Why digital money has not yet killed cash

Spending money has never been such a simple process as it is today. One click on the button, one swipe card and you're done. To ask money from friends (when there are no other options), you just need to go into a virtual application like PayPal or Venmo and make a request there. If you are a business owner, Square or Stripe are ready to provide you with a card reader for one day, after which you yourself can accept them for payment, just like Amazon. And if you need to send money to your family or business partners in another country, this also does not become a problem. Currently, there are many online services, thanks to which the need to visit a bank branch has long disappeared. For example, the Wirex applicationallows you to transfer to almost any country in the world, online, instantly and with minimal fees, unlike traditional bank transfers. But why, in that case, does the US economy use and keep a growing amount of cash? In the continuation of our series of articles-reflections on the replacement of cash with digital currencies ( previous issue ), we suggest, together with Mark Gimein, to make out the reasons for this state of affairs.

Against the background of electronic pirouettes of digital money, simple cash looks rough and mundane. Apple and Samsung now often say that we no longer need to carry cash with us. In the UK, they expect that non-cash payments will completely replace cash in the next 20 years (at least in the British capital). The company London & Partners recently conducted a survey , in which 2,000 Londoners took part - guests of the festival London Technology Week 2016. Nearly three-quarters of those surveyed believe that virtual money will replace banknotes and coins by 2036.

MasterCard and Visa regularly report an increase in the number of contactless payments. According to MasterCard, over the past year the number of purchases paid for in a contactless manner has tripled. To date, every tenth purchase is paid for with a contactless card in London. And by 2020, NFC-payments will become the norm for half of Londoners, predicts Visa. And it is quite natural. Every year non-cash payments become more convenient and “faster”. One example is self payment, launched by MasterCard this winter. The first, by the way, to take advantage of the novelty were all the same British.

ABC , CBS and Wall Street Journalfrighten us that cash is infested with microbes and therefore can be sources of many diseases. As if wanting to resurrect a disastrous product, the US Treasury suddenly made a sensational rebranding, removing, finally, the "politically incorrect" Andrew Jackson from the face of a twenty-dollar bill and adding the impeccable Harriet Tabman. Against the background of all this, the owners of smartphones and cards have a question: will there be any need to use cash by the time the first Tabman notes are printed?



Will be. And all because the future "non-cash economy" is characterized by one paradox: it uses and stores an even greater amount of cash, mainly in the form of hundred dollar bills. Over the past two decades, the total amount of US currency in circulation has more than tripled, to 1.4 trillion dollars. Five percent of this amount, or about seventy billion dollars in currency equivalent, lies in bank vaults, subject to strict accounting. Track the rest is not easy, despite the revolutionary methods of analyzing data used in the economy. Nevertheless, we know for sure that the average amount in a typical American's wallet is about $ 30. We also know that a few more bucks were lying under the pillows in his couch.

This useful statistics, unfortunately, ends. Cash savings, which Americans tell government agencies, add to the total amount another small portion — less than one tenth. At the same time, if you divide circulating cash equally between all men, women and children in the United States, then each of them will account for an average of four thousand dollars. There is quite a logical question: where did the rest go?

You can get a good idea of ​​the likely answer to this question if you look closely at the denominations of banknotes circulating in the economy. Sending money to banks in the form of real green bills is one of the Federal Reserve's routine procedures. The initiator of this process is the banks that request from the Reserve those types of bills that their customers need. So the last twenty years, customers have preferred mostly "odnderkami", "twenty", as well as hundred dollar bills. And the latter enjoyed particular popularity.

This observation is very important. The number of “one-handed” and “twenty” in circulation for the same twenty years grew somewhat slower than the economy as a whole. The number of dollar bills, for example, increased from about 6 to 11 billion. In view of inflation, this growth rate somewhat lags behind the general economic. And, like, this is understandable, because the Americans make most of their payments with credit and debit cards. Nevertheless, one should not forget about minor everyday expenses, for the payment of which people use mostly just small bills.

At the same time, the number of “hundreds” requested by US banks has rapidly increased - as much as four times. However, in the wallet of customers such notes are rare. It turns out, instead of constantly being in circulation and in plain sight, they are somewhere else. Where exactly?

Perhaps the most common answer to this question is that the demand for dollar bills is constantly growing. Transmitted exclusively through airports around the world, US dollars are a reliable means of exchange, which can easily be used, for example, to transform 500 thousand dollars of profits from the war in Afghanistan into real estate in Dubai . Federal Reserve economist Ruth Judson recently presented a jobIn which she analyzed the size of batches of money (whole pallets of bills) sent by the agency abroad. According to the study, 50% of the total turnover of cash bills are located abroad. And this proportion is inexorably growing.

Another analysis of the same data suggests a figure of more than 25%. Edgar Fidge, an economist at the University of Wisconsin, calls the situation when money used in daily operations constitutes only a small part of the total cash turnover as “mystery currency”. The Japanese, according to Fiji, hide even more cash than the Americans, and yet a very small number of yen go abroad. Even in Sweden, which is an example of a successful non-cash society model, residents collectively store crowns for an amount equivalent to about $ 1,000 per each Swede.

In the US, some of the cash is accounted for by various illegal activities, such as drug trafficking. A much larger share, however, is formed as a result of the accumulation of wealth in the shadow sector of the legal economy, for example, the concealment of profits from the tax authorities.

"Before, when doctors and dentists took cash," Fij says, "they accumulated hundreds of thousands of dollars in their basement, then they took them to Mexico and bought a house there."

According to Fij, he suspects that even now a significant part of the money is in such large depositories related to businesses whose activities are based on cash intake. At the same time, no one knows for sure what part of these savings is related to businesses evading taxes (for example, restaurants and hired workers), how much money is spent on unofficial wages, and how much money people take from savings accounts in banks, preferring instead to keep them in pantry.

There is hardly a person who can not give his own example from life, because in fact we just do not really want to talk about it. When Mark bought his first apartment ten years ago, his mother gave him a bag with money. The mortgage broker then called them “money from under the mattress,” and said it as if this phenomenon was not uncommon. For many people, cash is still associated with safety, security, and certain guarantees.

Modern Americans of mature age since childhood grew up with their own bank accounts and from an early age learned to save money in a bank in order to receive interest from them. “Don't let inflation eat up your money,” they were told then. However, now the interest rate on conventional bank deposits is close to zero. Economists are even discussing the possibility of their decline below zero, which has already been done by some Swiss banks . According to the authors, this should encourage (or, as critics of the idea say) compel investors to use their investments. Therefore, if you are looking for a convenient “shelter” for your savings, a hundred dollar bill today does not look so bad.

The traditional definition of money is that they are a medium of exchange, a unit of settlement and a store of value. The ongoing replacement of cash as a medium of exchange, which is actually taking place, may seem quite natural. The assumption that cash loses its importance as a store of value is also quite reasonable. And yet, apparently, the growing demand for hundred dollar bills, which depict Benjamin Franklin, famous for his frugality, indicates the opposite.

Photo by Mark Wilson / Getty. Join us, order the Wirex MasterCard dual currency card. We remind you that the virtual card is issued for free immediately after installing the application on Android or iOSdevice. See you in the blog Wirex.