Over the millennia, people have lived and died for it, married and betrayed for it. They’ve even killed for it. Yet now, when so many are suffering through financial hardships, a growing number of people refuse to touch it. Is cash about to give way to digital money? Are we entering an era where cash is becoming obsolete? A growing number of respected people are answering “yes” to both of these questions.
To be sure, there is still a very huge demand for US dollars out there. Dollars remain in record circulation around the world, and are still perceived as a safe haven by most businesses, investors, and individuals.
The downside, however, is that dollars are also the currency of choice for many money launderers, tax cheats, counterfeiters, and other criminals. These factors, combined with a fear that they harbor COVID-19 viruses, is accelerating the flight from dollars and coins.
“The COVID-19 crisis is clearly pushing us even farther away from using cash in our everyday legal transactions,” said Kenneth Rogoff, a Harvard University economics professor and author of The Curse of Cash. “And it’s for obvious reasons. No one wants to touch something you or someone else just touched. This attitude is not going to change any time soon.”
Actually, if this attitude is changing in any way, it is becoming even more widespread. Even though cash is still accepted everywhere, many people in cities and towns across the country cringe when they have to touch it - even if they are wearing disposable gloves. Who wudda thunk there would ever be a time when cash would be in the same category as Typhoid Mary?
But this thinking has become prevalent. A cashier at one coffee shop explained her fears about touching cash this way. “I see all kinds of stains on dollar bills. People write phone numbers on them and I see the area codes and they are from all over the place. And I think, ‘Wow, this money has been everywhere.’ And I don’t want to touch it.” She much prefers customers who pay with the store’s phone app – that way she doesn’t even have to touch anyone’s plastic cards.
Another cashier sprays each dollar bill with alcohol and leaves them to dry before touching them. This cashier adds that some customers refuse to take the bills and change due them for fear they are home to COVID-19 viruses.
Change Is Coming
Some individuals prefer cash to plastic because it enables them to under-report their incomes and thereby save on taxes. Some businesses also prefer cash for the same reason; also, cash enables them to save on various credit card fees.
This thinking notwithstanding, there is an unmistakable trend toward digital money and following are just a few examples of it.
Each year, the respected publication MIT Technology Review highlights 10 technological advances that it expects will have an effect on the way people will live and work in the following 12 months. This year, it included digital money in that list and called it a “breakthrough technology.”
As cities and businesses across the country start reopening, some government agencies in California and other states recommend using “contactless payment” when possible, or credit and debit cards when it’s not; they recommend using cash only as a last resort.
And PayPal, a popular online payment service, added an average of 250,000 new accounts a day through April; PayPal now has 325 million active accounts worldwide, up from 277 million accounts a year ago. More than half of its accounts are in the US.
“I think what’s happened is that the pandemic has taken a three- to five-year time frame that it would have taken for digital payments to hit a tipping point and fast-forwarded it to reach that tipping point, literally within months,” PayPal CEO Daniel Schulman said in a recent interview.
Until recently, older consumers preferred cash, but now the 50-plus age group has become PayPal’s fastest-growing demographic. “Before, they used to use cash or checks. Now they are going to a payment platform to send money to the grandkids,” Schulman added.
But PayPal doesn’t have this field to itself; other companies too have entered this business. Among them is Venmo, which had 40 million users as of April 2019 and was on track to handle $100 billion in transactions. On a related note, a growing number of restaurants are now cashless.
Last June, social media giant Facebook surprised the markets by announcing that it would introduce a new digital currency, Libra, which could be used to buy goods online or securely transfer money to friends and family. Facebook said Libra will be backed by reserves of US dollars and other international currencies and will be launched later this year.
Only days after Facebook’s announcement, the People’s Bank of China revealed it would also launch a digital currency. As Tech Review points out, “China is poised to become the first major economy to issue digital money, which will replace physical cash.”
China is not the only country that is exploring digital money. So is the US. In March, Sen. Sherrod Brown, (D-OH), ranking member of the Senate Committee on Banking, Housing and Urban Affairs, proposed a bill to introduce a digitized version of the dollar. This bill has some important supporters, including former Commodity Futures Trading Commission (CFTC) Chairman Chris Giancarlo. If approved, a digitized dollar would be controlled by the Fed.
The shift to digital money will not happen overnight, for several reasons. For one, a survey by the FDIC found that roughly 6% of the U.S. population - about 14.1 million adults - doesn’t have a checking or savings account, and therefore could not access funds online. This gap will have to be closed if America is ever to come closer to a cashless future. Also, some people are not tech savvy and would find a switch to digital money daunting. And there are still others who would be concerned about the ease of tracking their every purchase in a digital money universe.
These concerns notwithstanding, major countries appear to be preparing for this transition. Much of the world, led by Scandinavia and Japan, has already moved to assure virtually their entire populations have access to online payments. China has already introduced a digital currency in four cities. And other countries are certainly considering following suit. Like it or not, digital money is on the way.
So how will you use all the extra space under your mattress?
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