ECON430-Topic #1: Cash and its Competition

As the old saying goes, “cash is king,” but how true is this anymore? While cash (the paper kind) provides you the ultimate form of liquidity and is rather anonymous in its use, it is actually rather burdensome to carry, and sometimes even difficult to use. While the push by some businesses and governments to move to a cashless society, those who use cash tend to be poorer and unbanked. More recently, there has been somewhat of a push by some to stop carrying or using cash because of the Coronavirus pandemic. So, are we to see a future without paper money, or is this relic here to stay? You might be surprised to hear that in the U.S., cash and debit cards (linked to checking accounts) make up more than 50% of all face-to-face transactions.

More often than not, young people today are more likely to conduct many transactions using peer-to-peer (P2P) apps like Venmo, Paypal, Zelle, or another service. There are now blurred lines between these P2P apps, and what might seem like more traditional business-to-consumer (B2C) services and apps where you can purchase goods and services from businesses. While these P2P apps are increasingly popular, in fact cash and debit cards remain the primary means of conducting transactions.

You might wonder how these P2P apps make money, considering they provide you what appears to be generally a free service. The most obvious ways they make money are by charging retailers fees for their transactions or through fees charged to people who use credit. Venmo and other P2P competitors are now beginning to issue credit cards, acting much more like a traditional bank than before. So, what for a long time was simply money that had moved outside of the traditional banking sector is in some ways returning home to that broader business of lending money. Once Venmo (whose parent company is Paypal) is a bank, it is effectively the same as Zelle or other bank run P2P apps.

So, we can think of it as though this whole digital currency marketplace as an evolution on our previous world where financial firms ruled the marketplace. This might be where cryptocurrency (e.g., bitcoin) and central-bank digital currency (CBDC) enters the scene. The original intention of bitcoin was partially to unseat the central banks and states who you might say have a ‘monopoly’ on the printing of money. However, central banks might have the abiliity to circumvent the threat of cryptocurrency by issuing their own CBDC, which might act enough like crypto that the layperson might not care. So, rather than get into the argument here about whether or not bitcoin can replace state-issued (or state-supported) currency, I want you to potentially think about the matter of CBDC and how it impacts the usage of cash and cash equivalents.

Questions you might consider addressing

  • Do you believe that cash (the strict paper money) is on it’s way to the history books? If so, what obstacles are presented to eliminating it? Does your answer address the potential international issues with paper currency issuance?
  • Do the P2P/B2C applications of money provide greater safety and liquidity when considering the money supply? What has happened to the need to hold cash as a result of these technological innovations?
  • The pandemic has had large effects on the monetary system, and certain firms willingness to hold or take cash for transactions. This will likely propel a shift in cash usage in the coming years. Does this appear to be a positive change? Why or why not?
  • During the pandemic, monetary policy has been particularly aggressive, and likewise currency issued by the U.S. government has changed somewhat dramatically. Does this square with your image of what happened with cash holdings and usage during the pandemic?
  • Have the “problems” that cryptocurrency promised to solve largely been solved by existing institutions and actors? If not, what are the primary reasons and facts that lead you to believe that cryptocurrency can unseat dollar (or state-issued currency) prominence?

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19 thoughts on “ECON430-Topic #1: Cash and its Competition”

  1. Paper money will never die out, but it will be less likely that someone has $100 in cash on them versus $100 in their Venmo balance. According to a study done in 2017, 14.1 million adults and 6.4 million children do not have any accounts set up with a financial institution (1). Likely, many of these people who do not bank with financial institutions do not have the means of setting one up or maintaining the minimum balance. By going cashless, this group of people has the potential to be worse off than they are now. Unfortunately, in communities of color, which dominate the unbanked population, fewer physical banks are making it that much harder for people of color to convert to this cashless lifestyle (2).

    Aside from the obvious alienation of lower-income people in a cashless society, even the wealthy and middle class should feel concerned with the elimination of paper money. When using a credit card at any business, the owner gains more information than just your first and last name. Past businesses that you shopped at have the ability to sell your information to other business owners. They then have access to an extensive database in the data broker industry, which gives business owners insight into your preferences and shopping habits (3). The breaking down of barriers of privacy is inevitable in a high-tech society, but in a cashless society, you have almost no privacy of purchase.

