Cash is King - Unfortunately, the King is Dead!

For a significant period of time, this adage of “cash is king” held true. The basic premise of this saying is that having available cash gives one a huge advantage, especially in terms of negotiating and purchasing large ticket items.

Now, there may be argument with the premise of this article that the term “cash” is meant as liquid assets and as such electronic payments of any sort could be considered cash-like. There is merit for this argument, but for the purposes of this article, I am considering “cash” to be paper money.

One of the bigger impacts of technology within our society has been in terms of currency – specifically as it relates to paying for items or otherwise transferring money between two parties.

Gosh – I really hate this saying, but “back in the day”, one pretty much just had the option of paying cash or paying by cheque. Of course, there was and still is credit card availability, but that’s a different beast.

Debit cards made their debut in Canada in 1994 and quickly revolutionized not only how we pay, but also how we shop. No longer did we have to worry about if the vendor took cheques, nor did we have to take a quick peek in our wallet to see if we had sufficient cash.

Over the past few years, electronic fund transfers have been a boon to those of us who need to send money to a friend or relative. No longer do we need to go to a specific bank and deposit funds into an account. All major banks now offer electronic funds transfer. Again, technology has clearly made our lives much more convenient.

The next stage of storing and allocating cash will be to integrate our electronic devices to become electronic wallets. It will be possible to store our liquid assets on our electronic device and have it scanned at a POS terminal to initiate funds transfer.

The potential uses of technology in the area of funds transfer are unlimited.

The question that I do have though is this – what practical purpose does cold, hard cash have in our society? How much does this infrastructure to support paper money cost us? The inherent cost of producing cash and everything that is required for a cash-based society has to be staggering.

There are a few things about a cashless society though and this needs to be considered as this certainly appears to be the direction that we’re heading towards.

First and foremost, I think that having electronic funds is a true double-edged sword as it relates to counterfeiting. The advantage to having an electronic commerce system is that it will allow the government to continue to refine their security to stay one step ahead of the counterfeiters. As it stands right now, introducing any new security features on a bank note but be a tremendously complicated task, in addition to being a very time consuming one. By having digital wallets, not only can the algorithms be update quickly and easily, but the repositories for our cash can be protected with sophisticated security – a feature that’s not available with bank notes.

The real downside to having our dollars stored in electronic form is that we’d likely see a significant proliferation in counterfeiting attempts. Actually, the fraud will probably not be so much as counterfeiting as it will be attempts to access and transfer out our funds. If the undesirable elements did manage to find ways to access our digital wallets, then the potential amount of money that would be pilfered would be staggering. Currently a counterfeiter can only counterfeit a certain amount of money, and as he creates the counterfeit money, he is faced with hard production costs for machinery, paper and ink.

From an economy standpoint – I would have to defer to someone who understand economics much more than I do, but I think that another factor in the double edged sword category is that the more that our funds are accessible digitally, the more likely we are to spend it. It’s commonly accepted that when someone is making a purchase, they are much more likely to rationalize the purchase if they have to pay cold, hard cash. Many times, when paying by Interac or by credit card, one tends to be a little – how shall we say – less diligent about forking over our electronic funds. What I’m curious though, is if I’m correct that spending would increase, and if so, what would be the net impact on our economy? Would it benefit the economy as goods are sold = vendors make profits = jobs are created, etc... or would we be likely to see an increase in the number of people that can’t make ends meet each month as their spending has increased.

We’re probably a few years away from the day where cash has effectively been rendered obsolete. Maybe I’m wrong, perhaps there will always be a need for cash, but then again, maybe this is just an eventuality and that our economy is almost ready for that leap in evolution, just as it did when cash first replaced the barter and trade of goods and services.