Saturday, 19 May 2012

The Politics of Cash

Over on Tomorrow's Transactions, Dave Birch quite rightly questions the assertion in the NY Times that cash is somehow important to "protect our civil liberties by preserving some untraceable payment method." Few people are obsessed with anonymity. But at the same time Dave applauds the notion that "Cash-based economies harm the poor by heightening the risks they face when carrying money and fueling government corruption and inefficiency."

I should declare at the outset that I'm a great fan of electronic money and online financial services, and I advise various clients in the payments and online peer-to-peer finance space.  But I also believe that innovation doesn't 'kill' anything - the new must coexist with the old. Calling for the abolition of old services brings the laggards out in force, sometimes to comic effect. That's one reason you won't hear me calling for the end of fractional reserve banking.

But the 'death of cash' is not a question of civil liberties or somehow liberating the poor from a cash economy. Many people - the so-called 'unbanked' in particular - still see cash as the best mechanism for maintaining control over their finances. What some people see as higher prices for not paying online or by direct debit etc, others see as a wise investment in a payment method that prevents them spending money they don't have.
Research commissioned by the Financial Inclusion Taskforce found that the 3 million British adults without a bank account (the 'unbanked') do not consider themselves as disadvantaged by not having bank accounts, cheque books and debit cards. They do not see much use in an ATM, cheque book, credit card or debit card because they don't tell you your balance until it's too late. A text message confirming a payment you just made is laughable.

And if you don't find your bank or its services trustworthy or useful in the first place, why would you give them all your personal details so they can text your bank balance to your phone?

Most importantly, the same research found that most of the so-called 'unbanked' are actually in control of their finances. They put cash in specific jars to cover certain expenses. They can readily see at any time how much is in the jar, so they 'always know where they are' in setting money aside for energy bills and so on. 

I agree that loan sharks and others may prey on this form of financial control. But it's not as if access to a bank branch, internet banking or direct debit has saved the rest of us from financial charlatans or the erosion of civil liberties...

Long live cash, I say.

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