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Cash is on the way out. Americans carry it less and less often due in part to new technology and a growing desire for convenience. We now use cards, computers, and even mobile phones to pay for everything from our morning coffee to the parking meter. Critics of cash say it’s covered in germs and traces of drugs, it penalizes the poor, and it keeps criminals in business. But while the value of cash is coming under fire, many are reluctant to give it up. Some workers still rely on physical money for their income. And using cash rather than virtual money has been proven to keep us out of debt. Diane and her guest discuss the diminishing use of cash and how it’s changing the way we do business.
- David Wolman Contributing editor, Wired magazine
Last year, Google unveiled Google Wallet. It’s an app that allows you to wave your phone at a retailer’s terminal instead of using cash or a credit card. IBM had in 2012 financial transactions made via mobile phones that could total $250 billion. In a new book, journalist David Wolman argues why he believes cash is becoming extinct. It’s titled “The End of Money.”
Costs More To Make Money Than The Money Is Worth
It now costs about 2 and a half cents to make a penny and about 10 cents to make a nickel, according to Wolman. He recently wrote an essay for Wired magazine essentially saying, “So much of our lives is moving to the digital realm, music and movies and books. Why not cash?
Let’s kill it already.” The negative response he got was overwhelming.
From My Cold, Dead Hands
Wolman said some of the resistance he heard to completely digitizing money had to do with privacy concerns. But there were also a lot of people who read his article and responded by saying they understood and maybe even agreed with his argument on an intellectual level, but emotionally, they said they’re more careful when spending cash. Diane pointed out that there are also many people who depend on cash tips for a significant part of their income.
Can’t Get Rid Of Cash Without A Substitute
Currently, there’s no entirely sufficient substitute for cash to replace it, and that’s something we would need before seeing cash become extinct, Wolman said. But he still feels that “cash is getting pushed further and further to the edge,” and he sees its eventual disappearance as a matter of when, not if.
“Pain In Spending”
Behavioral economists have long known that it is psychologically harder for people to part with cash than to put a charge on a credit card, Wolman said. In India, people use mobile phones very often for transactions. “They’re not quite ahead of us, but people’s excitement about using these tools over there is overwhelming in development experts and economists,” he said. However, on a recent visit there, he realized he needed cash to do almost anything out of his hotel room – get a taxi, buy water on the streets, pay his translator, and pick up souvenirs.
You can read the full transcript here.
MS. DIANE REHMThanks for joining us,. I'm Diane Rehm. Last year, Google unveiled Google Wallet. It's an app that allows you to wave your phone at a retailer's terminal instead of using cash or a credit card. IBM had in 2012 financial transactions made via mobile phones that could total $250 billion.
MS. DIANE REHMIn a new book, journalist David Wolman argues why he believes cash is becoming extinct. It's titled "The End of Money." He joins me in the studio to talk about the diminishing role of cash in our society and what it means for your wallet. I hope you'll join us, 800-433-8850. Send us your email to firstname.lastname@example.org. Feel free to join us on Facebook or send us a tweet. Good morning, David, good to have you here.
MR. DAVID WOLMANGood morning.
REHMAnd let's make a clear distinction up front between cash and money.
WOLMANRight, so the title of the book, "The End of Money," of course, what I mean is the end of money in its most commonly understood and recognized...
WOLMAN...form. Cash, even Wall Street bankers who are hawking collaterized debt obligations, when they hear the word money, the first thing they picture is Benjamin Franklin on that unmistakable piece of paper so that's what we're talking about, the twilight of cash.
REHMSo you see kind of a revolution taking place in the monetary world?
WOLMANI do. You know, cash has been on the decline for a long time and the way I've been thinking about it is kind of death by a thousand cuts situation. And we don't know if it's 899 right now or 962, but it's happening and it's happening at an accelerated rate right now because of technology, on the one hand, and also interest in alternative and virtual community currencies, people who are saying I want to do a person-to-person transaction.
WOLMANI don't want to involve the government and they're buying into ideas like Facebook credits and crypto-currencies online and the Ithaca Hours. So in a way, the greenback as we all know it is sort of fending off these challenges. Meanwhile it's slowly in decline anyway, you know most of our financial lives are already conducted in the digital realm and cash is kind of being pushed further and further to the margins.
REHMI can remember some 30 years ago when a commentator we had on this station talked about the end of cash because of the use of plastic, the credit card, but you're going even further than that.
WOLMANRight. So credit cards have been around for a long time.
