The terrible cost of cash

a pile of Euro notesIt sounds like a tautology to say that cash costs money – ten bucks costs ten bucks, right? But for every ten-spot note you carry in your wallet or purse, you’re paying extra in banking fees elsewhere for the maintenance of the cash storage and distribution system – the upkeep and servicing of ATMs, for example. And then there are the subsidies, and the social costs…

David Birch suggests that, while we’re looking around for ways to make our economic systems more rational, ditching cash in favour of all-digital transactions would be good for us. But he’s aware it’ll be a hard sell:

I can’t see how the pricing problem is going to be resolved. Telling consumers that they will have to start paying more at the ATM because they will gain more overall will never work because the costs are immediate and visible but the benefits are diffuse and invisible. Perhaps use e-money fans should refocus. As Leo pointed out to me, almost two-thirds of the euros in circulation are in high denomination notes: these are not used for everyday transactional purposes but as stores of value in the less-regulated parts of the economy. Could be then achieve the goal of reducing total social costs and boosting the net welfare by explaining to our elected representatives that cash is not simply expensive, but dangerous?

The implicit point in there is that large amounts of circulating cash are of benefit to those who already have more money than everyone else, and to businesses whose legitimacy may not be entirely unquestionable; history suggests that asking governments to make things harder for such groups is unlikely to be a great success, for a variety of reasons. [image by stefan]

I remember being told at school in the late eighties that by the time I was part of the adult world, no-one would be using cash any more; a cashless society is well within our technological grasp, yet still we tote around slugs of metal and grubby slips of paper to pay for things. Would we really be better off without physical currency? And if so, why aren’t we already rid of it?

7 thoughts on “The terrible cost of cash”

  1. Easy. We pay for illicit goods and services with cash. Or some of us live in societies which remain leery of credit cards, and never picked up the habit. Tokyo still favours cash: the kombini often won’t take credit cards, and the closest thing are reloadable transit passes which can be used like debit cards at train station bento shops and some kombini. Other than that, it’s almost always cash. (And you wonder why such strict gun laws are in place, there…)

  2. I do not care. I have very little to lose anyways. Whether or not my disability agency decides to stop paying me my monthly stipend, or banks suddenly decide that one euro is now worth one zloty – it is all remove from me, arbitrary and I have absolutely no influence over it, not even if I could legally vote thousand times over.

    And that’s just me, a chronic unemployable in western Europe. If I have reason to whine, most people in the third world have reason to scream.

    So most people do what I do. You just hope it all turns out, live on like corks in a river floating downstream. Worst that can happen is I die, and I hope one day that option doesn’t become the best.

    Depressing? I bet this sounds a whole lot less depressing the last year. It would have sounded odd what I just said, a year ago. Now I find many people nodding silently at what I say.

    Let’s just hope many of those people bear what is happening, and will not decide they had enough. The market is improving for bomb belts and sarin attacks. The market is improving for despair to explode into our societies as falling bodies impact parked cars or pedestrian mothers with baby carriers at 200 km/h.

  3. What MA said. Plus I like the idea of cash-in-hand.

    And try to go backpacking without local change in your pocket!

  4. Electronic funds transfers are fine, but how about at the local flea market? If everyone has to have a terminal to support the transfer of funds, then that’s a substantial expense, too, and probably considerably more than the cost of transporting and storing coins and slips of paper.

  5. I can hardly believe no one’s mentioned the danger of having one large, government organisation and computer system control ALL of the money in a country. The Canadian govt isn’t exactly known for it’s responsible use of money(The Liberal sponsorship scandal from a few years back) and the US is only worse. 11 trillion dollars of debt. That’s 25,000 for every man woman and child in the United States.

    They already control our freedoms, at least let us keep our money. That’s not to say the financial system couldn’t do with reform. It obviously is necessary. It seems Marx was right about the cycles of capitalism. (I’m not a ‘commie,’ but I might be a little socialist, in that I’d be glad if “the workers owned the means of production”)

  6. Another reason to use cash: fees on the use of plastic. Most credit card companies charge merchants for transactions, and I think there are fees charged for debit card charges too. Using plastic for small transactions can eat up the merchant’s profit.

    If cash is actually more expensive, then there need to be financial incentives to get people — both merchants and customers — to use debit and credit cards, instead of financial disincentives.

    Also I feel absurd using a credit card to buy a $3 item, and if I’m using a debit card, I have to make sure to write down all those tiny purchases so I can keep a close watch on my bank balance. It just feels more reasonable to use debit cards in those situations where I used to write a check.

  7. Cash also imposes opportunity advantages. When I was waiting for the ferry the other day, I walked past one café, saying hello, and on up the hill to the ATM. There was another café right by the ATM. Guess where I bought my coffee? If we were cashless, location would be just a little bit less of a factor in business.

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