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Cash: We can’t quit you

·24 min read

It’s anonymous, it’s stable, and it’s accepted pretty much everywhere. And despite the rise of mobile payments and the ubiquity of credit cards, it’s still moving everything around us; more cash is in circulation than ever. We talk about the pros and cons of cash in a world increasingly dominated by mobile payments, and try to figure out if cash is here to stay.

Sponsored by American Express

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https://player.megaphone.fm/QMIA7598961490

Featuring

Kira Bindrim, host and executive editor

John Detrixhe, senior reporter, the future of finance

Show notes

Digital Gold: Bitcoin and the Inside Story of the Misfits and Millionaires Trying to Reinvent Money by Nathaniel Popper

About Ken Rogoff

This episode uses the following sounds from freesound.org:
Inside NYC Subway Train 1.WAV by georgisound
11.wav by thatjeffcarter
UI_3-1 FHSandal sinus(Sytrus,arpegio,multiprocessing,rsmpl).wav by newlocknew
Touchscreen keyboard by bassboybg
Credit Card Swipe by everythingsounds

Transcript

Kira Bindrim: A few months ago, I saw a funny thing on the subway. It was my first time taking the train since the pandemic started. As soon as I sat down, a musician got on and started to play. This guy was good, like really good. So when he started to come around and collect tips, I pulled out my wallet hoping I had a few bucks on me. Except he didn’t need dollar bills—this particular busker was actually accepting tips on his smartphone. All I had to do was scan a QR code on his phone with my phone and I could donate a tip using digital payments app Venmo.

That might sound like a lot of legwork for a subway song. But it’s just one of many ways we’re starting to give up on cash. People all over the world are using credit cards and digital payments more and more often, even for tiny transactions. For the first time since paper money was invented over 1,000 years ago, a future without cash actually seems possible. And the pandemic only brought that future closer.

But paper currency is not going down without a fight. Even as digital payments increase, there are more coins and bills in use than ever before. Why? Because nothing, not even cryptocurrency, is as universal, foolproof, and anonymous as cash. And that is why it might be worth protecting.

This is the Quartz Obsession, a podcast that explores the fascinating backstories behind everyday ideas, and what they tell us about the global economy. I’m your host Kira Bindrim. Today: cash, and what we really lose in a world without it.

I’m joined now by John Detrixhe, a senior reporter at Quartz who focuses on the future of finance. John is based in London. How is London today, John? Where in the city are you?

John Detrixhe: London is lovely. I’m in Wimbledon. There’s no tennis here that I know of. But it’s a beautiful day here.

Kira Bindrim: I want to start with kind of a personal question, let’s say: How often do you use cash?

John Detrixhe: Almost never. I have a couple of bills in my wallet that are just kicking around. I don’t want to sound more international than I really am, but there’s actually a couple different currencies. And the only reason is because I look inside my wallet so infrequently.

Kira Bindrim: First of all, I like the idea that you just have the same three bills that have just been in your wallet for years collecting dust.

John Detrixhe: That might be true.

Kira Bindrim: And I guess my first question for you is: Is cash dead? Like, we’re kind of talking about how we never use it—is it on life support? Is it a senior citizen living out its days in glory? Where is cash right now? How much is it being used around the world?

John Detrixhe: So cash is this amazing paradox. It is simultaneously losing popularity, and at the same time. more popular than ever. People are paying for things much less often with cash. But at the same time, there’s more cold, hard cash, particularly US dollars, in circulation than ever—more than $2 trillion is in circulation. And it actually accelerated last year—it went up by what the Federal Reserve called an ‘unprecedented‘ amount. So it’s this just beautiful, amazing paradox that cash is simultaneously not being used, but more popular than ever.

Kira Bindrim: And how does the use of cash or the prevalence of cash vary depending where you are in the world? How do different countries treat this?

John Detrixhe: Japan is a good example. There’s a really high dependency on cash. And there are a couple of reasons why cash is still popular in Japan. One of the reasons, I mean, it has an aging population. You know, you have a lot of senior citizens who have always used cash, they don’t want to necessarily move on to digital. That’s a big part of it. There’s also a trust that comes with that, trust and convenience. So that’s a big piece. People often look at Germany—very cash-heavy. It’s a certain conservativeness of society, perhaps, and just a cultural norm—you know, we tend to…we’re going to transact with what other people transact with. Once that preference is embedded, it takes a long time for it to change.