WOLMANThis is not a novel technology and yet it took 20, 25 years for people to really trust that this would work, you know, just like having a radio in an automobile was an outlandish proposition for a lot of people back in the day. You know, this happens with technology. In your introduction, you were talking about Google Wallet and it strikes so many people as crazy and risky and what about hackers, I'll never do it. But if you have a little bit more of a time horizon in mind, people adopt new technologies. And once they're convinced of the value proposition, they say yes.
WOLMANAnd we do that now without even thinking, right, so I imagine your bank account. You have a bank account and that is electronic money. There is no paper backing up what is your savings.
REHMThere'd better had be.
WOLMANI've got news for you, bad news if that's what you're hoping. So in a way, we've already said yes to electronic money in so many forms and a lot of people say yes to the credit card option. They see convenience there, even though it's not perfectly safe and even though they might have problems with fees, et cetera.
WOLMANBut it's time now to talk about the next generation of those technologies. It's not really a 'cash versus credit card' conversation, you know, it is money in electronic form...
WOLMAN...which is many forms.
REHMAnd I gather, just to dwell on the money for a moment, the cash money that these days it costs more than five cents to make a nickel?
WOLMANRight. And this is what got me going on this whole topic. You know, some four years ago, roughly, I got interested in the cost of manufacturing pennies and nickels. And you may have seen some stories in the news mostly poking fun at Citizens to Retire the Penny and these other groups who are unhappy about this fact that right now it costs about two and half cents to make a penny and about ten cents to make a nickel. That's crazy to a lot of people.
WOLMANAnd so I was poking around about this topic and eventually this led to just a short essay for Wired magazine about, hey, you know, cash is another technology, too. And so much of our lives is moving to the digital realm, music and movies and books. Why not cash? Let's kill it already. And it was very punchy and pugnacious and short and yet the response was thundering and not so happy from lots of different people.
REHMWell, what did you hear?
WOLMANI heard a lot of, you'll have to pry it from my cold, dead hands. I heard a lot of, you know, this Fiat trash is worthless anyway. We need to dismantle the Federal Reserve. I heard a lot of kind ACLU on hyper-drive responses. Who are you to just shill for the credit card companies? And you want to open up my financial existence to the scrutiny of banks and credit card companies even more. And I heard just everyday people, maybe that sounds okay, maybe it's sort of convincing that cash is expensive. I hear you on the broad conversation level and yet in my everyday life, I'm more careful when it comes to spending if I'm using cash, my personal accounting.
REHMIf I'm using cash?
WOLMANRight, which is not a point to dismiss quickly. You have to be extremely sensitive to that issue. So anyway, the response was thundering and that got me thinking, wow, maybe there is a book here. And to be honest, there was this one person who wrote in after a kind of anti-Federal Reserve tirade and he said to me, do you even know what money is? And you know, I'd done my reporting. I'm a journalist. I wrote this essay. I think I understood what was going on there and yet, he was holding my feet to the fire a little bit.
WOLMANSo what I wanted to do was kind of set off on this journey to understand a little bit more of the nature of money, but through this particular lens of cash and, you know, where it's been, what it's like now and where it's going and in a quasi-formal way suggest that maybe it's over soon and that's what happened.
REHMBut surely it can't be over for everybody at the same time, if you think of, for example, giving tips to the fellow who parks your car for you, leaving a tip for the hairdresser or somebody who gives you a manicure or helping people on the street. I mean, obviously, you can't wave a Google phone.
WOLMANExactly. So this is one of the best defenses of cash today and none of this is about the idea that we should get rid of cash tomorrow or, as I've been saying on a book tour recently, I'm not out to gut the 99 percent to the benefit of the 1 percent. And for people who depend on cash tips for the lion share of their income, it's a very different conversation. And you can't get rid of cash until you have a sufficient substitute or substitutes more likely for them.
WOLMANBut, you know, I just don't think, again, when you consider the time horizon involved, you know, cash is just getting pushed further and further to the edge.
WOLMANIt's a little bit like pay phones, right, they're out there now still and there's probably somebody on one today and yet...
REHMNot many, not many.
WOLMAN...there's never a formal conversation about, you know, does it make sense to keep building these into airports et cetera. It gradually becomes obsolete. And I think that's going to happen with cash, but the tipping thing is important. For example, if you had a barcode on a name badge -- and by the way, I don't mean a barcode embedded in your forearm, which brings on the whole Book of Revelations critics, et cetera.
WOLMANSo if you have, you know, a barcode-type identifier on a name tag and there's some way to digitally transmit some funds, maybe I use a voice-activated system so it's fast because cash is fast and I say the amount and I point it and I press click. And you know, again, not in two months, but in 45 months, you know, that kind of technology could be here.
REHMThe other element is that recently we've heard people talking about doing away with the one-dollar bill and going to a one-dollar coin and there's been such an uproar about even that kind of change.
