Saturday, November 14, 2015
Ugh! Wampum Not Enough
From direct product-for-product trading, to “currency” in the form of salt, pukka-shells, wampum escalating to gold and silver coinage and finally (??) to paper money that, at first anyway, was backed by troves of gold and precious metals, and then simply by the “creditworthiness” of the nation issuing the notes… money has come a long way. In the private sector, all kinds of financial instruments have developed, from simply IOUs to complex promissory notes and financial instruments that are hard to understand. Folks learned how to write checks. Credit cards and debit cards have arisen, at first with magnetic stripes, then with chips and, ultimately smart phone coding.
Financial regulators and central banks have grown powerful and sophisticated. Some are simply populist pawns that belie deep instability. Kenya went bust recently, not a cent to spend. Parliament in Nairobi was without electricity or staff. Argentina, to no real surprise, has almost exhausted its currency reserves. Greece still stands out as a Eurozone catastrophe.
Bitcoins – virtual money in a market-valued parallel universe – have slithered into the viable commercial world. The U.S. dollar has been the world’s standard measurement – “reserve currency” if you will – since the Bretton Woods Conference during World War II. The battle of the U.S. dollar to remain the world’s standard is heating up, and in the near term, we should expect a “basket of currencies,” a blended currency, to become the global reserve currency.
So there are forces pushing at established currencies, trying to change the way global values are established, all as paper money has slid further out of circulation. We somehow still refer to “printing money,” but what really happens is that central banks simply increase the money supply (M1) permitting banks to deal in larger aggregate numbers.
In the most developed countries, cash is decreasingly used. Credit and debit cards, whatever their incarnation, are much more pervasive. What all of this means is that the notion of “money” is changing just as it has throughout history. Hard cash and paper currency are slowly falling out of vogue. Can you picture a society completely without coins and cash? What would street panhandlers ask for?
Well one country, Sweden, is thinking about a world without coins or paper money. “Several major banks in Sweden no longer carry cash, and if you want to buy a candy bar at the corner store, you pull out your phone. Even homeless people selling newspapers on the street take credit cards. By the end of last year, four out of every five transactions in the country were cashless. And new research has found that the amount of money in circulation has dropped around 40% to 50% over the last six years.
“An app called Swish, launched by Swedish banks, is helping drive the change. The app allows people to digitally transfer funds between bank accounts as quickly as handing over cash (perhaps more quickly if your wallet is very disorganized). ‘It takes about two seconds to transfer the money, which gives it a character similar to cash,’ says Niklas Arvidsson, a professor at Sweden's KTH Royal Institute of Technology who studies the transition away from cash.
“Though other countries have similar apps, like Venmo in the U.S., they don't work in real time; a transfer might take one day or even two. The U.S. app Dwolla wants to bypass the traditional Automated Clearinghouse system to make instantaneous transfers, but so far only a few banks of signed on to its service. Sweden, on the other hand, has been quick to embrace it: It now has over 3 million users, out of a population of 9.5 million.
“Sweden has a history of being quick to adopt financial innovations. The country installed its first ATM machine in 1967, two years before the U.S. Now they're ripping the machines out (between 2010 and 2012, banks removed around 900 ATMs). The move to digitize everything has been happening for awhile—Sweden was also early to adopt direct deposits and paying with plastic. By this century, unions started pushing to get rid of cash as a way to protect workers like bus drivers from robberies—if you get on a bus now, you can't pay with paper money.
“‘There is also a demographic development behind this,’ says Niklas Arvidsson, a professor at Sweden's Royal Institute of Technology who studies the transition away from cash. ‘Younger people do not start using cash but instead move directly into new services, while older people—who are the most frequent users of cash—reduce their spending as they get older and older.’
“The move helps make robberies less likely and may reduce organized crime (the banks that still accept cash are suspicious when anyone tries to make a deposit) and tax evasion. It's cheaper for the country overall, because electronic transactions cost less than handing cash. And, for most people, it's more convenient—imagine never having to walk six blocks to the nearest ATM again.” FastCompany.com, October 27th.
Sweden is a small, mostly homogeneous nation, with very little in the way of a poor lower class. It might be the perfect venue for experimentation and change. But change in the way we use “money” is inevitable. How do you think you will transact business in the future? In five years? Ten years? How would such a change impact you?
I’m Peter Dekom, but clearly how we pay for stuff has never stayed the same for very long.