Kira Bindrim: What about on the other end of that spectrum? Where are some places that the use of cash is minimal these days?

John Detrixhe: Sweden’s a good example of that. Cash as a form of payment has really gone away very, very quickly. And it’s a great example of, you know, what comes with that, some of the downsides of cash going away so quickly.

Kira Bindrim: I remember a friend who visited China a few years ago and her saying that it was basically impossible to pay with cash, that you could only, in a lot of places, use a QR code on your phone and I have to assume China is pretty far ahead on the on the cashless-ness front, is that is that right?

John Detrixhe: That’s right. I think that what you have the urban centers that are extremely cashless, everybody’s using QR codes. Everybody has a mobile phone. But you don’t necessarily see that in rural areas. You have this mix where, yes, China’s far ahead if you go to Beijing or Shanghai, but if you go to a rural area, you might see something quite different. And that doesn’t get talked about as much.

Kira Bindrim: So let’s talk a little bit about the alternatives to cash. Give me sort of the run-through of all of the options that are available to people who are not using cash.

John Detrixhe: In China, you know, you have Alipay, and you have WeChat pay. And so you have those transactions that are that are very, very popular. In the Western Hemisphere, you know, you’re gonna see MasterCard, and Visa, you have the card networks, and you have all kinds of things that are built on top of that. You also have your mobile money networks in Africa, which are absolutely fascinating. And those don’t necessarily run on Visa and MasterCard, and you have those payment systems. Those are kind of some of the main different frameworks and paradigms.

Kira Bindrim: So there’s a lot—there’s cards, there’s mobile payments, there’s digital payment apps. There’s lots of options out there. To what degree, in your mind, will cryptocurrency become a stand-in for cash in particular?

John Detrixhe: It just doesn’t look like it’s going in that direction. If you read Nathaniel Popper’s book Digital Gold—he’s a New York Times writer. He looks at the early days of bitcoin and it was envisioned as something for permission-less, peer-to peer-payments so that you and I could pay each other digitally, just like we would in cash. We don’t need an intermediary. We don’t have to go through a bank or anything like that—it wanted to get digitally as close to cash as it could. But people aren’t really using it for that. People are generally using it for speculation. And you know, one good example something I always cite—Stripe, the payment processor, the Silicon Valley darling—these guys probably are pretty interested in cryptocurrencies, probably pretty open-minded to it. But they dropped support for crypto payments years ago. And the reason was, there just wasn’t much demand for it. And so I think that that tells you a lot. Cryptocurrency is very popular for other things. But it just doesn’t look like they’ve caught on very much for payments so far.

Kira Bindrim: Do you think there’s an aspect of like, coolness? Like, it’s cool to pay for something with your phone, it’s cool to tap your watch to a bar and get a beer without any anything beyond that—is that a factor in how this stuff is being adopted, do you think?

John Detrixhe: It’s cool until you try to do it at the subway, and then it doesn’t go through and you’re standing there and the line’s getting longer and longer. And people are watching you try to pay with your watch. And they’re like, ‘Look at this guy trying to pay with this watch, you can’t go through.’ There’s probably some of that. But I think convenience is probably more important than cool. You’re asking the wrong person, I’m definitely not cool. But I do get the feeling that cool kind of wears off and convenience carries the day. And ultimately, people are going to go with the best kind of money for their purpose.

Kira Bindrim: So we’re talking about how there’s a lot of bills and coins in circulation today, even while we are actually using digital payments more. What are people actually using cash for?

John Detrixhe: Everyday people are in many cases using their cash as savings. They’re using it because they’re worried perhaps about the pandemic—you don’t know what’s going on, and so they might elevate their cash holdings for that—that’s what cash tends to be for.

Kira Bindrim: Another personal question: Do you keep a cash squirrel fund anywhere in your home? And what is your address? No, just the first part of that question.

John Detrixhe: This is on my prepper to do list that I’ve never really gotten around to. You know, like, I picture this wad of bills that’s wrapped and kind of like a rubber band or that little paper ribbon, you know, like that that thing you see in movies. But I haven’t made my go bag, have you?