WOLMANAnd in fact, you know, the 'retire the penny conversation' has been around a long time in the States and the math is pretty clear. And yet, we have a real nostalgic streak when it comes to protecting, you know, physical representations of our national currency. And in other countries, they're doing away with their penny equivalent, nickel equivalent et cetera. We don't really like that idea here in the States.
REHMIt's going to change a whole world of how we shop, how we buy, how we negotiate, everything.
WOLMANWell, I think you're right and yet the crazy paradox is we've already said yes to electronic money mostly. You know, most shopping now is not with cash. It will change the whole world in that cash registers will be, you know, they'll just look so wildly obsolete and we'll remember a day when companies were, you know, paying their employees, counting out these little metal rounds and passing them to customers on the other end of the aisle.
REHMYou know, you remind that my 12-year-old grandson asked for a gift of a toy cash register. Maybe he, like you, realizes that that's going to be a total relic of the past.
WOLMANRight. And one of the sub-cultures that I write about in the book are obsessive coin collectors and, you know, talking to them about the value stamped onto the item versus market value or collectors' value or emotional value. You know, they're very practical, these folks. They say, you know, you like your coins, you love your wife.
REHMDavid Wolman, his new book is titled, "The End of Money: Counterfeiters, Preachers, Dreamers – and the Coming Cashless Society."
REHMMy guest David Wolman has written a book all about what he titles "The End of Money," and in it, he talks about what it is that makes us cling to the notion of physical money. He talks about some of the inertia having to do with our psychological relationship to cash, the feel of it, the sense of it, the very distinctive touch of the paper.
WOLMANRight. And so the chapter of the book all about the psychology of money and the way that we treat different forms of money differently, we spend them differently. And everybody knows this at an intuitive level 'cause it's hard to break a $100 bill. And other people know this, unfortunately, because it can be a little too easy to spend with a credit card or I should say borrow in a very short term with a credit card to make a payment. And Americans right now, we owe roughly $800 billion in credit card debt.
WOLMANSo, you know, with the behavioral economists that I'm talking with for the book project, a lot of this has to do with the quote unquote salience of the form. And so even though we know in our heads that a $20 bill has no intrinsic value, it is a representation of the belief that this thing has money. Because someone else will maybe take it and it is a representation of our faith in government frankly.
WOLMANAnd yet, there is something about relinquishing this physical object that makes people process that relinquishing much more so, right.? It just sinks in and it hurts. And the other term that economists use is pain in spending. And it hurts more to part with cash. And that's a big part of this equation and the discussion and so are the costs of cash, but when it comes to, you know, personal budgeting and accounting for families, that's a tricky obstacle. But I don't think we should be so defeatist to think that we can't end around that problem with novel technologies.
REHMYou went for one year without cash. How'd you do?
WOLMANI did quite well, except for those handful of occasions when it's completely impossible and I had to call a timeout.
WOLMANPaying the babysitter one night, I couldn't, on the fly, convince her dad to establish a PayPal account. And hopping the New Jersey transit train one morning bound for Manhattan, it was a last-minute meeting that I had and so I couldn't buy a ticket in advance the night before, which you could do with a credit card online day of right there. And the conductor wanted nothing to do with my little literary experiment. And then, you know, things took a more serious turn when I flew to India to report on the people over there using their mobile phones for transacting instead of cash.
REHM'Cause they're ahead of us...
REHM...in that regard?
WOLMANThey could be. They're not quite ahead of us but people's excitement about using these tools over there is overwhelming in development experts and economists. And we can discuss more but in short, before the plane even got to the terminal I realized I had to put the cashless era on pause. Because if I want to do anything outside of my hotel room in India, hire a taxi, buy water on the streets, pay my translator, pick up a souvenir for my son, that's it. I need cash.
WOLMANAnd so I figured, I'm a reporter. I don't want to just sit in my hotel room. And so I hit the pause button.
REHMHere's an interesting email from Constance. She says, "If you use a card or a cell phone to pay for anything, someone is tracking your every purchase and they're selling your data. Cash is private."
WOLMANIt's true and this is a critical discussion and it's a big part of the book, this question of traceability and visibility. But for that email respondent I would say, you know, there's a distinction between privacy and anonymity. And in fact this comes from a technologist in London who I feature in the book. You know, we need to be vigilant about privacy. We need to make sure regulation is robust and that Google and Facebook, et cetera are not, you know, selling our data or watching our activities to a degree that is inappropriate. And of course that's a huge, huge discussion.
REHMBut they are.