    Although consumers may enjoy the instant gratification of electronic payments, eliminating cash in our society only puts the disadvantaged at a greater loss, and takes away from consumer choice and privacy.

    1. https://www.fdic.gov/householdsurvey/2017/2017execsumm.pdf
    2. https://www.neweconomynyc.org/about-us/mission/
    3. https://www.propublica.org/article/everything-we-know-about-what-data-brokers-know-about-you

  2. It has long been a looming expectation that payments in the US will become entirely cashless. While recent data points to a continuing drop in the usage of cash payments among all segments of the US population, there are still a great deal of barriers that will cause this decline to level off in the coming years. According to the Federal Reserve’s 2019 Diary of Consumer Payment Choice, 26 percent of all payments were made in cash, a drop from 31 percent in 2017. This trend seems to all but confirm the doom of cash payments, but the same study found that 49 percent of all payments under ten dollars were made in cash, and further found that 35 percent of in-person transactions are still paid in cash.

    Lockdown restrictions and fear of spreading COVID-19 led to many vendors to refuse cash payments over the last year. Despite this, consulting firm McKinsey estimates that cash comprised 28 percent of all payments made in 2020, a shocking trend that defies mainstream expectations.

    Another roadblock to a cashless US is the socioeconomic disparities among consumers. Cashless payments like cards, mobile pay, and online orders require consumers to have access to checking accounts. These accounts often require balance minimums and fees that put them out of reach for those who have limited incomes. In response to this, some US states (Massachusetts and New Jersey) and cities (San Francisco and New York) have passed legislation banning cashless businesses, according to NPR.

    While cashless payment presents greater convenience for consumers and vendors alike, it’s unlikely to become near universal like in countries like Sweden and China here in the US, as this would require a major political push that most leaders are unwilling to forgo.

    1. https://www.frbsf.org/cash/publications/fed-notes/2019/june/2019-findings-from-the-diary-of-consumer-payment-choice/#:~:text=In%202017%2C%2056%20percent%20of,debit%20cards%2C%20at%2023%20percent.

    2. https://www.cashmatters.org/blog/2020-mckinsey-global-payments-report-sees-global-cash-transactions-down-four-five-percent/

    3.https://www.npr.org/2020/02/06/803003343/some-businesses-are-going-cashless-but-cities-are-pushing-back

  3. The problems with traditional currencies that cryptocurrency promised to solve have not yet been solved by the existing institutions. With digital transactions, where $3.53 trillion dollars were spent in 2019 (1), the biggest security issue is that a third party is able to access your information and monitor your financial activity. These trusted third parties come with the risk of fraudulent activity, which was seen from mortgage companies selling loans that were bound to default, which in part caused the 2008 financial crisis. Cryptocurrency solves the issue of risky “trusted” third parties by running on a blockchain, which allows the transaction to be peer-to-peer, private, and decentralized (2). Another advantage to cryptocurrency in this regard is the fact that since there is no third-party taking part in the exchange, transaction costs are lower.

    Although cash is also peer-to-peer and private, which makes it much more secure than digital transactions, the buyer and seller both have to be in the same place to make the exchange. In an increasingly digital world and with the introduction of Coronavirus, which a study found can remain on paper currency for up to 28 days (3), cash is becoming a less and less popular option for consumers.

    Cryptocurrency offers a digital, private, and peer-to-peer currency option for consumers worried about their privacy. While it’s not ready to take over the world yet, the increasing popularity of Bitcoin and other cryptocurrencies shows that one day soon, the security and accessibility of cryptocurrencies will unseat the prominence of state-issued currency.

    (1) https://www.forbes.com/sites/ilkerkoksal/2019/08/23/the-rise-of-crypto-as-payment-currency/?sh=1c08e3d826e9

    (2) https://medium.com/the-capital/why-cryptocurrencies-exist-6c32b6b1c9f9

    (3)https://www.forbes.com/sites/suzannerowankelleher/2020/10/11/coronavirus-can-remain-on-paper-currency-for-28-days-per-study/?sh=54af31712fc5

