale, or farmer’s market.

    Like or Dislike: Thumb up 3 Thumb down 1

  3. @Vast Variety:

    But is that what we want?

    Like or Dislike: Thumb up 2 Thumb down 1

  4. mantis says:

    Second, it strikes me that for some kinds of transactions were unlikely to ever see the day where everything will have to be done electronically. What about garage sales for example? I doubt you’ll see the Jones’s putting out a credit card terminal on a Saturday morning. The same thing goes for flea markets and farmer’s markets, where most merchants don’t take credit cards. As long as that’s the case, cash will continue to exist.

    That may not be the case for as long as you think. Sooner or later the vast majority of people are going to be carrying around smartphones. Apps such as Google Wallet or the telecoms ISIS system, along with cardless pay systems like MasterCard PayPass and Visa payWave already allow people to pay for goods without cash or cards. It won’t be too long before a system by which merchants can use smartphones to conduct their end of the transaction, so any flea market vendor or garage sale owner can conduct electronic transactions without purchase of additional equipment like card scanners.

    This won’t happen tomorrow, of course, but it’s the direction in which we are headed. Will it kill cash entirely? I doubt it, at least not for a long time, but it will likely replace a lot of cash transactions.

    Like or Dislike: Thumb up 3 Thumb down 0

  5. mantis says:

    Oh, VV got there before me. Apparently such vendor transaction apps already exist.

    @Doug Mataconis:

    But is that what we want?

    Good question. I think that such a trend will only be slowed by people refusing to adopt it, insisting on cash transactions. If people want to continue using cash, merchants will continue to take it. Unlike many other transaction methods, for the most part merchants pay very little for cash transactions (one exception being robbery security costs for some industries/locations).

    There are also several markets where cashless transactions won’t take hold. Illegal products such as narcotics and prostitution, and legal ones such as pornography. Many people will not pay for such things, or accept payment, in anything but cash.

    Like or Dislike: Thumb up 2 Thumb down 0

  6. James Joyner says:

    The anonymity of a cash economy mostly serves to protect criminals and tax evaders. Obviously, the local meth dealer isn’t going to take payment via credit card and waiters, bellhops, valets and other service economy workers who work primarily for tips much enjoy the tax advantages of being paid in cash. I do think there’s an argument to be made in the cases of transactions that are legal but potentially illicit in one’s community, although even that works both ways.

    Like or Dislike: Thumb up 3 Thumb down 2

  7. PD Shaw says:

    I’m pretty unconcerned about anonymity. I am concerned about theft of credit card numbers which has happened to me twice, both I believe from waiters/waitresses copying the numbers. I prefer to limit these hassles by paying for everything under $20 in cash, and many or most things under $50.

    Like or Dislike: Thumb up 3 Thumb down 1

  8. Tsar Nicholas says:

    No matter how far technologies advance we won’t ever have a cashless economy.

    First off, there are substantial costs to the merchant associated with credit and debit card transactions. That’s why when you pull into a gasoline station you’ll often see cash vs. credit pricing, with the former being a lot less than the latter. That’s also why if you go to a farmer’s market or to a flea market you’ll often find merchants who’ll only accept cash. That’s not going to change. It’s a lot cheaper for merchants, especially small merchants, to deal in cash as opposed to plastic. When you have a very low margin business, e.g., retail gasoline service stations, it becomes that much more important to have as many cash transactions as are practicable.

    Second, from the “Freakonomics” perspective, the reality is that there are a whole host of black market activities that only deal in cash. Drug dealers are not going to take plastic. Street prostitutes. Chop shops. Illegal casinos. Fences. Street grifters. So on, so forth. We can pretend these activities don’t exist and that they don’t entail tens of billions of dollars each year, but they do exist and there are big dollars involved.

    Lastly, there is in fact a dystopian element to a truly cashless economy. That can’t be ignored. Those in favor of limited government, liberty and privacy rights could not in the next breath advocate for a truly cashless economy. The two concepts are mutually exclusive.