WOLMANThey are, many would say. And I'm not opposed to that, but I also think it's very simplistic to defend cash's anonymity because there's nothing in the constitution that says you have a right to anonymity. You know, if you vote, if you believe that you should pay your taxes, if you are going to collect Social Security, if you get a driver's license, you are a known quantity sum.
WOLMANAnd, you know, some of the people who are writing me about the anonymity question, they raise it in a way that I can tell they're not a tax evader, they're not a drug dealer, you know, they're not writing me to say, how am I going to tip a stripper? You know, I get that one all the time, not exactly sophisticated defense of cash, although funny. So, you know, there's that side of it.
WOLMANBut then there's the more intelligent version which is, you know, am I too traceable? Am I too known? You know, I fear Big Brother, not in the kind of anti-Christ kind of Big Brother sense of it, but I think they have too much about me already. And I think those concerns are legitimate and yet, you know, when the FBI busts a terrorist cell somewhere because they're following the money, the digital trail of money laundering, and they find these folks, people don't seem too mad.
WOLMANBut when you get a call from your credit card company and they say, hey, Diane, was that you in Macau last week who bought the $12,000 diamond necklace? And you say, no, it wasn't me. They say, thank you very much, we'll cancel the charge. Goodbye. So, you know, there are some give and takes. And again, I'm not eager to dismiss the privacy thing, but it's very simplistic to defend cash's anonymity.
REHMWhat do you say to Jerry in Woodside, N.Y. who says, "Ask about the future of crime? I wonder how criminals will be able to deal with the transition from being able to deal in transactions that can be non-traceable to ones that have all electronic traces on them."
WOLMANRight. So financial crime exists in the digital realm now already. And as far as by value, most of that crime is electronic. And yet, there's no strong argument or rebuttal really to this idea that if we went cashless tomorrow or even outlawed the $150 bill, a lot of criminals, if not put out of business, their jobs would be a lot more difficult, you know, whether they're counterfeiting or whether they're drug dealers or trafficking, you know, sex slaves, the whole bit.
WOLMANIn the United States in 2009 and 2010 we had 10,000 bank robberies. That's just people going after the physical stuff, let alone just the stickup at a -- you know, the local corner store. And when you start to think about those costs and not just the cost to the banks and the damage to -- you know, employees have to get counseling for PTSD, but then we pay the cops to go after them. We pay to prosecute and incarcerate. You see these concentric circles of costs going outward further and further.
WOLMANSomeone with Secret Service once told me, you know, the vast majority of their workload involves chasing after sort of two-bit counterfeiters. You know, mostly kids high on drugs who get the idea late at night, I'm gonna bleach a 5, scan the image of a 20 and reprint it on that same paper. And, you know, they buy a few things for the next 18 hours before they're caught. And this is the lion share of this huge government agency. You know, so I think there's actually even a small government argument to be made for, if not necessarily an aggressive approach to getting rid of cash, at least let's have the conversation, a real accounting across government agencies. What does this cost...
REHMWho are you talking to besides people like me?
WOLMANYou mean in my effort to convince?
WOLMANOh, everybody. I think, you know, cash has skated by for so long without any scrutiny. Well, why? Of course because we love it and we've loved it since a young age. You put your hand under the pillow, there's that...
REHMQuarter that they left.
WOLMAN...cool metallic feeling from losing a tooth, and wishing wells and gifts from grannies inside a card. You know, that special green paper falls. I get it. I get that we love the stuff. And yet, you know, for a journalist, what is more fun than turning conventional wisdom on its head a little or at least shining the spotlight on something that has gone uncontested for so long?
REHMWhat's happening in New Zealand, in Canada and Scandinavian countries?
WOLMANWell, they're all saying no to the -- they're retiring their equivalent of the penny and the nickel and the dime. I think, in Sweden, they're up to the 50 cent piece equivalent. And they even have a union of bank employees in Sweden who are lobbying the government to go, you know, full bore with the cashless future because...
REHMBecause it's heavy, it's tough to deal with.
WOLMAN...it's heavy, it's costly, it's dirty. And actually, the robbers thing, for some reason, in Swedish culture, there's a culture of holding onto cash. But that means that armored trucks have to be moving all about the country to deliver that cash. And so bank employees are scared of the risk and the hazard and they don't want it anymore.
REHMYou talked earlier about the enormous amount of credit card debt. What about the argument that using cash keeps spending in check.
WOLMANRight. And in the book I speak with some people from Debtors Anonymous. And for compulsive debtors the idea is that, you know, you go cash all the way. And at the beginning of the month, you take out just the right amount of money and you earmark in separate envelopes, they call it the envelope method, for your rent, for your groceries, for your gas, et cetera. And, you know, again, this is the salience of the form and it's powerful.