  4. Cash will not become obsolete in the near future. Six percent of Americans are what are considered “unbanked” which equates to about 19 million Americans that prefer to stick with the simplicity of using cash and coin. Cash has remained the tried-and-true form of saving and exchange that a lot of people still trust most. With ever expanding technology, security of personal information is more of a threat than ever. If people are witty enough, they can gain access to your bank account and money from the comfort of their own home. For this reason, there is still a significant amount of people who opt out of using banks to hold their cash and therefore don’t have a means to use a debit card or a P2P app. With this being true, we will see this minority population in the U.S. of “old school” payments fade away as security progresses. But this change will not be seen globally. There will still be many places where cash and coin transactions remain as the common form of payment due to their lack of technology. These places include poorer countries such as Kenya and India where only 69% and 22% of adults respectably have ever made a digital payment. As for the rest of us, if you were to take your digitally stored money to India for example where a majority of transactions are made with paper currency, the money you have on your plastic card or cell phone would have less intrinsic value now that you have to convert it’s value into cash before you use it. Cash and coin will remain as a form of payment but not in great frequency. Global acceptance and increased security will need to be addressed before it can be ruled out altogether.

    1.https://www.nytimes.com/interactive/2017/11/14/business/dealbook/cashless-economy.html
    2. https://blog.inboundfintech.com/5-issues-and-challenges-in-the-online-banking-sector
    3. https://www.federalreserve.gov/publications/2019-economic-well-being-of-us-households-in-2018-banking-and-credit.htm#:~:text=Although%20the%20majority%20of%20U.S.,as%20the%20%22unbanked%22).

  5. Any more significant movement away from cash is premature, and we are still at least decades early for becoming an entirely cashless society. This being said, the dollar as a currency is more digital than many would expect, with only 11% of circulated money being physically backed by bills (1). The move away from cash then has already progressed substantially, but to go entirely cashless would upend many people’s habits. In 2019, 70% of Americans said they still used cash on an average week, and, as established in the New York Times article above, these are likely disproportionately people in weaker financial positions (2). This is often the danger of these monetary decisions, where those in power to determine American monetary policy are disconnected from the people most impacted. So while there has been analysis done to show that the decreasing American demand for cash could very well be caused more by the growing popularity of electronic payment than other economic trends, it is still incredibly premature to declare the death of the paper dollar (3). While many of us are in the fortunate position of being easily connected to the internet and handling transactions digitally seems almost a given, it is important to note that there are still many Americans who are dependent on physical currency. Additionally, the fees attached to digital transactions could be viewed as creating barriers to transactions that would otherwise occur (4). As an example, many businesses already have in place minimum transaction values for which they will accept credit cards, due to transaction fees.

    1. https://www.businessinsider.com/heres-how-much-us-currency-there-is-in-circulation-2018-4#:~:text=DOLLAR%20BILLS%2C%20IN%20AGGREGATE&text=That's%20why%2C%20in%20the%20U.S.,11%25%20of%20the%20total%20value.

    2. https://www.nytimes.com/2020/09/11/your-money/cash-credit-cards-coronavirus.html

    3. https://commons.lib.jmu.edu/cgi/viewcontent.cgi?article=1507&context=honors201019

    4. https://www.forbes.com/sites/ronshevlin/2019/02/11/venmo-versus-zelle/?sh=305b9b643c62

  6. For the foreseeable future, it is highly unlikely that we will see the complete elimination of physical money. Looking further than that, it is likely that a time will come where physical money, will become obsolete or close to that. Only a few institutions will accept the form of payment. The majority of users of physical money today are elderly shoppers who aren’t as tech-savvy or low- income shoppers who cannot afford smartphones or bank accounts. Looking further into the future, we will see younger generations being more inclined to use electronic forms of money. With governments supporting electronic money, those of lower-income brackets could be assisted to give them access to electronic money. (1) Governments are said to want to move away from cash as it leads to financial crime and terrorism, along with this, getting rid of money will make it harder for consumers and banks to avoid negative interest rates by holding on to physical money. (2) While these are positives for getting rid of physical money, crime could change form, and criminals could use digital currency and gift cards to get away from law enforcement. Along with this, privacy will be less secure as all transactions can be tracked, and personal information can be gathered. This is a fault of a high-tech society, but it is a loss that is outweighed by the benefit. In the foreseeable future, it is unlikely that physical money will become obsolete or close to obsolete, however, in the far future this could become the case.

    https://blog.clover.com/how-soon-until-wallets-and-cash-are-a-thing-of-the-past/
    https://www.investopedia.com/articles/investing/021816/why-governments-want-eliminate-cash.asp

  7. Cash, in the sense of strict paper money, is surely on its way to the history books. The sweeping life changes for Americans brought on by the pandemic in early 2020 saw many businesses across the country begin to require cashless payments as fears regarding the pandemic swept the nation and coin shortages became the norm (1). This sweeping shift towards electronic-only payment acceptance will surely not remain the norm as it is today, as many states and localities pass laws requiring businesses to accept cash as legal tender. As the pandemic-craze comes to an eventual end, coins reenter normal circulation, and business will undeniably begin to accept cash; we will undoubtedly see an increasing number of people; namely the younger generation, never return to cash.