    Like or Dislike: Thumb up 6 Thumb down 2

  9. @Tsar Nicholas:

    That’s why when you pull into a gasoline station you’ll often see cash vs. credit pricing, with the former being a lot less than the latter.

    I haven’t seen this in decades, mostly because the merchant agreements generally don’t permit it.

    Like or Dislike: Thumb up 4 Thumb down 0

  10. Gromitt Gunn says:

    Approximately 22% of African-Americans do not have checking accounts, versus 3% of white Americans (source is the company NetSpend). I imagine that a lot of that is more socioeconomic than anything else. If that 22% is evenly dispersed geographically amongst African-Americans (which is highly unlikely, but I’m doing quick and dirty analysis), and there are – for example – 1.7 million African-Americans in metro Atlanta alone, there are 375,000 black folks in metro Atlanta that operate on a cash basis.

    As long as there is an economic underclass, there will be some combination of cash or barter. The cost of banking for many of them is too high.

    Like or Dislike: Thumb up 0 Thumb down 0

  11. mantis says:

    waiters, bellhops, valets and other service economy workers who work primarily for tips much enjoy the tax advantages of being paid in cash.

    Many such professions rely on cash for the tips to come in at all. How does one tip a valet or bellhop if one carries no cash? It’s not just cheating on taxes on tips, it’s the existence of the tips themselves that rely on cash.

    Like or Dislike: Thumb up 2 Thumb down 0

  12. Moosebreath says:

    Stormy,

    “I haven’t seen this in decades, mostly because the merchant agreements generally don’t permit it.”

    You must be looking at the wrong places, as even here in Montco there are places which do it (mostly Lukoil). I was in Florida recently, and most places did it, including Mobil, Valero and Amoco stations.

    Like or Dislike: Thumb up 3 Thumb down 0

  13. Tsar Nicholas says:

    @Stormy Dragon: FYI, as a ballpark figure, I’d say that around 80% of all independent (non-branded) gasoline service stations in California, Nevada, Utah and Arizona have cash vs. credit pricing. That adds up to many thousands of service stations. Hell, within 10 square miles of my place of employment (Sacramento, CA), there probably are at least a dozen independent stations that have cash vs. credit pricing.

    Like or Dislike: Thumb up 0 Thumb down 0

  14. Tsar Nicholas says:

    Oh, right, I forgot to mention that at least 10% of all branded service stations in the aforementioned states have cash vs. credit pricing. That too adds up to thousands of service stations.

    Like or Dislike: Thumb up 0 Thumb down 0

  15. @James Joyner:

    The anonymity of a cash economy mostly serves to protect criminals and tax evaders.

    Yes, there that issue to contend with and it’s the reason why the Federal Government gets a report if you withdraw $10,000 in cash from your bank account at any given time.

    Nonetheless, there’s also the not-so-small matter that at some point it’s nobody’s damn business how I spend my money and what I spend it on. Ever since the invention of money it’s been possible for people to go through their day without having to worry about someone being able to track their every move and every purchase.. Maybe it’s a small matter, and some would say that if you don’t have anything to hide you don’t have anything to worry about, but this strikes me as another loss of privacy that we ought to at least think about.

    Like or Dislike: Thumb up 12 Thumb down 2

  16. al-Ameda says:

    Frankly I do not understand those businesses who do not accept credit transactions. Credit receipts present far fewer management problems than cash receipt transactions.

    The only argument I can respect with regard to favoring cash is the one that calls out privacy concerns – some people prefer the anonymity of a cash transaction. Other than that, electronic is so much easier.

    Like or Dislike: Thumb up 2 Thumb down 1

  17. @al-Ameda:

    One of the biggest reasons for small businesses is the cost. Business owners have to pay a fee that varies somewhere between 2% and 3% on each transaction done with a credit card. The reason that you’ll find some small business who don’t accept American Express is because their merchant fees are higher than any other credit card company.