WOLMANAnd I don't think technology and technologists have stepped up yet to acknowledge this problem in a way. You know, they're eager to make the next generation of mobile phone apps more convenient and cooler and more widespread and better. You know, there is a value proposition there but the problem is they're not speaking to that group that is still clinging to cash and really needs help with the accounting problem.
WOLMANAnd but, again, I think it's a little bit short sighted to think that you can't end around that problem. So what I mean by that -- that was kind of a vague descriptor, right? So what if you recreated the pain in spending through a digital means? And I don't know if that's the image of Ben Franklin or maybe, you know, he's talking to you. You know, watch out. Don't buy that extra thing. Or whatever you actually decide Ben Franklin should say, you could program it in there. Or, you know, with your teenager's phone, if there's a transaction amount that's above such and such, it won't process unless the teenager calls you.
WOLMANAnd, you know, down the rabbit hole you go. And you could completely engineer around our frailty. You know, you see this with the coffeepot that shuts off automatically at home so you don't burn the house down. You see it with a car that adjusts for icy road conditions because we don't. And the same thing with the pain in spending, you don't feel the pain as much with electronic money transactions.
REHMHow much do you believe it would save the U.S. Treasury if we went to a cashless society?
WOLMANWell, this is really tricky. This is the accounting-across-government-agencies question. And so the Treasury profits by issuing the currency. And the way that happens is central banks create money and they use that created money as an abracadabra magic, the whole deal to buy interest-bearing securities from Treasury, right? So some critics would say cash is a tax-free loan from the people to government. There's a little bit of political ideology imbedded in that description, I know, but that's what they say.
WOLMANSo anyway, but the boring fate of that profit that the central bank makes is that it gets transferred to Treasury at year's end. And many people would say that is government raising revenue with which to spend on the people. And I think we're, you know, somewhere between 20 and $50 billion a year that Treasury makes doing this. It's big money. The problem is cash management, getting cash out there into the world. You know, this is 100 billion, $150 billion a year kind of cost. And that's just getting it out to all the cash registers, securing it, inspecting it, coming up with anti-counterfeiting technology.
WOLMANIt has nothing to do with the 10,000 bank robberies we were talking about or, you know, chasing down money launderers, the whole deal. So there isn't this conversation across government agencies about those costs.
REHMDavid Wolman. His new book is titled "The End of Money." And you're listening to "The Diane Rehm Show." We're going to open the phones now, 800-433-8850. First to Lafayette, Ind. Good morning, Sonya, you're on the air.
SONYAGood morning, Ms. Rehm. Good morning to your guest. Thank you for taking my phone call.
SONYAI would like to make a simple comment that those of us in the lower income brackets often use cash more than a credit card due to the fact of the high fees for credit cards, high fees for debit cards. And some, like myself, don't go online to pay our bills 'cause we have no online access. Cash is the only way we can go. So ironically, I was on the way to the bank to make a cash withdrawal when your show came on the air. I'm sitting in the parking lot. So it's the only way I can conduct business in a safe and secure manner.
SONYAI'm not comfortable with banking online. I don't even know how so I would just like to hear your guest's comment on that topic. Thank you.
WOLMANSo this speaks directly to a section of the book that, you know, frankly reporting this out kind of blew my mind. I never thought of this idea. But in the words of a Gates Foundation economist who I write about, he says cash is the enemy of the poor. And in fact, it is most punitive when you have so little of it. And what he's talking about is the fact that you are stuck only using cash. It doesn't mean you should go get a credit card and you can't make your payments. That's not what we're talking about. We're talking about the inconvertibility of cash.
WOLMANAnd again, what I mean there is that for you and me, we can toggle between cash and electronic money as we see fit. It's a tremendous luxury and it means that we can build financial stability in our lives without even thinking about it. You're not hiding your wealth in your home under your mattress, where you could lose it to an earthquake or fire. Or, you know, in poor parts of the world, it's the drunk uncle or the abusive spouse. This is the money you're trying to save to climb out of poverty and stay out of poverty. And saving is crucial for doing that.
WOLMANAnd for the 20 billion -- sorry, 20 million people here in the states who don't have a bank account, they're stuck using cash. That means they have to use these, you know, super high fee check-cashing services. And they can't save. Forget even just building financial stability to brace against a future financial shock, someone's sprained ankle or your car breaks down and you can't get to work. But now even you can't save to, you know, earn enough credit so that you could maybe get a small business loan down the road, or to make school payments for someone.
REHMBecause you can't do that without a credit record.