Kira Bindrim: I don’t have a go bag, which is funny because we’re like in the middle of a pandemic and we’re still like, ‘I’ll get to that later. The prepping.’ I do have a cookie tin in my apartment that anytime I take out money from the ATM, I put a $20 in there. I don’t know if it’s specifically about cash, it’s just a way to for me to feel good, like I’m saving money. But it is, yeah, there is some instinct there of, you know, I know that I’m always gonna have some money in my apartment if I need it.

John Detrixhe: Well, it’s interesting you say that because I was looking at the cash in circulation. And you know, as we’re trying to understand this riddle, why is cash in circulation going up when seemingly no one I know even carries cash anymore? And if you look at the bills that are being printed more, you know—ones and fives, not much of a change. It’s still headed up, but it’s not not going up that much. But if it’s the 20s, and the one hundreds that have really shot up. The 20s and the one hundreds of the ones that you use for hoarding. Maybe use it because you’re nervous about the pandemic, maybe you use it because you want to avoid paying taxes and you want to do a big real estate transaction and you’re just going to show up with a suitcase of money. But those are the bills you use for hoarding.

Kira Bindrim: We should add a suitcase of money to our prepper list.

John Detrixhe: Put that in your go bag.

Kira Bindrim: After the break, what does a cashless world look like?

[[ad break]]

Kira Bindrim: So obviously, we are still in the middle of a pandemic. Tell me a little bit about how that has impacted this transition away from cash. Has it sped it up in some way?

John Detrixhe: It’s sped it up quite a lot, you know, it’s pulled our digital future forward, as a lot of people say. And that’s for several reasons. Part of it is on the merchant side—merchants are preferring digital payments, sometimes because they’re trying to protect their staff. Cash got a bad reputation, especially early on in the pandemic. So that played a role. It’s also just the case that a lot of people are buying things online. And you know, whenever you buy things through the internet, you’re almost always paying for that using a digital payment or a card.

Kira Bindrim: So generally, during the pandemic, we are buying more stuff online, thus increasing this digital transaction trend. And we’re simultaneously hoarding more cash because we’re freaked out, thus increasing the cash hoarding trend. We’re really just doubling down on some of the stuff that was going on before the pandemic.

John Detrixhe: Exactly. Both trends were well in place, and they both just moved up. It’s fascinating.

Kira Bindrim: I feel like something that might be useful is like a pros and cons list for cash. What are the pros of cash, using cash, cash being like the default option?

John Detrixhe: One of the pros to using cash is that we can just we can just do it. I can take a transaction from you—I don’t need to have electricity, I don’t need to have a computer, I don’t have to figure out whether you accept Visa or MasterCard or Alipay or MPESA, or something like that. You and I can do that and no one can stop us. You and I can do it privately. If the government said, you know, ‘We really don’t like the stories that Kira is writing, we’re going to try to shut her down,’ well, as long as you and I are transacting in cash, that’s going to be hard for the government to stop that, and for the government to know that you and I’ve been doing transactions. Those are some of the big advantages of cash.

Kira Bindrim: My assumption is cash is good in an ‘Oh, crap’ moment, let’s say, like a disaster or moments when you can’t rely on the more computerized systems.

John Detrixhe: Yes, absolutely. You know, Sweden’s central bank, you know, policymakers there have talked about, you know, if there’s a really big natural disaster and you’re having problems with data centers and you having problems with electricity, you know, there’s going to be a lot of trouble unless you keep that cash infrastructure around and you still have ATMs and some kind of cash distribution and protection network. If you really were worried about your bank, and you didn’t trust your bank any longer, if you really didn’t trust, you know, any of the financial institutions that you’re going through—that’s the nice thing about cash, is you can you can use that central bank money directly and you might have some some confidence and some certainty there. That’s exactly why, one of the big reasons why, Western central banks are considering making their own digital currency, is because they’re concerned that one day, we just won’t have a lot of paper currency anymore. But we may still want that certainty of having money that’s created by the central bank, as opposed to money in our JPMorgan account, or our PayPal account, or whatever. We may want that certainty of, you know, full faith and credit in US government coming from, you know, the Treasury, as opposed to a commercial player. And that’s what cash gives you.

