Wednesday, February 28, 2007

Time to Cash It In

The US tries again with a new series of one dollar coins but will again fail since we still have the dollar bill. I have heard calls for eliminating the dollar bill and the penny since I was a kid and we have had over 300% inflation since then. Americans are no more likely to give them up than their yards and gallons.

So how about something more radical? Let's give up currency all together. No more coins. No more bills. I use electronic transactions, mostly my credit card, for nearly all purchases now. Many places don't require a signature for under $25, making the transaction faster than cash. I don't even slow down to pay tolls anymore on the Illinois Tollways. Surely we can make that final push to remove cash from the rest of the transactions.

We certainly have the technology today to eliminate currency. There will be some costs involved but with the savings for the government, banks and businesses of not having to deal with cash, we should be able to supply all Americans and visitors with smart cards. We can even put pictures of presidents on the cards to keep with tradition.


  1. That could pose a problem with a transaction of two people in the middle of the desert, or the mafia need to pay their hitmen with direct deposits! :-) Except of course if there were devices that everybody would carry with their electronic signatures that could transfer money among them, that at some point could be verified. But still giving anonymously money could prove a problem... I am sure this idea can actually develop to cover loopholes...

  2. we only have the penny because of a bunch of stupid specific industry lobbyists, like the zinc industry.

  3. If the government wanted people to use dollar coins they would simply stop producing dollar bills. That's what Canada did and it worked just fine. (Bills are more expensive to produce than coins since they don't last, though bills in the US stay in the system longer than they did in Canada so the differential is less.)

  4. in fact, the Economist (yep, the one that ran the inaccurate article on quantum computing) had a cover and lead article(s) very recently on the impending end of cash.

    aravind srinivasan

  5. BTW, yen has lower value in a more expensive country and the country still has yen. I think I even saw these coins in circulation when I was in Tokyo. So do not single out American's when discussing penny's. Instead we should see why people anywhere are not getting rid of pennys.

    At this point penny's are required for accuracy. In people's mind the least count is still penny. Penny could be removed more easily if dollar takes the place of the smallest denomination. At some point in future this will happen.(Note that this is not the only way. Since I born 5 paise was the last count in India and more recently it has become one rupee. But one needs to keep in mind India was on base 16 for a long time. One rupee used to be 16 Aanna. People used Aanna as recently as 2000 before one rupee became the least count.)

    I think the idea of smart cards is attractive. This is another way to get rid of this debate all together. Simply introduce smart cards and hope that cash loses its relevancy gradually.

    Another way is that the government tries to recoup the cost of printing and maintaining cash. That way cash transactions will have some overhead.

  6. To counter Kamal's comment about accuracy, note that until their conversion to the Euro, Italy still theoretically had prices in lire even though the aluminum 5 and 10 lire coins had effectively disappeared (one of them was exactly the size of the Toronto subway token and I wonder how many found more profitable use there).
    Everyone simply rounded prices up or down in their heads rather try to match the actual total.

  7. There's no need for a radical measure. I think the paper/coin currency will eventually be eliminated anyway. Except for a few trips outside the US, I think I only withdrew a few hundred dollars worth of cash during the past year.

  8. Paul, your point is well taken. I will counter your point with two arguments. One is not Lira less than a tenth of a cent. Second there might be cultural issues. As I said even India also had 5 paise rounding system, then it became 10 paise, then 25 paise and then paise just disappeared all in my life time. But I think Indians were accustomed to imprecise system already (before my birth). 16 aanna for a rupee.

    Similarly, at some point Italians must have given up on 1 Lira before giving up on 5/10 Lire. Once you give up on one Lira then cultural issue of giving up on 5/10 Lire is already overcome. So I would like to know the cultural situation when 1 Lira was given up.

  9. Cash has the advantage of anonymity, and there
    are legitimate reasons why people might want to
    preserve this option.

    Also, money is based on blind trust, and it's not
    clear that this emotion can be sustained without
    the presence of some amount of cash. The devotion
    of Americans to the penny and the dollar bill at
    least suggests that it can't.

  10. Skebe replaeptics like myself have little trust in 'electronic' cash .. when the government siezed all my 'electronic' funds regarding a tax dispute .. so would they clear any electronic system .. 'cash' has intrinsic value -- and as the US has recently banned the melting of pennies (contain some 1.8 cents of copper) -- expect that the penny will disappear to be replaced by rounding to nearest nickle.