    It sounds like a small matter, perhaps. But to a small business that lives and dies on the margin, that’s not necessarily true.

    This is also the reason, by the way, that you’ll sometimes find a business that places a floor on credit transactions. They make next to nothing if you charge that Diet Coke on your Visa.

    Like or Dislike: Thumb up 6 Thumb down 0

  18. Tsar Nicholas says:

    @al-Ameda:

    Frankly I do not understand those businesses who do not accept credit transactions…

    It’s simple: cost.

    It costs a lot of money for a merchant to accept credit card payments. Credit card processors for some merchants might charge 3%, 4% or even 5% for each transaction. Meaning the merchant is receiving only 95%-97%, before factoring in such items as overhead, variable costs, discretionary costs, taxes, etc. That adds up.

    If you’re running a business with a very low gross profit margin, e.g., retail gasoline stations, the costs associated with accepting plastic payments often will turn the vast majority of your sales into loss leaders. Hence the cash vs. credit pricing dichotomy at retail service stations. There are other businesses that fall under this rubric. Wholesale to the public warehouses, for example. Every penny counts. Especially when margins are tight.

    Like or Dislike: Thumb up 6 Thumb down 0

  19. Tsar Nicholas says:

    Oops, I see that Mataconis beat me to the punch, so to speak. Sorry.

    Like or Dislike: Thumb up 0 Thumb down 0

  20. @Moosebreath:

    I just went and looked it up and it does violate the Merchant Agreement for Visa and Mastercard to charge the credit customers more. Apparently the way the stations are getting around this is buy advertising the credit card price and then giving people paying in cash a discount (“we’re not charging credit users more, we’re charging cash users less!”).

    http://www.merchantcouncil.org/merchant-account/operation/pass-fee-customer.php

    Like or Dislike: Thumb up 3 Thumb down 0

  21. al-Ameda says:

    @Tsar Nicholas:

    “Oops, I see that Mataconis beat me to the punch, so to speak. Sorry.”

    Thanks to you and Doug. I should not have minimized the transaction costs – I know that AMEX has traditionally been at least 2 times more expensive than Visa and MC.

    Like or Dislike: Thumb up 0 Thumb down 0

  22. Tsar Nicholas says:

    @Stormy Dragon: Exactly. It’s a cash “discount,” not a higher price for credit. Without the cash vs. credit pricing dichotomy a lot of independent service stations would go out of business and their owners would be in Ch. 7 bankruptcy. Seriously.

    Like or Dislike: Thumb up 0 Thumb down 0

  23. PD Shaw says:

    @Tsar Nicholas: I don’t think there is a cash discount in Illinois; I wonder if state laws have modified the agreements. I have seen, though not of late, limits on how much a gasoline station will allow you to charge (such as $75.00)

    Like or Dislike: Thumb up 0 Thumb down 0

  24. JKB says:

    Well, the biggest problem with going cashless, is that cashless only works in a fully functioning economy. A hurricane, tornado or flood that knocks out power or the data lines and nobody can buy anything even at the time of their greatest need. Which puts you at the mercy of FEMA and other government disaster nazis even more than the disaster causes. Want to buy ice, want to buy gas, want to buy a pound of hamburger or maybe a case of beer, tough luck, go get in the government cattle line for your hand out.

    Oh and by the way, if you pay cash for your cup of coffee, the FBI wants to talk to you about terrorism

    Like or Dislike: Thumb up 5 Thumb down 3

  25. I would not like a cashless society, but I trust our culture to reject it.

    Like or Dislike: Thumb up 2 Thumb down 2

  26. Tsar Nicholas says:

    @JKB: Indeed, very good points. A truly cashless economy would in various respects literally become a disaster.