Kira Bindrim: So cash is good because ease of use, it’s good because certainty, it’s good because anonymity and the ability to exchange cash without any oversight. It is good for inclusion when we’re talking about a rural urban divide. And it is good in a moment of disaster, or instability. Is that a good list?

John Detrixhe: Those are all good reasons. You know, and if you’re, for some people, it’s easier to budget. Some people like the certainty of knowing exactly how much money they’ve got in their pocket. There are studies that show that it’s easier to spend digital money than it is physical cash money, it’s kind of harder to part with something like that. Whereas, you know, maybe you’re just seeing the numbers move around on an app, maybe it doesn’t feel so painful to spend for some people.

Kira Bindrim: Let’s talk about the cons of cash. What are the negatives or the factors about cash that are working against it?

John Detrixhe: So one of them would be, you know, if you and I are carrying around our go bag that is actually a suitcase of cash, it’s dangerous—you know, we can be robbed, there’s a danger element, somebody might, you know, threaten us with violence to get our money. That’s one of the reasons why Sweden put some policies in place a long time ago to move closer to digital currencies because there had been some high-profile robberies and violence, and, you know, going digital was seen as a way to cut down on this. And if you’re talking to Ken Rogoff—former chief economist of the IMF, Harvard economist, pretty big deal in the economics world—you know, one of the downsides is that it can be used to avoid paying taxes, it can be used by drug dealers and terrorists and the like to hide their tracks. And a lot of it is used for that. Cash is probably used much more for those sorts of things than cryptocurrency. And in his view, that’s what the vast majority of cash is used for, at least a sizable chunk is being used for these illicit purposes. So that’s a downside to cash. It’s expensive to process it and, you know, takes time. You can’t send cash necessarily across borders as quickly as you might be able to a digital transaction. So those are some of the some of the headwinds for cash.

Kira Bindrim: So it sounds like the downsides to cash are: It’s inefficient to some degree and in that sense more expensive; it is at risk of fueling , or does fuel the underground economy, but it certainly enables that and tax evasion. It’s gross, because it’s actually quite dirty—that’s one I’m throwing in for you for free. Money is dirty. Those are sort of the main cons against working against it.

John Detrixhe: And you have competing surveys about, is cash really more expensive for a merchant than digital payments, because digital payments, I mean, are by no means free. They may be easy in some respects, but they’re certainly not costless for merchants—and ultimately for us, because they pass that along to us.

Kira Bindrim: One of the advantages we keep circling here is anonymity, or the ability to conduct transactions without third parties or intermediaries. And I want to understand a little bit better why that’s important. What are the downsides, I guess, of sacrificing anonymity as we move away from cash?

John Detrixhe: So I think for some people, it’s a principle. In their day-to-day life, maybe it’s not so important for them to be able to hide their transactions from the government. They’re not actually laundering money, they just don’t like the idea of the prying eyes of the government into their affairs. There are real world implications sometimes. Our colleagues in Hong Kong have written about how, during protests in Hong Kong, people began using cash again to pay for their subway tickets. And the reason they were doing that is because they knew that the government very well might track who had gone to the protests and who had been there, and that there could be repercussions for going to those protests. In a lot of countries, we’re lucky enough where we don’t feel like we have to worry about that, but it’s not out of the realm of possibility that that it can.

Kira Bindrim: It reminds me of the great Venmo debate of our newsroom, which was a few years back where the older portion of the newsroom realized that the younger portion of the newsroom was consistently using Venmo and also publicly writing the little note that you put in Venmo, like for bills or for cocktails, or an emoji of a margarita, and was fascinated by the idea that even though these are relatively benign transactions—there’s no secret, behind me having a drink with my friend—that millennials or younger generations would just comfortably disclose that information, in this case, to the public or to tech companies, without giving it much thought. And it sounds like that’s a microcosm of the shifts that are happening here.

John Detrixhe: Yeah, you wouldn’t want to, you know, use Venmo and put a little emoji on it if you were going to an underground protest in Hong Kong would be my guess.

