Dr. Sol Taylor

Cashless Society Coming?

By Dr. Sol Taylor
"Making Cents"
Saturday, July 14, 2007

    conomist Robert J. Samuelson poses this question — and supports the trend with facts from various reliable sources — in the June 25, 2007, issue of Newsweek magazine:
    Are we going to be a no-cash society?
    The use of personal checks, money orders, cash and coins has declined in recent years. From 1999-2006, the number of credit-card swiping terminals tripled to 6.8 million.
    In 1990, Americans regarded paying for groceries with a credit card as unnatural. Personal checks accounted for the bulk of purchases then. Today, some 65 percent of all food sales are paid with credit or debit cards.
    In 1995, the American Banking Association reported some 50 billion checks processed during the year. In 2003, the figure of 36.6 billion reflected the trend toward electronic payment versus checks. Most likely, that number is even smaller for 2005, 2006 and so far in 2007.
    The Bureau of Printing and Engraving prints currency constantly. But 95 percent of the new notes are replacements for notes redeemed and scheduled for destruction. The additional notes are to meet the inflationary demand, the exchange for other assets, and the expansion of the economy. It is not the "print them as fast as possible" scenario of the 1923 era, when inflation was in the triple digits in many countries.
    As far as coinage goes, the two operating mints at Philadelphia and Denver churn out tons of coins every day to meet general commercial demand. Here, too, the actual number of coins used in daily commerce has been declining in recent years; in fact, no half dollars have been minted for general circulation since the 2001-D issue. The 50-states quarters are often hoarded or even stashed away in albums just for that purpose. Tons of the 2004 and 2005 Jefferson nickels are traded as commodities by dealers and speculators alike. The new presidential dollar coins are basically traded by the roll and are rarely put into any cash register. The other dollar coins from 1971 to date see very little commercial activity. And large numbers of "pennies" are just plain lost, tossed, or hoarded.
    Years ago, then-Mint Director Mary Brooks cited the figure of 2,500 one-cent coins in the possession of every American, forcing the Mint to mint them in ever-increasing numbers just to meet commercial needs.
    Samuelson points out that the trend has some drawbacks. One is the cost to credit card retailers who pay a fee to Visa or MasterCard (or other card companies) for their service. The retailers, in turn, must somehow find niches in their products to make up the cost.
    The other issue is the loss of confidentiality when tracking services can view the spending habits of every card user and plan their advertising, marketing and even investigation (in civil cases, especially) strategies against the consumers.
    Finally, credit card fraud is rampant, with identity theft and scams running roughshod and tolling billions in losses — losses that often are borne by the card company, at first. Samuelson points out that the newer form of bank robbery is not with a gun, but with identity theft.
    Does this mean the paper money and coins we now have will eventually become obsolete? Chances are that may never occur. One reason is the poorer segment of society — those at or below the poverty level — rely entirely on cash and money orders to pay for their needs and services.
    The other reason is that some people (if not many) prefer a trackless monetary system — such as those who operate coin vending machines, gambling (legal or otherwise), small businesses operating at a marginal profit, and many foreign persons who lack trust in anything related to the government or its agencies. Cash is still the preferred means of conducting business where the parties save paying sales tax (an illegal practice) or reporting inaccurate income data (also illegal).
    In the early 1930s, our economy suffered a serious depression that lasted several years because of the loss of circulating cash and a lack of credit. Credit and debit cards were not only decades away, but even when first marketed by banks — such as the early Bank of America Card in the 1960s — most people did not gasp their potential use (and misuse). Gasoline and store credit cards were in use at that time, but not nearly as extensive as post-2000.
    With heavy marketing and various incentives to make use of the plastic money, the number of credit cards now runs about seven per person. Credit card companies market their product to everyone (including children) with such tempting gimmicks as no interest for six months on unpaid balances, cash back for 1 percent (or up to 3 percent) of all purchases, points for airline use, low interest rates on funds transferred from other cards, and free ATM charges. Samuelson reports some 6 billion solicitations by the various card companies for customers to add more cards to their already overburdened wallets and purses.
    And when customers feel their card is not giving them the service or cash-back bonuses they like, they switch cards. Overuse of credit cards often costs the consumer excessive finance charges of 20 percent or more, plus heavy late fees of up to $45. Switching cards to reduce those fees not only can adversely affect the consumersí credit status (lowered FICO score), but they also incur costs in transfer fees. Young people unfamiliar with operating on a budget, balancing a checkbook, or basic finances, can easily chalk up excessive fees by over-limit spending, not paying current charges in full, and carrying balances that donít seem to get smaller over time.
    On a cash-and-carry basis, consumers cannot spend more than the cash they actually have.
    As long as businesses, vending machines and public agencies accept currency and coins, the U.S. Mint and BEP will continue to make tons of each for the foreseeable future.

    Dr. Sol Taylor of Sherman Oaks is president of the Society of Lincoln Cent Collectors and author of The Standard Guide to the Lincoln Cent. Click here for ordering information.