    Like or Dislike: Thumb up 1 Thumb down 0

  27. RWB says:

    Look at the thread “New Jersey Taking “Unused” Gift Card Balances After Two Years” in the context of this post and you see the real danger.

    Like or Dislike: Thumb up 2 Thumb down 0

  28. Brummagem Joe says:

    @Doug Mataconis:

    it’s the reason why the Federal Government gets a report if you withdraw $10,000 in cash from your bank account at any given time.

    The federal govt also gets a report if you receive a wire transfer into your bank account for a sum greater than $5k. Although they receive the info I can’t conceive how they could possibly keep track of all this info and act upon it given the number of wire transfer transactions taking place daily. My father back in the fifties and sixties always used to carry about $2000 in cash on his person. A wad of notes with an elastic band around it. Those were the days.

    Like or Dislike: Thumb up 0 Thumb down 0

  29. Trumwill says:

    Switching entirely to a mode of payment that takes 2-5% of every purchase strikes me as being rather inefficient. Yeah, yeah, I pay frequently with credit and debit cards now. But the extent to which I do so now is inefficient. It just so happens that the banks and credit card companies have so much leverage over vendors that they can’t pass the cost of the inefficiency off to me (except in certain circumstances, like gas stations). Going completely cashless could make that a whole lot worse, giving banks and credit card companies virtually unlimited leverage. Merchants literally could not do business without them.

    Before being sold on this, I would need to know what the transaction costs would look like. Not the costs to me as the consumer, but the costs to the system as a whole. Even if merchants cannot pass off the transaction fee and 2-5%, we’re still paying for it.

    Like or Dislike: Thumb up 3 Thumb down 0

  30. Brummagem Joe says:

    @JKB:

    Which puts you at the mercy of FEMA and other government disaster nazis even more than the disaster causes.

    Heaven forbid Nicko, we don’t any sign of the government after a tornado, earthquake, or any other kind of disaster. These folks can do just fine on their own……LOL…..Earthquake in Sacramento and I can guarantee little Nicko would be the first whining ….puhleeezze…..puhleeezzee Mr gubmint come and save my little ass…I didddnnt mean it….(Blubber blubber)….Save your little Nicko….LOL

    Like or Dislike: Thumb up 3 Thumb down 4

  31. Brummagem Joe says:

    @Trumwill:

    Before being sold on this, I would need to know what the transaction costs would look like.

    I’m not advocating an entirely paperless exchange system but in terms of efficiency electronic transactions are infinitely more efficient than paper ones. Imagine credit cards disappeared tomorrow and we returned to a largely paper currency system for most transactions. The infrastructure required to sustain it would be immense.

    Like or Dislike: Thumb up 1 Thumb down 0

  32. Brummagem Joe says:

    @Tsar Nicholas:

    Without the cash vs. credit pricing dichotomy a lot of independent service stations would go out of business and their owners would be in Ch. 7 bankruptcy. Seriously.

    Total balls

    Like or Dislike: Thumb up 0 Thumb down 1

  33. Trumwill says:

    @Brummagem Joe: It depends on the transaction. For distance transactions, or large transactions, credit cards are efficient. But not for the multitude of small transactions. Paperless might be better than plasticless, but paperless has some serious efficiency problems. I would argue that right now, there are more inefficient plastic purchases being made than inefficient paper ones.

    Like or Dislike: Thumb up 0 Thumb down 0

  34. Brummagem Joe says:

    @Trumwill:

    Paperless might be better than plasticless, but paperless has some serious efficiency problems. I would argue that right now, there are more inefficient plastic purchases being made than inefficient paper ones.

    And what are they pray. In a comparison between our largely plastic transaction system and the largely paper one that existed say 50 or 60 years ago there’s absolutely no question which is relatively more efficient in overall terms whether purchases are large or small. It’s the plastic one.

