In today's fast-paced world, the way we pay for goods and services is rapidly changing. Cash, once the primary means of transaction, is slowly being pushed aside in favor of digital payment methods. Brett Scott's book "Cloudmoney" delves deep into this shift, exploring the ongoing "war on cash" and its far-reaching implications for society.
Introduction
The rise of cashless transactions has been touted as a revolution in convenience and efficiency. With just a tap of a card or smartphone, we can complete purchases in seconds. This seamless experience has become so commonplace that many of us rarely think about the complex systems and powerful interests behind it.
Scott's book peels back the layers of the digital payment landscape, revealing a world where big tech and big finance are waging a calculated war against cash. This conflict isn't just about modernizing payment methods; it's a struggle for control over our financial lives and personal data.
As we explore the key ideas in "Cloudmoney," we'll uncover the hidden motivations driving the cashless push, the unexpected consequences of this shift, and the importance of preserving cash in our increasingly digital world.
The Origins of the War on Cash
The story of the war on cash begins in the aftermath of the 2008 financial crisis. This global economic meltdown shook public trust in banks and financial institutions, as many viewed them as the primary culprits behind the crash. The resulting recession affected economies worldwide, leaving many people struggling and resentful of the banking sector.
Coincidentally, this period also marked the beginning of a technological revolution. The launch of the iPhone in 2007 sparked a boom in smartphone technology and app development. This led to the rise of the "fintech" industry, which promised to disrupt traditional banking and democratize finance.
These fintech startups painted a vision of a "cashless society" where transactions would be frictionless and financial services would be accessible to all. They positioned themselves as alternatives to the very banks that had caused so much economic pain.
However, the reality that unfolded was quite different from this utopian vision. Instead of replacing traditional banks, many fintech companies ended up becoming new interfaces for existing bank accounts. The tech industry, once seen as a disruptive force, gradually morphed into "big tech" and became part of the established order it had initially promised to overthrow.
This shift didn't lead to a revolution against banks as many had hoped. Instead, it resulted in the financial industry becoming even more deeply embedded in our daily lives. The narrative of a cashless future began to take hold, with digital payments being presented as the inevitable next step in financial evolution.
The False Narrative of Customer Demand
One of the key arguments used to justify the push towards a cashless society is that it's driven by customer demand. We're often told that people are naturally moving away from cash and embracing digital payments out of preference.
However, Scott argues that this bottom-up narrative is largely false. In reality, there's been a significant top-down push against cash from powerful financial institutions. Their motivations are twofold: profit and data collection.
Consider a common scenario in today's world - ordering a drink at a cashless bar. To make your purchase, you need to download an app, often logging in with your Google or Facebook account. The transaction involves two commercial bank accounts and a payment processor like Visa or Mastercard.
This simple act of buying a drink now involves interactions with multiple corporate giants. The payment processor takes a fee for facilitating the transaction, while tech companies harvest valuable data about your purchasing habits.
Studies have shown that the cost of cashless transactions is actually 50 to 150 percent higher than cash transactions. Yet, this increased cost is often hidden from the consumer, buried in the overall price of goods and services.
The Acceleration of the War on Cash
Over the years, the anti-cash alliance has used various arguments to persuade businesses and consumers to go cashless. Initially, the focus was on convenience and speed. However, the COVID-19 pandemic provided a new and powerful argument: hygiene.
Many large retailers, encouraged by payment companies, stopped accepting cash payments at the beginning of the pandemic, citing health concerns. However, this move wasn't necessarily backed by scientific evidence. In fact, a report from England's central bank early in the pandemic suggested that card machines, shopping cart handles, and self-checkout screens posed a higher risk of virus transmission than cash.
The anti-cash movement's ability to push its agenda despite contradictory evidence highlights the power of its propaganda machine. With vast resources for lobbying and public relations, the financial industry has been able to shape the narrative around cash and digital payments.
This imbalance of power makes it increasingly difficult to fight back against the war on cash. While financial institutions have clear incentives to promote cashless payments, there are fewer organized voices advocating for the preservation of cash.
The Value of Cash: More Than Just Money
To understand why cash is worth defending, it's important to look beyond its basic function as a medium of exchange. Scott argues that cash plays several crucial roles in society that digital payments can't easily replicate.