Kira Bindrim: So it sounds like there’s kind of a democratic argument for protecting cash. Is that right?

John Detrixhe: There is. It’s not necessarily that some people probably think that the government is actually looking to see, you know, what they bought at Walmart this week, or at Costco. But they just want to protect that right, and they probably see it as kind of a check on the government, even; the fact that they can do that perhaps gives them a counterweight to the government’s influence. And you know, I’ve seen similar arguments come from Germany, about, you know, that importance and that freedom, it’s not just kind of a US phenomenon.

Kira Bindrim: If we accept that premise that there’s value in protecting cash, what does that actually look like? Who protects cash?

John Detrixhe: My view, and a lot of this is framed from covering the UK, and the UK is a place where, you know, cash usage has gone down very quickly, bank branches have gone away very, very quickly. And at least the lesson that I’ve gotten from the UK and from, you know, reporting on on Sweden’s experience is that the government has to step in. Because banks don’t want to be supporting this infrastructure anymore that’s used less and less often. But then you still have people who want or need to use cash. And when there’s not a commercial incentive to do it, then you need a public policy to do that. And that’s what the UK has been experimenting with. They’ve been testing things like a banking hub in places where there aren’t very many bank branches any longer, and it’s just like one shared space, and the banks take turns sending tellers to it. They’ve done other things like considering requirements that more enterprises will have to accept cash, and those sorts of things. So my sense is that public policy has to take over at some point. And in to the point that we were talking about earlier, they also need to do it because they know that there could be disasters, there could be unexpected things come up. And so it’s my sense that perhaps the government is the one that provides that umbrella for that time.

Kira Bindrim: So the best way for a government to protect cash, as it were, it sounds like is to guarantee access to it, to make sure it’s accepted in a reasonable number of places and is not shutting anyone out for lack of acceptance. And a part that you didn’t mention, but I’m gonna speculate on, is to potentially ease the transition to digital payments. Like is our government getting involved in helping people make what sounds like an inevitable transition, at least in a lot of ways that we use money?

John Detrixhe: I think that’s fair. And I mean, to be fair to digital payments, they are often also seen as an answer to financial inclusion, and to bringing people into the formal economy, and to expanding access to financial services to lots of unbanked people who don’t have them. And that’s great, because, you know, financial services tend to be more expensive, the less money you have. It’s just that governments and other entities really have this difficult balancing act of protecting cash as long as people are dependent on it. Also, hopefully helping people kind of get onto that on-ramp of going digital or, you know, having proper financial services.

Kira Bindrim: I want to ask you to look into your crystal ball, and I’ll throw a year you—let’s say it’s 2050. Where do you think cash will stand? Will we be in a mostly cashless world at that point?

John Detrixhe: I think we will. I’m echoing Ken Rogoff on this. He wasn’t arguing for a cashless world. In reality, he was saying less cash. And I think that’s where we’re headed, and probably where we want to be. You still have it for the people who need it, you have it for emergencies, and you’re always going to have people who who want it. It’s kind of like LPs—there’s always going to be the record collecting bunch, and the people who want the old format, but I think you will see it always declining, but never going to zero or at least not my lifetime, and not for a very long time, because it does just have certain properties that you just can’t reproduce digitally.

Kira Bindrim: John, I have one more question for you. And it’s a fun one. What is your favorite fun fact about cash? What’s a nice tidbit that we can share with with listeners?

John Detrixhe: I think one of my favorite things is, you know, that New Orleans is the place where cash goes to die. They ship bills that are worn out and you’re too tired to use. They ship them there and they shred them and it becomes compost. I think that’s a fun fact.

Kira Bindrim: At first I thought you meant that New Orleans is just where people spend all their money.

John Detrixhe: I think a lot of money gets…

Kira Bindrim: …I agree. Yeah, I’ve experienced that personally, but I like your fun fact as well. Thank you so much for joining me, John. This was super fascinating.

John Detrixhe: Thank you, Kira.

Kira Bindrim:

That’s our Obsession for the week. This episode was produced by Katie Jane Fernelius. Our sound engineer is George Drake, and the theme music is by Taka Yasuzawa and Alex Suguira. Special thanks to John Detrixhe in London and Alex Ossola in New York.

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