    Like or Dislike: Thumb up 0 Thumb down 0

  35. Trumwill says:

    @Brummagem Joe: The inefficient plastic purchases are the cup of coffee, the comic book, the pack of cigarettes. The vendors can have their profits wiped out by the per-swipe fee. That’s why some vendors have minimum credit card purchase requirements. Others don’t and take it in the chin or maybe have rates that don’t charge per-swipe (in which case, they aren’t taking it in the chin but the credit card companies are).

    I’ve already agreed that if we have to go one way or the other, plastic is more efficient. That doesn’t make plastic universally efficient, which is why going plastic would come with inefficiencies in comparison to the either-or model we have now.

    Like or Dislike: Thumb up 1 Thumb down 0

  36. Peter says:

    There are also several markets where cashless transactions won’t take hold. Illegal products such as narcotics and prostitution

    Do a Google search for “Asian spa” and “credit cards.” You may be surprised.

    Like or Dislike: Thumb up 1 Thumb down 0

  37. Peter says:

    Without the cash vs. credit pricing dichotomy a lot of independent service stations would go out of business and their owners would be in Ch. 7 bankruptcy. Seriously.

    Gas station operators are a bunch of whiners. I don’t believe that at all.

    Like or Dislike: Thumb up 1 Thumb down 1

  38. Trumwill says:

    @Peter: I’m a little curious about the service stations, since they seem to be particularly reliant on credit card purchases. Pay at the Pump makes using cash pretty lame.

    Unless he meant the convenience stores tied with service stations. They might be in trouble. Lots of small knicknack purchases that I’d think would rack up some serious fees.

    Like or Dislike: Thumb up 0 Thumb down 0

  39. matt says:

    @PD Shaw: Oops I downvoted you on accident. Just a heads up but there’s been at least one massive hacking of credit card numbers every year for the last several years(usually more). It’s much more likely that your number was exposed during one of those hacks.

    Personally while I was reading this article I was brainstorming ways of ripping people off with this new tech. I have absolutely NO faith in swiping my card on some random dude’s phone

    @mantis: Indeed most waiters rely on tips to even live because most are paid well under minimal wage. Even as a delivery driver I relied on tips to help cover gas and such. The simple act of not carrying money around will greatly decrease the chance for tips on a whim.

    Like or Dislike: Thumb up 0 Thumb down 0

  40. Rob in CT says:

    The stations around here definitely have the cash vs. credit pricing (only on 87 octane unleaded, as far as I can tell). The difference in listed price is usually 3 to 6 cents/gallon. Prices are currently around $4/gallon. So the premium is about 1%, whereas I understand the credit card fees to the merchant are more like 3-4%. So they’re only partially recouping.

    Part of the reason people, including me, love credit cards is that the cost is hidden. No user fee, and no difference in price. Basically, the people paying by cash or check are subsidizing us. I sometimes wonder how long that can hold.

    Like or Dislike: Thumb up 0 Thumb down 0

  41. Brummagem Joe says:

    @Trumwill:

    The inefficient plastic purchases are the cup of coffee, the comic book, the pack of cigarettes. The vendors can have their profits wiped out by the per-swipe fee.

    You’re confusing two different issues.The relative profitability of credit card purchases and their efficiency. Even if they are unprofitable (which it’s hard to generalise about) it doesn’t actually make them less efficient.

    Like or Dislike: Thumb up 1 Thumb down 0

  42. Trumwill says:

    Joe, I believe they are very much related. The profitability is a reference to the cost of the transaction. These transactions cost money. The credit card companies have done everything they can to rig the game so that we never have to bear the cost of these transactions. If we did, we’d collectively use credit cards less often. Because the savings from cash would be worth more than the convenience of using a credit card. Because sometimes, cash is more efficient than plastic.

    (If your argument is that, with the rules being what they are, it’s always efficient *for the customer* to use credit cards, I don’t disagree. But that doesn’t mean it’s efficient for the system. Rather, it means that the credit card companies have used their leverage to incentivize the purchaser to make a payment in a form that will put more money in their pockets.)

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