WOLMAN'Cause you can't do that without a credit record. And cash is so punitive not all by itself. Of course, you know, if you're poor and you have a mountain of cash you're not so poor anymore. I get that. But the fact is to build financial stability, you need banking in the boring sense of banking, just a safe and secure way to save.
REHMSonya, do you have a check cashing service? Oh dear, she hung up. I wanted to ask her about that. Too bad. Let's go to Ethan in Boston, Mass. Go ahead, Ethan.
ETHANGood morning. I think you're missing two very critical points in the discussion of a cashless society, that those transactions are reliant upon electricity and communication. And they became crystal clear to me when I was an expat. I lived overseas for two years and, as an expat, pretty much the first thing that you do is get a bunch of cash. I had a four-figure number in dollars in my apartment in three different currencies, in dollars, euros and the local currency.
REHMAll right, Ethan. I want you to hold on. We've got to take a short break. I want to hear the rest of your story when we come back. Stay with us.
REHMDavid Wolman, you're stirring up lots of talk here and we were talking before the break to Ethan in Boston, Mass. and I gather you spent time in Dubai.
ETHANThat’s true. You know, being outside the U.S., you become keenly aware of those kinds of issues, like transportation, electricity and communication. In fact, in the news today, right, I believe we heard about sunspot activity that could potentially knock out a power grid. I don't know that you want to move that quickly to a cashless transaction when those fundamentals like electricity and communication can disappear pretty quickly.
REHMGood point, David, sun spots.
WOLMANI think it's absolutely true. And dependency on the telecom network and electricity for electronic money is, I think, up there with tipping as far as strong defenses of cash today. But I would also add that there's one anecdote I write about in the book and I think it was the late '60s in Ireland, they had a banking strike. And people started to scribble IOUs to one another that circulated as real money. And they were redeemable and it wasn't really a problem. You know, money is an idea. At the end of the day, if you trust that this thing has value and will work for you in paying for something else tomorrow, it works.
WOLMANBut the other thing that's very helpful about Ethan's call is that he talked about electricity and, you know, some of this conversation isn't just about cash, but it's about value and it's about currency itself. And I write about this population of people who are these alternative currency enthusiasts who believe that the day of the government monopoly on issuing currency is over or coming to a close or they want to see it come to a close.
WOLMANAnd one innovator that I write about, he wants us to be trading in kilowatt hours. You know, this is real value in the physicist's sense of it, you know, the amount of electricity required to power a light bulb for an hour is the same now that it will be in 30 years. Whereas the purchasing power of a $10 bill in 30 years, who knows what that will be? And, you know, so those were some of the people I wrote about.
REHMAt the same time, we've got to -- Ethan, thanks for your call. We have an email from Joe who says, "When you manufacture a penny, it doesn't represent one cent of value because it can be used thousands of times representing one cent to value for each transaction."
WOLMANRight, so the contribution to economic activity and to GDP of cash, you know, we can't, again, we can't say no to that too quickly, but, you know, all you have to do is ask the U.S. mint if this is a problem. They will tell you it's a problem. That's why the president's budget this year includes instruction to the treasury to say, please look into making this stuff out of a cheaper material because we're making it at a loss. And, you know, that's not me riffing, that just is. But, you know, making it at a loss, to me, that's sort of a can't see the forest through the trees problem.
REHMAnd here's Paul in Orange Park, Fla. who says, "As a coin collector, I'm looking forward to the end of cash or at least certain forms of it. This would drive up the collectable value of coins and even bills."
REHMThere you've got it, one supporter. Here we go to St. Petersburg, Fla. Good morning, March.
MARCHGood morning. Thank you very much for taking my call.
MARCHWe're mixing apples, oranges, bananas and pears. Large purchases throughout history have always been handled without any physical cash moving anywhere, but this idea of eliminating money will only hurt poor people. For instance, several years ago, I made a deposit of $200 in a bank in Chicago and they service fee-d me out of my $200. You know, it was in a savings account, but they (unintelligible) oh, they had to -- it was a service fee that they had for handling my account.
MARCHQuite recently, credit card companies have tried to charge you for using your debit card. You know, this is your own money, but they're going to charge you for using your debit card. You know, it went from 25 to, in some cases, I think it was 35 cents. So, you know, once money gets into the machinery of government or banking institutions, they can add all the fees they want and you end up having less than you had earned.
WOLMANI think it's a fair concern, but we have to remember that built into cash, there are huge fees also, "fees," you know, also called costs that the rest of us must bear. And, you know, for example, let's talk about the tax gap. This is what the IRS -- it's a very boring term for an extremely serious thing, which is the gap between what Americans owe and what Americans pay up. And we don't know if it's $400 or $500 billion, but it's on that order.