Cash as a Safety Net
One of cash's most important features is its reliability during crises. As the saying goes, "cash doesn't crash." When communication systems fail due to natural disasters or other emergencies, cash remains a dependable way to make transactions.
This was evident during the 2008 financial crisis when people rushed to withdraw cash from ATMs, fearing bank failures. Cash provided a sense of security in an uncertain financial landscape.
Unfortunately, if current trends continue, it may become increasingly difficult for people to access cash during future crises. The number of ATMs is declining rapidly - in the UK, for example, the number of ATMs decreased by 24 percent between 2015 and 2020.
Cash and Social Equity
The war on cash also has significant implications for social equity. Cash usage is often associated with working-class and minority groups, who have historically faced discrimination from elite institutions like banks.
For these communities, cash offers a way to participate in the economy while maintaining some protection from exploitation. Unlike credit cards that can lead to debt, cash is straightforward and helps people manage their spending more effectively.
Interestingly, studies have shown that people tend to spend more when using cards compared to cash. At a family restaurant, for example, customers spend an average of 40 percent more when paying with a card. This difference in spending behavior highlights how cash can be a tool for financial discipline, particularly for those on tight budgets.
Cash and Social Progress
Cash has also played a significant role in facilitating social progress throughout history. Many activities that were once illegal but are now accepted - such as homosexuality, interracial relationships, or cannabis use - relied on cash transactions during their periods of illegality.
Take the example of Prohibition in the United States. Despite alcohol being illegal, millions of people continued to engage in drinking. Cash allowed this activity to exist in a gray area, pushed underground but not eliminated.
Without cash, these gray areas would be much harder to maintain. The push for cannabis legalization, for instance, would have been much more difficult in a cashless society. Cash provided life support for the cannabis industry while its supporters advocated for its use, eventually leading to widespread availability of medical marijuana.
Whether it's organizing an underground rave or raising funds for climate activism, cash has been crucial in advancing social progress. The rise of cashless payments threatens to choke out these possibilities for creative deviance and social change.
The Surveillance State and Cashless Society
One of the most concerning aspects of a cashless society is the potential for increased surveillance. In a world where all transactions are digital, it becomes much easier for governments and corporations to track individuals' spending habits and movements.
Under legislation like the US Patriot Act, the government can access bank records without even informing the citizen. This level of surveillance can have a chilling effect on civil liberties, as people may be less likely to engage in subversive or politically sensitive activities if they know their financial transactions can be easily tracked.
Cash, on the other hand, provides a level of anonymity that can be crucial for protecting individual privacy and freedom of association. It allows people to make purchases without leaving a digital trail, which can be important for everything from buying a surprise gift to supporting controversial causes.
The Resilience of Cash in Times of Crisis
Despite the push towards a cashless society, cash usage has actually been on the rise in recent years. This trend is largely driven by the increasing number of crises facing the world, from the COVID-19 pandemic to economic instability and climate disasters.
In times of uncertainty, people often turn to cash as a tangible and reliable form of money. Unlike digital funds that exist only as numbers on a screen, cash can be physically held and stored, providing a sense of security that digital payments can't match.
This resilience of cash in the face of crises serves as a reminder of its enduring value. While digital payments offer convenience in normal times, cash provides a crucial backup system when things go wrong.
The Search for Alternatives
While defending cash is important, Scott also explores potential alternatives that could challenge the dominance of big tech and big finance in the digital payment space.
The Rise and Fall of Cryptocurrencies
When Bitcoin emerged in 2008, many hoped it would provide a decentralized alternative to traditional banking systems. However, over time, it became clear that cryptocurrencies wouldn't be the solution many had hoped for.
The crypto community became divided between those who saw cryptocurrencies as digital cash and those who viewed them as digital gold. Unfortunately, the latter group has largely won out, with most cryptocurrencies now functioning more as speculative assets than practical currencies.
One key issue is that cryptocurrencies have failed to become a "means of account." Prices are rarely, if ever, denominated in cryptocurrencies. Even when something is purchased with crypto, the price is typically tied to the value of fiat currencies like the dollar. With crypto prices fluctuating wildly, it's unlikely that they'll become a stable means of pricing goods and services anytime soon.