    One major hurdle to the elimination of cash-based transactions stems from a lack of access or use of bank accounts. In 2019, about 30% of low-income Hispanic and Black households did not have a bank account and nearly 7 million households were unbanked (2). While we are yet to see any surveys since the onset of the pandemic with regards to banking usage, it can be fairly assumed that the shift of many businesses away from cash acceptance has brought with it a new era of digital payments. With the business and governmental (by way of coin shortages) push toward electronic payments, we have seen digital payment services such as Apple Pay, Venmo, and PayPal shift from being “nice-to-have” to “must-have” services.

    The shift away from cash over the past few years has certainly been accelerated by the COVID-19 pandemic, as even in 2019; 34% of adults under age 50 make no purchases during a typical week with cash (3). While we are unlikely to see the complete and total death of cash, within the next 5 years it would seem that the trend away from cash as the primary payment method will only continue.

    1. https://www.nytimes.com/2020/09/11/your-money/cash-credit-cards-coronavirus.html
    2. https://www.fdic.gov/analysis/household-survey/
    3. https://www.cnbc.com/2020/12/03/covid-19-pandemic-accelerating-the-shift-from-cash-to-digital-payments.html

  8. The P2P application of money has made liquidity and safety more difficult when considering the money supply. Since these applications act as an intermediary between users, there is delay in the withdrawal and deposits each user will make from their bank. Apps such as Venmo will loan the money to you in this period while the request is still being processed by the bank. This can cause issues with respect to liquidity as the money can take days to actually reach Venmo. Since there is this delay, people may not be able to withdraw their funds immediately to their bank. If you do not want to wait for this delay, you can choose instant transfer for a fee. (1) Venmo takes advantage of the illiquid nature of the platform and uses it to generate revenue.

    If Venmo has to process high levels of withdrawal requests that they do not have the funds for they could have to sell assets or restrict requests to meet the increased demand. This affects liquidity as people would not have access to their funds like they would at a traditional bank. With over 52 million current users, Venmo could find itself in a situation similar to the one Robinhood just experienced. Robinhood did not have the capital to handle the volatility present in the market and people trying to liquidize or expand their positions so they restricted trading. (2)

    Individuals place high levels of trust into these apps and as a result the safety and liquidity of their money is jeopardized. Liquidity is made difficult due to the delay in processing times while hackers can also pose a threat to these online accounts putting their safety at risk.(3) There have been multiple incidences of accounts being compromised and money being taken showing these P2P applications do not provide greater safety and liquidity when considering the money supply.

    1. https://www.marketwatch.com/story/how-venmo-works-and-what-to-know-before-you-use-it-2019-04-09
    2. https://www.foxbusiness.com/markets/robinhood-expands-trading-restrictions
    3. https://www.businessofapps.com/data/venmo-statistics/

  9. Science and technology change our life, as more and more innovative technology and new inventions are applied to our life. In this era, we have felt that our life quality and lifestyle have changed greatly. The popularity of Venmo and Apple Pay has made us feel the rapid development of mobile payment. Many people have started to choose to go out without cash and only use mobile phones. Because whether it is going to the mall or a small store, mobile payment can be a good solution to our problems. You only need to scan the QR code to complete the payment, which is very convenient, and reduces the unnecessary trouble brought by carrying cash and cash change.

    Money is the lifeblood and foundation of finance, and finance is the core and hub of modern economy. Issuing digital currency will profoundly change people’s way of life, have a profound impact on all aspects of the economy and society, and bring unprecedented changes to the financial sector. Due to the lack of historical and empirical data, it is not possible to accurately assess these effects at present, but logically several possible outcomes are as follows.

