The Cash Tax Not Enough To Make It Go Extinct

from the money-down dept

Mon, Aug 6th 2007 10:59am — Joseph Weisenthal

A recent report from England quantified the amount of money the British government makes just from printing currency. As it turns out, it amounts to a fairly sizable tax. In addition to the money that the government makes, currency leads to a lot of other costs associated with storage and security. There's not much doubt that digital money is far more efficient and cost effective. But the transition to a cashless society is taking a long time. Part of the problem is that payment providers (banks, credit card companies, etc.) are able to levy high fees on each transaction. In many cases, they make it worthwhile for merchants to opt for cash, even with its carrying costs. Eventually, situations where you'll need cash will become quite rare, but as long as digital money carries significant "taxes" of its own, cash will be around for some time.

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Filed Under: digital money

27 Comments

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Matt Bennett, 6 Aug 2007 @ 11:09am

I was under the impression that the US Treasury, anyway, took and disposed of a number of old bills approximately equal to what they print. They sometimes print more, in order to maintain a certain pool of currency each year in circulation, which typically does have to grow, partly because of inflation, partly because of population growth. But it isn't a "money making operation" at all (except that is, literally) and I understand it there's actually a net cost.

If the government were to print too much money purposes of "making money" (this has been done by other governments at various times) rampant inflation is the result.
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ehrichweiss, 6 Aug 2007 @ 12:01pm

oh yeah...
the moment they switch to digital currency is the moment they will write all the smartcard/RFID hackers a million dollar check, each. Seriously, the only smartcard that I haven't seen hacked fully yet has been DirecTV's and I suspect that's only because no one wants to go public with it for fear Rupert Murdoch would go all DMCA on them.

If you look at it like something cheap like free satellite is the motivation to crack the card scheme in under a few months, how quickly do you think they'll have a hack for something as nice as cash?
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Beck, 6 Aug 2007 @ 12:17pm

Smart Cards / Digital Currency
So how many smart cards will I have to carry around? And how much money will I have tied up in the balances of all of these smart cards?

Cash is king!! Universally accepted, and no service charges to use it.
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lizard, 6 Aug 2007 @ 12:19pm

gov't and big biz would LOVE to see a cashless society (and the end of consumer/civic privacy as we know it). the day we go cashless is the day i forswear all this technology and go build me a hut in the wilds of idaho.

**disclaimer: ordinarily i am not a card-carrying member of the tinfoil hat club. but this issue just makes me twitch.
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James, 6 Aug 2007 @ 12:41pm

No imagination
Can no one envision a digital form of cash w/o the use of a credit card? When the market develops a "pay to bearer" digital card that can receive and dispense funds w/o a 3rd party provider.. cash will cease to exist; provided receiving/dispensing measures are put in place. You will get many of the benefits of a credit card w/o the extra expenses. Bearing in mind that the only real downside (to the consumer) of using a credit card is the ability for someone to see a record of the cards use.

And for anyone worried if they lose the card or it gets stolen they will lose their $$, well that $20 bill in your pocket works the EXACT same way.
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ReallyEvilCanine, 6 Aug 2007 @ 12:49pm

Bad idea all around
First things first: there are transactions costs for cards. Even if they were reduced to a small fraction above actual costs, there'd still be costs. There's no cost with cash beyond the initial sunk cost. Each coin has a working life of no fewer than 20 years; each bill six months to 10 years depending on denomination. With cards of any type, the transaction costs can easily add up to more than the value of the amount being transferred.

Secondly, as lizard wrote, going completely cashless is an end to privacy. It's absolutely begging for tracking, investigation and data mining.

Thirdly, how will private transactions take place? Will everyone have to carry around card readers? Where are they going to come from? Children would have to have them but they're not legally responsible or liable; they can't be parties to any sort of contract.

Fourth and last: infrastructure. The massive demand on transaction confirmation would far exceed the capacity of any phone/radio system. Iceland is probably closer to cashless than any other country. People pay for each beer with their credit cards on weekends.

Having stood behind a Reykjavík bar pouring those beers, I can tell you that starting around midnight, the system falls apart. It can take 10 minutes for a single card to go through, in which time I've collected another two dozen, all waiting to be scanned and the slips to be signed. This in a city of 120,000 with massive telecomms infrastructure.

