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We Are a Mostly Checkless Society – Should We Be Cashless?
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 General
I’m generally more into Like quantity. More likes to me means I’m providing a better quality product, as it were.
I do appreciate it more when I get likes from people I don’t usually get them from, but there’s a lot of potential reasons for that.
Sometimes when I use a particularly obscure reference, I’m curious as to whether or not people actually understand it or they’re just liking the comment for other reasons.
I was a payroll teller at a major bank in 1960-61. I prepared large sums of cash for businesses to be delivered by Brinks Armored Car so those businesses could cash payroll checks for their employees. I frequently paid out in excess of a million dollars in a single day – that was a large sum 60 years ago.
I also would occasionally pay out in cash to wealthy individuals and they sometimes would request $500 or $1000 bills.
Yes, that’s Gresham’s Law. But Gresham’s law is not the same law that Mises discovered that causes gold or silver to become money all over the world.
Gresham’s Law only kicks in after one money (“monetary unit”, if you will) has already driven out all the others, and then there are two currencies for that single money. One of which you can melt down and sell for twice its face value in the monetary unit. People pay their bills and buy goods with the bad one as long as they are accepted at a face value, and melt down the other one. Soon the good currency is all gone.
You might say that the best money drives out all the less good money, and then any bad currency of that money drives out all the good currencies.
No, Mises did NOT believe that fractional reserve banking is fraudulent. Nor did Hayek. You may be listening to the masses of pseudo-Austrian economists (most of whom are actually financial management consultants, not real economists) and their cheerleaders, who dominate Mises.org and give Mises and the actual Austrians a bad name.
It s not just their illogical, factually false moralistic view of fractional reserve banking. If you read the criticisms of Keynes by these well-meaning self-described “Misesians”, you will find that they not only fail, like Keynes, to recognize the fundamental nature of the capital structure and investment, they actually have a “pool of savings” model of investment that is more Keynesian than that of Keynes. They not only think that investment is a non-time-dependent pool that suddenly produces goods every year; they think that investment is a pool of consumer goods, as if a modern capital-intensive rich economy was still a Robinson Crusoe society, with Robinson storing up fish for a while till he could afford to quit fishing and make nets.
They also retain a Classical economics inherent-value theory of money, and tend to build arguments based on the reification of language: they will claim to have discovered the “true meaning” of the English word “inflation” or savings, and then use this “fact” to build arguments.
Rothbard was brilliant and a student of Mises. But he was also an unpredictable crank and ideological enthusiast at times. Yes, he railed against fractional reserve banking as immoral, without any logic or facts–he was the very antithesis of Mises in this regard, who never wrote a sentence that was not crafted from cold facts and logic.
Agree absolutely. If you want to read an Austrian who understood the meaning of “loan” and “deposit” contracts in the case of non-fungible and fungible goods, read Huerta de Soto.
Bob,
It is only the love of money, of a hoard, that is the root of much evil.
The use of money is a gift of God.
A man wants to give some food and a Bible to a person who is hungry and does not know God’s love. He cuts a lawn for 40 dollars and buys a Bible and food for 30 dollars and gives it to the person, and then because he himself is hungry he buys lunch for 10 dollars and eats it and enjoys the gift of good food, and his body is nourished for more work and enjoyment, unless it is now time for his life to end.
Another man cuts a lawn and thinks, “What will I do if things go badly later in the week? I will spend just 5 dollars on food, and hoard the money against something I might want or need in the future. Maybe there will be a better chance to help someone in need, anyway.” The next day he does the same and his hoard grows bigger. But the next day he dies. God asks him, what did you do with the money I gave you, when you had time to enjoy food and give thanks for it, and to love and teach your brother who was in need of food and to know me?”
If by our thoughts, our faith, our use of time, our actions we love money, we will soon realize how foolish and wicked we were but it will be too late to do anything about it. We should get money if it’s to serve a Godly purpose and then spend it.
I read that one current way bad money drives out good occurred in places like Zimbabwe. The rand and dollar and pound were available through the black market, and locals traded what Zim they could for the stabler foreign cash, then his the stabler cash under their mattresses and spent their Zimbabwean dollars. The bad money chased the foreign money out of common circulation, because the foreign money was too good to spend.
This is not an example of Gresham‘a Law.
The phenomenon you refer to is people preferring to hold one monetary unit over another. Gresham’s Law has nothing whatever to do with multiple monetary units. It only covers cases of a single monetary unit.
Zimbabwe had price inflation. It was never affected by Gresham’s Law.
To understand this, I’ll introduce a hypothetical. One day when the government was producing 1 trillion ZD currency notes, and the market price of silver at the moment was 1 trillion ZD per gram, the government also issued a 1 trillion ZD coin containing 1gram of silver. If a Zimbabwean held 2 trillion Zimbabwean Dollars of money, he would pay for a loaf of bread offered for 1 trillion in ZD with the bad currency—the paper currency—and stuff the good currency—in his mattress.
The coin and the bill are both the same amount of money.
Wait for the collapse and keep your gold and real silver safe.
Ammo is likely to become the money in a post-apocalyptic society.
If you’re going to be prepared for such a dire situation, do what the Mormans do. Have a year’s worth of food stored. Whether you’re talking cash or gold/silver, if you already have food, you’re probably ahead of the game, because cash won’t quite be as important.
Don’t focus just on cash when preparing.
Absolutely. I think many stash cash for emergencies not just for themselves but also to be able to help those who may not be prepared for emergencies. That choice needs to be preserved. We already see on the internet payment systems that certain legitimate payments can be prohibited.
Peter Lynch, of Fidelity Magellan fame, was not a fan of buying gold. To paraphrase him, “If things go south you’re gonna wish your stash of bullion was canned goods.“
Or bouillon. I don’t know how perishable that is, but it could still come in handy.