    First, the digital currency is mainly the replacement of M0, and the currency structure has changed. The cost of issuing, printing, recycling and storage of existing banknotes and coins is high, and it is easy to be forged, anonymous and uncontrollable. The main consideration of issuing digital currency is to reduce the cost of issuing and circulating paper money and improve the convenience and transparency of economic transactions. As a result, the issuance of digital currency will gradually reduce the number of banknotes and coins in circulation until they disappear.

    Second, improve the measurability of money circulation. In recent years, with the rapid development of finance in various countries, the rapid expansion of financial aggregate, abundant financial products and complex money creation mechanism, the immeasurableness of money supply has decreased
    Third, precise central bank regulation is possible.

    Finally, many people believe that the future trend of social development is a cashless society, paper money will be eliminated and digital money will become the mainstream, but from the current social survey, this situation is unrealistic, mobile payment also has certain limitations and deficiencies. Cash, as an irreplaceable product, will not be replaced by mobile payment.

    (1) https://www.propublica.org/search?qss=how+important+of+paper+money
    (2)https://projects.propublica.org/nonprofits/organizations/520858134
    (3)https://www.cnbc.com/select/best-no-fee-checking-accounts/
    (4)https://www.sohu.com/a/118647071_495345

  10. Cash is here to stay. We denominate value in dollars, from the value of our labor to the price of oil and other goods. In a Venmo transaction, in which no physical dollars are exchanged, we still denominate the transaction in US dollars. Around 90% of foreign exchange trading involves the US dollar. Despite the growing deficit and foreign debt, the US still holds global confidence in its ability to pay its debts. (1) This builds confidence in the US dollar and brings clarity to why many goods are denominated in US dollars. As Covid increases uncertainty in the world, peoples demand to hold cash has increased. Not only did the amount of cash held on person increase during 2020, but the amount of cash stored elsewhere, in homes or a safe for example, increased as well. (2) The fate of cash could become that of gold, where most of it sits in safes. When the pandemic first hit, many investors wanted to convert their assets into cash. The assets were relatively risky in a time when uncertainty is high, leading to an increase demand for cash. You can spend cash on any investment, and when investors are uncertain of what to invest in, this can drive up the demand for cash. The investors along with households wanting to increase their cash holdings has led to M2 increasing 23.6% last year. (3) Even as online transactions increase and germs stick to paper money, cash still holds a great importance and relevance, almost as if the world revolves around it.
    1) https://www.thebalance.com/world-currency-3305931#:~:text=The%20dollar's%20strength%20is%20the,redeem%20them%20for%20local%20currencies.
    2) https://www.frbsf.org/cash/publications/fed-notes/2020/july/consumer-payments-covid-19-pandemic-2020-diary-consumer-payment-choice-supplement/
    3) https://fred.stlouisfed.org/series/M2#0

  11. Getting rid of money and turning the US dollar into a digital currency would effectively give commercial banks more control over how we can withdraw our funds from their accounts. The big caveat of a paperless form of money would be a digital bank run(1). This is where people would suggest something like a government-backed cryptocurrency to be implemented not only as a means of payment but also for a store of value when financial frictions occur. The public’s trust in a centralized form of digital currency would heavily rely on these institution’s cybersecurity capabilities to prevent fraud, under the table black market transactions, and hackers(2) from occurring in such a digital currency market. With the public’s distrust of government at historic lows, I believe that government-issued online currencies are around the corner but may take a while for the public to have faith in it and accept it as a means of payment.

    (1)https://www.bis.org/review/r180226a.htm

    (2)https://www.complianceweek.com/cryptocurrencies-give-rise-to-a-new-kind-of-hacking-threat/2359.article

  12. Paper currency has been a thing since the 11th century during the Song Dynasty in China. I think it is premature to say that paper money is on its way to the history books. I would agree that eventually we would not use paper bills. I think we would pay with our fingerprint or something like that. This whole COVID-19 pandemic has not helped the cash business because there are a lot of places that do not accept cash unless it is perfect change. In 2018 consumers used cash in 26% of all transactions, down from 30% in 2017. Cash is only 2 percentage points behind the leader debit card with 28% of all transactions (1). Those numbers are helped by 6.5% of American households do not have a primary bank account. This means that roughly 14.1 million adults can’t get a debit or credit card and make all of their payments in cash (2).

    (1) https://www.legalexecutiveinstitute.com/will-covid-19-make-cash-obsolete/#
    (2) https://apnews.com/article/8b2b93d4e9474c418853e0f20e79aaa8#:~:text=In%202017%20approximately%206.5%20percent,adults%20without%20a%20bank%20account.