Central Bank Digital Currencies (CBDCs)
A more promising alternative might be central bank digital currencies (CBDCs). These would involve citizens having digital accounts directly with their central bank, such as the Federal Reserve in the US, rather than with commercial banks.
The potential benefits of CBDCs could be transformative. As central banks are not profit-driven, CBDC transactions could potentially be fee-free, leading to lower costs for consumers. They could also make it easier for governments to implement policies like universal basic income by facilitating direct payments from the state to households.
Moreover, money stored in CBDC accounts would be safer than funds in commercial bank accounts, as it wouldn't be at risk if a bank goes bankrupt.
Several countries, including Sweden and China, are already in the process of developing CBDC systems. However, it's important to consider potential downsides, particularly the risk of increased state surveillance over citizens' financial lives.
The Potential of Anonymized CBDCs
To address the surveillance concerns associated with CBDCs, Scott suggests the possibility of combining them with private blockchain technology. This could create a system that offers the benefits of state-backed digital currency while preserving the anonymity that makes cash valuable.
An anonymized CBDC could be the closest we get to true "digital cash." It could potentially break the power that commercial banks currently hold over our financial lives without completely abolishing the banking industry. Instead, these systems could coexist, much like bicycles and cars on our roads.
The Importance of Preserving Cash
Throughout "Cloudmoney," Scott makes a compelling case for the importance of preserving cash in our increasingly digital world. While he doesn't romanticize cash or deny the benefits of digital payments, he argues that cash serves several crucial functions that we shouldn't be too quick to discard.
Cash as a Check on Financialized Capitalism
One of cash's most important roles is as a brake on the relentless growth of financialized capitalism. Cash transactions are direct and don't generate additional profits for financial intermediaries. This stands in stark contrast to digital payments, which often involve fees and generate valuable data for tech and finance companies.
By preserving cash, we maintain a parallel system that can help keep the excesses of digital finance in check. It provides an alternative for those who want to opt out of the data-harvesting and fee-generating machine of digital payments.
Cash and Human Interaction
Cash also plays a role in facilitating organic human interactions. When we use cash, we engage in a direct exchange with another person, without the need for intermediaries or technology. This face-to-face interaction can be valuable in building community connections and maintaining social bonds.
Cash and Financial Inclusion
For many marginalized communities, cash remains an important tool for financial inclusion. Not everyone has access to bank accounts or smartphones, and cash provides a way for these individuals to participate in the economy.
Moreover, cash can be a valuable budgeting tool, especially for those on low incomes. The physical nature of cash makes it easier to track spending and avoid overspending, which can be crucial for financial stability.
Cash and Privacy
In an era of increasing digital surveillance, cash provides a rare opportunity for private transactions. This privacy isn't just about hiding illicit activities; it's about maintaining personal autonomy and freedom from constant monitoring.
The ability to make anonymous purchases can be crucial for protecting individual liberties, supporting unpopular causes, or simply maintaining personal privacy in an increasingly interconnected world.
Conclusion: Balancing Progress and Preservation
As we move further into the digital age, it's clear that cashless payments will continue to grow in popularity and prevalence. The convenience and efficiency they offer are undeniable, and in many ways, they represent a natural evolution of our financial systems.
However, Scott's "Cloudmoney" serves as an important reminder that this progress shouldn't come at the expense of cash. The war on cash, driven by powerful financial and tech interests, threatens to eliminate a crucial tool for financial autonomy, social equity, and personal privacy.
The solution isn't to resist all forms of digital payments, but rather to strive for a balanced approach. We should embrace the benefits of digital finance while also preserving the unique advantages of cash. This might involve developing new technologies like anonymized CBDCs that combine the best of both worlds, or simply ensuring that cash remains a viable option alongside digital payments.
Ultimately, the goal should be to create a financial ecosystem that empowers individuals, protects privacy, and promotes social progress. By understanding the hidden dynamics behind the war on cash, we can make more informed decisions about the future of money and work towards a financial system that truly serves the needs of all members of society.
As we navigate this changing landscape, it's crucial to remain vigilant about the motivations behind the push for a cashless society and to advocate for systems that prioritize individual rights and social good over corporate profits. Only by maintaining this balance can we hope to create a financial future that is truly equitable, secure, and beneficial for all.