Ricochet is the best place on the internet to discuss the issues of the day, either through commenting on posts or writing your own for our active and dynamic community in a fully moderated environment. In addition, the Ricochet Audio Network offers over 50 original podcasts with new episodes released every day.
I think it is nice to have more than one reason for making major changes in life. When I left the private sector and went to work for the federal government in 1971, I had two. I had been working in banking operations for a decade, the last six years developing software and converting and managing automated banking operations on mainframe computers. Now the American economy was slipping into recession and I was working for a small company providing automated services for mostly small banks, too small to operate their own mainframe computers and all the attendant requirements. I had three small children so having a secure and well-paying job was on my list of important things. I also had a vision, developed from the work I had been doing, that computers would enable the eventual elimination of much of the check-based financial operations. I wanted to be part of that show.
I took a computer specialist position with the then Federal Home Loan Bank Board (FHLBB), regulator for the Savings and Loans, at that time mostly existing to take savings deposits and make mortgage loans. Shortly thereafter, savings institutions, including credit unions, began encroaching on what had always been commercial bank territory — demand deposit accounts subject to withdrawals by check.
Friction between all these different types of institutions in the payments arena led to the creation of the National Commission on Electronic Fund Transfers in 1974. My serving as alternate delegate from the FHLBB to this commission gave me experience that led later to my selection as Administrator, Operations Planning, and Research Staff (OPRS) at the US Treasury, a position from which, working closely with the Federal Reserve System, other financial institution regulators, and representatives from the institutions themselves, I was able to fulfill my vision of working to take checks out of the payment process.
We were issuing 40 million checks monthly, most of those were Social Security checks issued all on the third of each month and delivered through the Postal Service. The Social Security application was the first converted to Direct Deposit and delivered through the Federal Reserve System to the financial institutions all across the United States. Once this ‘critical mass’ was achieved, commercial businesses across the country were able to convert their payrolls and other check transactions to Direct Deposit and so eliminate even more check transactions. I later had an opportunity to manage and be responsible operationally for the systems I had helped develop when I was Director of the Kansas City Regional Disbursing Center and later as the Chief Disbursing Officer in Washington overseeing all federal disbursing.
One of the biggest cost-savings effects of this change is the fact that the transactions are now only required to travel in one direction (credit transfers) instead of a check going out in the mail, for example, requiring deposit into a bank account, and finding its way back to the issuer through the check clearing system (debit transfers), with the added burden on the check issuers of reconciliation, determining which checks have cleared and been paid and which are outstanding.
That is the checkless society. What about the cashless society?
The credit and debit cards, many issued through banks, have supplanted many of what were formerly cash transactions. So cash transactions are way down. Recently there has been a coin shortage and some businesses are having to make adjustments to accommodate that.
Over recent decades the composition, nature, and function of our banking institutions has changed. We have the big five, too big to fail, and many Americans don’t think there are banks that serve local community businesses as they should.
What can happen if we go cashless? One thing I always think of on US currency: This note is legal tender for all debts, public and private.
There are various entities (platforms on the internet) that offer automated (cashless) payment service-but some of these are refusing to process payments in certain situations. That won’t do in a cashless society.
And here’s one that is really troubling. With the problems caused by the pandemic and the shutdowns, the Fed has been dumping money into the system. Anyone notice the drop in your deposit interest rates? If we go completely to a cashless society, will the banks implement negative interest rates effectively charging their deposit customers for maintaining liquid balances?
Some of these current trends are giving me pause.Published in