REHMYou know, in complaining about the Greeks and here we are...
REHMWith this tax gap.
WOLMANAnd in Italy, you know, I think they lose an estimated €100 billion a year because of off-the-books transactions. You know, is cash the reason why we had the Euro crisis? No, but a contributor to these kind of problems over there and budget issues, yes. And so when we talk about cash is mine, cash is so simple, it's so straightforward and if you give more power to the banks, you know, they're just going to charge me more. Well, we're being charged a lot for cash. It's just much harder to see. That's number one.
WOLMANThen on the poor people thing, I mean, you know, there's a gentleman that I feature in the book who is an electronics repairman in a slum in Delhi. And we're talking with him about using his extremely cheapo Nokia brand mobile phone to send money back and forth to his family members in the countryside, right? A super cheap phone. You don't need an iPhone, which, by the way, you know, the capability of the phones is skyrocketing while the costs of the technology is plummeting.
WOLMANSo Sonu Kumar (sp?) in the slums of Delhi used to have to ride the bus two days there, two days back to give his family members a paltry amount of money, right. So it's four days lost income generation. His wealth, whatever he's left at home stuffed under the bed, is now vulnerable. He has to pay another guy to look after his shop and his equipment.
WOLMANNow, he just wanders across the street, puts a little bit of money on the counter, gives it to the pharmacist there who's an agent in this network -- is sort of the economics term of our -- with some quick texting that value is now transferred to a family member in the country side. They can go to a local kiosk, cash out, right, huge benefits for financial inclusion, for remittances, for the poor to build stability in their financial lives.
REHMAnd here's something from David in Salt Lake City. He says, "Many people are of illegal status through no fault of their own. Our economy depends on them. How will these people function in a world without cash?"
WOLMANThat's a crucial question, you know, and I live on the West Coast and it's a big farming state. And, you know, the same thing with migrant laborers, how will they be paid. I'm not sure yet. I mean, the flippant answer is you pay by a PayPal and you fib that the purpose was for something else, but I don't think there's a great solution for that yet. But, again, to me, that sounds really defeatist.
REHMGeniuses are out there.
WOLMANYou know, well, it's also somewhat defeatist. It's the same thing about, you know, we love the penny so much we could never get rid of it. Well, I'm just not there yet and, you know, with tipping you can't quit on cash until you figure out a way to make sure waiters and waitresses are okay.
WOLMANWell, but most countries of the world have actually gone to a service charge and pay people, you know, a living wage per hour. We seem to cling to the idea that $2.25 an hour is okay and we just add on tips because that's the American way. But, you know, to the rest of the world, this is kind of an aristocratic anachronism and, you know, so I do wonder if some of this conversation about the costs of cash -- instead of us kind of falling back and saying, oh, it's just the cost of doing business, we say, well, maybe we should, you know, deal with the immigration problem in a more sophisticated way instead of saying, oh, let's keep cash around because, heck, we can't figure out another way to pay illegal immigrants.
REHMAll right, to Dallas, Texas. Hi, Josh.
JOSHHi, I can't tell you how thrilled I am to be able to comment today. Really interesting conversation. I'll make a real few quick comments and feel free to comment on any or all of them. First, I want to point out that I find it very interesting that your author could not go a year without having to take time out in order to use cash so I don't know how he would expect a regular adult to that. I associate timeouts with toddlers, not with wage earning adults.
JOSHAlso, speaking as a regular person, and this I'm very serious about, speaking as a regular person, I get really fed up with many arguments about getting rid of something or taking away my civil rights when an argument is used that criminals or tax cheats or drug dealers or terrorists use ABC, whatever it is so therefore, I should be willing to give it up. I don't find that convincing and I find it really annoying that I'm going to be penalized for what criminals do instead of the people who are supposed to catch the criminals just doing their job.
JOSHAnd, lastly, I would have to argue that cash money is not really the enemy of the poor, although I take the points that your author makes very well. I would say that what it all boils down to is the greed of businesses is the enemy of the poor. The fellow he was just talking about in Delhi who was able to send that small amount of money to his family, I guarantee you that when he sent it through his phone and when they picked it up at their kiosk they paid a fee for that so he lost money and cash in hand is cash in hand. Try using a credit card or a check at a garage sale and you'll find out how important cash is.
REHMJosh, good points, start out with his so-called time out for toddlers.
WOLMANYeah, I don't know where to go there really. I mean, it's a turn of phrase for -- a time out for pausing something. So it's true.
REHMBut the point is you're not talking about doing this right now.
