The Cashless Society Has Arrived

By Robert Samuelson

It’s one of those vast social upheavals that everyone understands but that hardly anyone notices, because it seems too ordinary: the long-predicted “cashless society” has quietly arrived, or nearly so; currency, coins and checks are receding as ways of doing everyday business; we’ve become Plastic Nation. In the tangled history of American money–from tobacco receipts to gold and silver coins to paper money and checks–this is a seismic shift. Time to pay attention.

If you visit the U.S. Bureau of Engraving and Printing (one operation in Washington, the other in Ft. Worth, Texas), you can still see greenbacks being made. They come off the presses in sheets of 32. In fiscal 2007, the government will print about 9.1 billion individual bills. But 95 percent is to replace worn currency, not to expand the supply. THE BUCK STARTS HERE, say signs on some printing presses. In reality, today’s buck usually begins (and ends) as a mere data entry.

You can use a card almost anywhere. From 1999 to 2005, the number of card-swiping terminals nearly tripled to 6.8 million, says the consulting firm Frost & Sullivan. Habits and mind-sets change. In 1990, most Americans regarded paying for groceries by credit card as unnatural. Now cards cover about 65 percent of food sales, says the Food Marketing Institute. There’s electronic banking (83 percent of Social Security beneficiaries receive their monthly payments by automatic deposit), Internet buying, prepaid cards and automatic identity tags for toll booths.

Our information on actual cash use is skimpy, and some enclaves–especially among the poor–endure; about 9 percent of families don’t have bank accounts. Still, the evidence all points in the same direction:

* U.S. currency (dollar bills of all amounts) totaled $784 billion in 2006, but probably half or more is held outside the United States by foreigners who prize dollars–especially $100 bills–as a store of value. That suggests that less than $400 billion in currency supports a $13 trillion economy. In 1970, the economy’s relative need for cash was almost twice as high.

* In 2005, Americans held 1.7 billion credit and debit cards (about seven for everyone over 15), says The Nilson Report, an industry newsletter, and in the past decade, debit-card use has soared. In 1996, checks and cash represented almost 80 percent of consumer payments, estimates Nilson; they’re now less than half. (The latest firm figures for 2005 show all paper payments at 50.3 percent of the total, with cash at 20.7 percent; by 2010, Nilson expects electronic payments to exceed 70 percent of the total.)

* From a peak of almost 50 billion in 1995, the number of checks written in the United States fell to 36.6 billion in 2003, while the number of electronic payments rose from 15 billion to 44 billion, estimates the Federal Reserve. (The Fed survey doesn’t directly measure cash use.)

In some ways, this placid transformation is astonishing. Historically, the nature of money has been an explosive issue. Inflationary experiences with paper money during and after the Revolution led the Constitutional Convention to give the national government a monopoly of coining money (gold and silver coin) and to bar states from printing paper money, says Farley Grubb, an economic historian at the University of Delaware.

Despite that, state-chartered banks (not states) issued much paper money in the early 19th century. The national government got into the act in the Civil War with “greenbacks.” Debates raged over what money should be and how much it should be backed by gold or silver. Debtors and creditors disagreed. People wanted money scarce enough to be trustworthy (that is, no inflation). But they wanted it abundant enough to lubricate commerce and prevent falling prices (that is, no deflation).

The comparatively tranquil triumph of electronic money reflects its origins in technology, not politics. In many ways, it’s cheaper than cash or checks. The Fed says that processing an electronic payment costs a fifth as much as a check. It’s more convenient; people don’t need to run so often to the bank or ATM machines for cash. To be sure, controversies remain. Consumers recoil at some monthly fees and high interest rates. Supermarkets and other stores contend that Visa and MasterCard, dominating the card industry, impose excessive fees on retailers. The fees then finance wasteful marketing campaigns (6 billion solicitations in 2005) and “rewards” (airline miles, cash back). Store prices for everyone get nudged up to benefit the most upscale cardholders, who qualify for the most generous rewards. The card companies say they’re merely balancing “incentives” for cardholders and stores to use the cards.

Still, these feuds pale against the incendiary money wars of the past, symbolized by William Jennings Bryan’s campaign against the gold standard in the election of 1896. We have crossed a cultural as well as an economic threshold when plastic and money are synonyms and the crime of choice is identity theft, not bank robbery.

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