Tuesday, February 19, 2019

To what point will we dematerialize money?

by A_Pietro (writer), , June 05, 2014

As is often the case, money isn’t just about money. Looking into the paper money industry gives precious insight on what those strange bits of paper really are.

The arguments in favour of the disappearance of physical money are many, and they usually stem from entities, such as lobbies and companies, which hold specific interests in other types of money. In the light of recent trends, one might think that these champions are in the process of becoming victorious. But it’s not going to happen. No matter how effective the assaults governments launch against bitcoins, they keep re-appearing.As a non-governmental currency, it is the most dematerialized form of money we have. Is it possible that it would, one day, be embodied by actual bit coins and bit notes?

Graham Ingham, an economic expert from the BBC, states in a 2013 article about the genesis of the American dollar “by the end of the war, these Continentals [the short-lived currency Americans used at their very beginnings – editor’s note] were worthless - hence the saying "not worth a Continental" - and the new republic needed to establish economic and financial order as a matter of urgency”. A few attempts had been made, after the American colony broke loose from England, to substitute the British currency for an independent form of money, which all failed. Those went from stolen Spanish golden coins, to exported British silver taken along during the exodus, to actual seashells. The two real currencies which were being used had high value, seashells were worth much less, especially amongst Europe-originating pilgrims. Yet, from a purely economic point of view, all could very well be used to acquire goods and substitute barter. The selling party was the indigenous population, which was just as interested in gold as in silver or wampums (the seashells the natives valued). Foreign currencies are commonly used, still today, to finance operations (maritime transport can, for instance, usually be paid for in dollars, euros, yens…).

But the reason why “real” money was more valuable was not “what is was” but rather “what it stood for”. It was a symbol of a country’s success, its ability to establish itself on the surface of the globe. Until the dollar, Americans had failed in such an endeavour.

There are reasons why “small cash” should worry about its future.The European central bank recently assessed that the amount of money which isn’t circulating, because it is under the form of small 1-, 2- or 5-cent coins kept in drawers exceeds 5 billion euros. And a debate has been ongoing in the United States, for decades, about the possible disappearance of the 1-dollar bill. But Thomas Savare, head of Oberthur Fiduciaire secure-printing company, keeps believing in the future of cash: “Cash is extremely practical, free, and supported by the spreading of ATMs in developed countries. In emerging countries, where bank services are less widespread, it is the base for economic development.” As the most basic form of money, cash allows for no additional costs, unlike credit cards, checks and electronic transfers, which all induce expenses. The secure printer knows that people are ready to pay a little extra for large purchases, but would not want to pay little every-day amounts with their credit cards, for instance.

Oberthur Fiduciaire knows that the real story behind money isn’t money. The Germans, for example, considered leaving their dearly-beloved and striving-reconstructed Deutschmark behind for the Euro to be a very large sacrifice. The strong currency, quickly rebuilt after the economic devastation which hit the country from the 30s through World War 2, was a symbol of their economic remission. They only agreed to it because, as a major European country, the Euro was also a symbol of their political remission. They swapped one pride for another.

But beyond theses resistances, a lot of evolution has occurred in the past decade. The first great breakthrough happened when Paypal appeared in the wake of Ebay. The latter had already made examining the objects on sale, on premise, useless. But physical money still had to be transferred, in most cases a check through the mail or handing over cash upon picking up the purchase. In all case, that necessity slowed the transaction down. Paypal enabled anyone with an email address and a credit card, which is to say just about anybody, to instantaneously transfer money to someone else, with little or no bank hassle.

There is more to money than the practicality. Every bill carries the portrait of a founder, a saviour, a reformer, a hero, an author, a fighter, a symbolic building… All that contributed to shaping the country as it is, in its true and profound identity: Jane Austen, William Jefferson, the various European architectural styles... Putting the identity of a country or a union onto paper, that’s what they do. On that field, cash can be serene about the future. Dematerialized money may be quick, safe, practical, but it is also stale. Nobody feels nostalgic finding a paypal payment receipt from their childhood, the way they are when they find a banknote that brings them back a few decades.

Dematerialization of money has greatly increased in recent years. After the creation of checks, transfers and then credit cards, it entered a lull until the arrival of the Internet.Today, pay-by-phone solutions, web-based solutions (Paypal, Google Wallet, bitcoins, etc.) are commonly used by the public. But the process will only go so far. A vast majority of transactions are conducted with cash. Many countries around the world have too weak a banking network to enable dematerialized money to circulate. And no people in the world would accept giving up on such a powerful symbol of who they are.

Deleting the existence of bills would be equivalent to asking a nation to renounce its flag. A people’s history and its money are so tightly intertwined that they cannot be separated. When the Mark collapsed in the Thirties, the downfall quickly translated into dire suffering from the German people. When the Mark was restored through the Marshall Plan, it rhymed with prosperity, success and pride. Electronic payment methods and dematerialization are very handy, but they are not vibrant. As such, they will never stem hard cash.

About the Writer

A_Pietro is a writer for BrooWaha. For more information, visit the writer's website.
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