WOLMANNo, this can't be some government mandate tomorrow. It's about, you know, not just observing the reality that cash is being pushed so far to the margins that it's soon going to go off a cliff, but it's saying, hey, now that we're a few hundred yards or a few hundred miles from the cliff, let's talk about the costs of it and maybe we want to, you know, scramble to the edge as fast as we can or maybe we need to hold onto it for the civil liberties concern that the caller from Dallas is spouting about.
WOLMANSo, you know, it's about igniting the conversation not pounding your fist on the table kind of thing. But, you know, when he's talking about lost money, like the gentleman in Delhi who sent money via his mobile phone.
REHMRight, had to pay a fee.
WOLMANIt's a perfect example of, you know, all kinds of money create friction in your economic life. You know, if you go to the ATM and you take out money, you spend 22 minutes or 62 minutes getting there. You know, time is money, the whole bit. So every kind of money costs money and for people who go and use a Coinstar machine, for example, because they hate coins and outside the supermarket they want to pour it in a jar, okay, it's like an 8.9 percent service charge for that just to change from form of physical money A to form of physical money B, which is ridiculous to people like me.
WOLMANBut, you know, for the gentleman in India, I asked him is it problematic for you that, you know, this company, Echo India Financial Services, that is...
REHMIs taking some of your money.
WOLMANI asked him about that and I asked him about hackers and security.
WOLMANAnd you know, his look, although he was far too polite to say so, was you are from the moon, you have not been listening to what I told you. And what he meant was the value proposition here is overwhelming. Look at what I just saved, look at what I didn't have to do traveling four days to send this money to my family. I'm happy to pay a few hundred rupees or a few -- you know, I think it's, like, 15 Indian rupees. It's nothing to make that happen.
REHMJosh, thanks for your call and you're listening to "The Diane Rehm Show." Let's go now to Phoenix, Ariz. Hi, there, Dominic.
DOMINICKHello, thank you for taking my call.
DOMINICKI have a question on the convenience of the credit using phones. I have recently upgraded a regular phone to an Android and I wanted to use its convenience to do things and I went to the Android market to get a firewall to protect myself (word?) .
DOMINICKWhat do you think of that?
WOLMANI think we're in the super early stages of these technologies and, you know, an interviewer was asking me earlier today, you know, do I think it's going to happen faster in the developing world than here. And it might, you know. I think Google Wallet and PayPal Mobile and other tools that you can use, they do add a sort of cost savings to your lives. There's a convenience factor and they're kind of cool. But when you talk about the impact of mobile money technology in the developing world, this is really sort of life changing, even life saving, innovation.
WOLMANAnd so it may be that people elsewhere are adopting it a lot faster and so, you know, in answer to Dominick's question, tech companies need to hurry up and provide that for you. You know, you're ready to engage in the whole idea of mobile money and here they are not offering up for you, you know, what sounds like a very basic service that you want. So, you know, whoever is scrambling fast to make that available to you, I suspect they're going to, if not win your loyalty, at least win your interest early in the game.
REHMAnd here's a final call from Laura in Ann Arbor, Mich. Good morning, you're on the air.
LAURAHi, I just wanted to share a quick story about my father-in-law.
LAURAHe's the son of a Holocaust survivor and even though he's now, you know, very well established in business and he's a physician, he always maintains several hundred dollars of cash in his wallet at all times as kind of a hedge against crisis. And I think, kind of underlying all of that is this sense that, you know, we can't always trust government. We can't always trust banking and that in times of crisis, what else will we use if we can't use our credit cards. And so it's just kind of an interesting story.
WOLMANWell, we have to trust government enough or else the value of those hundred dollar bills that your father is saving is zero. So, you know, because our trust in government infuses those bills with value, but, you know, speaking more broadly about planning for a crisis or calamity or a solar storm that knocks out the electricity grid, this is a strong defense of a physical form of money, you know, it just is. And living on the West Coast everyone has a -- or should have an earthquake emergency preparedness kit.
REHMEarthquake, sure, sure.
WOLMANAnd one of the things the Red Cross suggests that you have is a bunch of cash, low-value denominations, so that you're not trading in $100s, you know, so we're not there yet. The $100, I think, we should dump yesterday because that really is the currency of crime, but, you know, those $5, $10 bills in your wallet for earthquakes, or in your emergency kit, we might need that for a few years to come.
REHMWell, David Wolman, you have clearly put the idea out there. I remember when I heard our money commentators say 30 years ago, ten years from now, nobody is going to use cash. It's all going to be credit card. I mean, look at how far we've come in that so I take your point. I'll watch the cash flow. I'll be very interested to see where this idea goes. The book is titled, "The End of Money." Congratulations.
REHMAnd thanks for listening all, I'm Diane Rehm.
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