A cashless society is an idea right up there with conversion to methanol: it's idealistic, sounds good on the surface, turns out to be horrendous when studied, and in the end, is completely unworkable.
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James (profile), 6 Aug 2007 @ 12:52pm

Re:
"A recent report from England"
Subjects are always screwed over by their GUVMENT.
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s1ack3r, 6 Aug 2007 @ 12:55pm

who said anything about smart cards or credit card
Who said they would be smart cards let alone credit cards. Why can't they be barcodes placed on your right arm tattooed with special scanning ink. This is a little far fetched but hey while we are on the subject. maybe they will be retina scanners instead of barcode tattoo's.

Bottom line most likely if they do eliminate cash and go to a digital currency it will be just like you bank card or a credit card that has a positive balance. they only thing you will notice is the fact that you will not be able to use an ATM and withdrawal any actual currency. then all the garage sales people will have to have a terminal to do transfers.

This is to far away to really imagine. I would think that Ill be dead as will most of you before this ever is implemented.
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chris (profile), 6 Aug 2007 @ 1:20pm

without cash....
how will you give money to strippers?
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Rick, 6 Aug 2007 @ 1:28pm

The report isn't focusing on the cost of printing the money, but ont he other costs. The price of a bak valut or safe or cash register for example. A security guard in a retail store or an armored car service picking up and delivering cash along with their staff. Extra security cameras above every register with cash inside, extra locks, locked offices.

Just a few examples: If a video store takes in $2000 a day in cash and needs to hire security guards at $200 a day to protect that cash - the cash costs them 10%. Add on the cost of a locked office and cash drawers over time and it could be 11-12% cost to give customers the choice of cash as a payment. The same store gladly takes Visa at a transaction cost of 30cents plus 2.9% per transaction. What a bargain!

On the other hand Ma and Pa Kettle's general store uses a calculator and a cash box along with Pa's shotgun for security. Their cash processing costs are .1-.2% of their sales or less. They don't take Visa as they see a 35cents plus 3.9% transaction fee as a ripoff - wouldn't you?

Most of these items would be less necessary or less costly if all currency were digital - except for the card processing companies take 2-5% of each transaction right now.

Once transaction costs start getting down to 1-2% or less on average - cash will begin to be more expensive to process than cards.
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silverwolf308, 6 Aug 2007 @ 1:44pm

Re: No imagination
The $20 bill does indeed offer no theft protection. But then again I don't carry my entire bank account in my wallet either.

Remember the tale about all your eggs in the same basket?

Perhaps I'm a bit precautious but I don't even trust any single bank, having money spread out amoung several and cash in the safe...just in case.
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silverwolf308, 6 Aug 2007 @ 1:49pm

Re: without cash....
Dropping register receipts between the clevage doesn't sound nearly as tantalizing.

However, getting the signature might be more fun.
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Silverwolf308, 6 Aug 2007 @ 1:57pm

Banking
I lived in Denmark for a short while back around the millinium. There they used a VISA debit card called Dankort. This card was accepted 99% of the place...even when VISA wasn't.

Your paycheck was always direct deposit. Your bank payed your bills from a spending account you set up with them...or you could opt to visit the post office if you'd rather do it yourself. When I say post office I don't mean mailing your bills. I mean you take your little bill slips and you wait in line. We did ours all online (in 1998 mind you)

Transactions happened a bit like an ACH here in the states.

I lived there four years and I saw just one checkbook, from a business, during that entire time.
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g, 6 Aug 2007 @ 1:59pm

Cash should stick around...
Just so not every financial transaction is tracked. We dont need that kind of information management with the current spying practices in place.
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Anonymous Coward, 6 Aug 2007 @ 2:01pm

i hope it never goes extinct
it would give government/banks total control
if they wanted to ruin you or shut you up. or practically 'kill' you all they would have to do is wipe out your bank account

cash prevents too much tracking and control..
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Doc, 6 Aug 2007 @ 2:55pm

Gold is king...
cash is just a debt security against the federal reserve that you will never be able to collect on...
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Mary Wanna, 6 Aug 2007 @ 2:55pm

Hmmmm...
I wonder if my pot dealer takes credit cards...
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Anonymous Coward, 6 Aug 2007 @ 4:01pm

Just read an article that quoted an interesting study on using wireless toll collection.
Two years after their introduction, tolls in the states that used them increased by 30%. The states that did not use them didn't raise their toll - or did by only the usual small increments.
I've been a retail business consultant. People spend more when they use credit cards than when they use cash - cause they don't feel the reality of the expenditure.
That should come as no surprise.
I agree with everyone who is against the "cashless" society - especially the part about the stri . . exotic dancers.
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Anonymous Coward, 6 Aug 2007 @ 5:09pm

Re:
Just a few examples: If a video store takes in $2000 a day in cash and needs to hire security guards at $200 a day to protect that cash - the cash costs them 10%.
A $2000/day video store that spends $200/day on a guard probably deserves to go out of business. That's just ridiculous.
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Charles Griswold, 6 Aug 2007 @ 7:01pm

Re:
gov't and big biz would LOVE to see a cashless society (and the end of consumer/civic privacy as we know it). the day we go cashless is the day i forswear all this technology and go build me a hut in the wilds of idaho.

**disclaimer: ordinarily i am not a card-carrying member of the tinfoil hat club. but this issue just makes me twitch.
I agree with you nearly 100 percent, with a couple of reservations. First, I would build a hut in the wilds of Alaska, and second, Velostat makes for much better anti-mind-control hats. :-)
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Anonymous Coward, 7 Aug 2007 @ 2:04am

The Federal Reserve Prints US Cash
"I was under the impression that the US Treasury, anyway, took and disposed of a number of old bills approximately equal to what they print."

No that's not true, they print more money to cover debts they can't sell abroad.

The printing of cash is done by a group of private banks known as the Federal reserve. These banks own the right to print money.

What happens is, when the US Gov wants to borrow money it issues a right to the Federal Reserve to print more money, which it swaps for government bonds. The bonds are used by the federal reserve as the equivalent of the old 'gold reserve'. These bonds are the thing that backs the US currency.

Effectively the government buys the money from the federal reserve in exchange for bonds and hefty fees.

The US gov has in recent years been buying a lot, as it's gotten more difficult to sell bonds abroad. It's what's behind the steady drop in the US$.
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Anonymous Coward, 7 Aug 2007 @ 2:23am

I missed something, the FRACTION RESERVE RULE
I missed one important point about the Federal Reserve, the 'Fractional Reserve' rule.

Under this rule, the Federal Reserve can lend about 7 times the value of the Government bonds they hold.

So whenever the US government borrows $100 from the fed, the Federal Reserve gains the right to lend (i.e. print) $700 to the banks for a percentage and an addition fee of about 50 cents to print the paper used in the 'Federal Note'.

You can see how failing to sell the government debt abroad, and having to dump it into the federal reserve instead is a last ditch option. It dilutes the $ seriously, and since old debt is priced in US$, it makes countries unwilling to buy further US debt only to see the repayments heavily diluted.
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Pastor Guest, 7 Aug 2007 @ 4:43am

Impenetrable wall
When they finally implement the totally cashless economic system we will no longer have direct access to our wealth. We will be slaves in what I call the "closed economic system". Since all "currency" will be stored in computers, we will need the permission of the powers that be in order to buy or sell. If you are not in their good graces, for whatever reason, then you will not be able to use your "money".
See -
http://www.stepstowardthemark.com/
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BTR1701, 7 Aug 2007 @ 5:55am

Re: Bad idea all around
You missed a fifth problem: reliability. What happens when something like hurrican Katrina happens? I was down there in the days after the storm hit and cash was king because there was NO power whatsoever and every ATM and credit card reader was dark. A completely cashless society where every transaction is done by computer is fine until something comes along and unplugs all those computers.
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Anonymous Coward, 7 Aug 2007 @ 10:00am

Re: Re: Bad idea all around
Then there is the simple convieneince of cash: as a student, I get paid for certain odd jobs at my college, as do about a third of the students. All these payments are made in cash, partly to avoid having to report the money as a job (which would then be taxed if we have another job, and allows international students on Student Visas to be paid), and for simple convienience, since it is far better for us to be paid in cash and hold the cash until we need to spend it, than for the college to make large numbers of $50-100 transactions to students bank accounts every week, which would be far more work.

In short, for people lik emyself, cash is easier for everyone: the college staff, students, and the hard working officails at the ATO and Centrelink.
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Dave Birch, 8 Aug 2007 @ 2:22pm

Re: Re: Bad idea all around
The point about reliability is very thought-provoking. I promise I'll put something about this on my blog sometime. Incidentally, I don't have the figures to hand but I think that the US Government earns about $16 billion per annum from currency compared to the $3 billion per annum the UK Government earns.
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hesslei, 26 Aug 2008 @ 9:35pm

A recent report from England found quantified the amount of money the British government makes just from printing currency. As it turns out, it amounts to a fairly sizable tax. In addition to the money that the government makes, currency leads to a lot of other costs associated with storage and security. There's not much doubt that digital money is far more efficient and cost effective. But the transition to a cashless society is taking a long time. Part of the problem is that payment.

================
hesslei...

Debit Card Machines
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