  13. Just like all good things cash will come to an end. In todays technology driven world convenience is king and carrying around a bunch of dollar bills in your overstuffed wallet is the opposite of convenient. According to a study done in 2019, 30% of Americans say that they make no purchases using cash during the week and only 18% percent say they use cash everywhere they go (1). With most kids learning how to use an iPad or their parent’s phones before they talk it shows that we are already becoming more in tune with tech. New apps and services are building towards this new way of living and all you need to use them is a checking account. For individuals that do not have an account to attach there are options such as “No-fee Checking Accounts” which require no up-front deposit and they only charge you for an overdraft fee (2). These help steer us into the direction of a cashless society, eliminating the need for the dollar. An obstacle facing the adoption of a completely digital monetary system is the confidence of the consumer. The Covid-19 crisis was in a way something that helped steer around this obstacle. With over 63% of the people in a survey indicating they have used less cash since the pandemic’s beginning (3) it points to people believing in and trusting the numbers on their screen a little bit more. Like any change it would take a while to adopt this new way of living cashless, but it is most definitely coming because cash is no longer king.

    1.) https://www.cnbc.com/2019/01/15/more-americans-say-they-dont-carry-cash.html
    2.) https://www.cnbc.com/select/best-no-fee-checking-accounts/
    3.) https://cointelegraph.com/news/americans-don-t-want-to-give-up-their-paper-money-but-they-should

  14. Science and technology change our life, as more and more innovative technology and new inventions are applied to our life. In this era, we have felt that our life quality and lifestyle have changed greatly. The popularity of Venmo and Apple Pay has made us feel the rapid development of mobile payment. Many people have started to choose to go out without cash and only use mobile phones. Because whether it is going to the mall or a small store, mobile payment can be a good solution to our problems. You only need to scan the QR code to complete the payment, which is very convenient, and reduces the unnecessary trouble brought by carrying cash and cash change.
    Money is the lifeblood and foundation of finance, and finance is the core and hub of modern economy. Issuing digital currency will profoundly change people’s way of life, have a profound impact on all aspects of the economy and society, and bring unprecedented changes to the financial sector. Due to the lack of historical and empirical data, it is not possible to accurately assess these effects at present, but logically several possible outcomes are as follows.
    First, the digital currency is mainly the replacement of M0, and the currency structure has changed. The cost of issuing, printing, recycling and storage of existing banknotes and coins is high, and it is easy to be forged, anonymous and uncontrollable. The main consideration of issuing digital currency is to reduce the cost of issuing and circulating paper money and improve the convenience and transparency of economic transactions. As a result, the issuance of digital currency will gradually reduce the number of banknotes and coins in circulation until they disappear. Second, improve the measurability of money circulation. In recent years, with the rapid development of finance in various countries, the rapid expansion of financial aggregate, abundant financial products and complex money creation mechanism, the immeasurableness of money supply has decreased Third, precise central bank regulation is possible.
    Finally, many people believe that the future trend of social development is a cashless society, paper money will be eliminated and digital money will become the mainstream, but from the current social survey, this situation is unrealistic, mobile payment also has certain limitations and deficiencies. Cash, as an irreplaceable product, will not be replaced by mobile payment.

    (1)https://www.propublica.org/search?qss=how+important+of+paper+money

    (2)https://projects.propublica.org/nonprofits/organizations/520858134

    (3)https://www.cnbc.com/select/best-no-fee-checking-accounts/

    (4)https://www.sohu.com/a/118647071_495345

  15. In a world where your private information seems to be ever fleeting, cryptocurrencies seem to be a logical solution for those looking to keep their purchases and assets private. This belief is heavily misguided. Medium’s Yi Sun dispels the myth of complete privacy in cryptocurrencies in his article. According to Sun, one gains some privacy in using cryptocurrencies because their name is not linked to their crypto address. But there is a trade-off. Due to the blockchain’s nature, the transactions a user undertakes is visible to the entire world. Additionally, a vast majority of users purchase cryptocurrencies using some form of fiat currency. This exchange means that they will at some point come into contact with established institutional actors if they wish to exchange their cryptos for a more usable fiat currency.
    Another problem that bitcoin aims to solve is currency debasement. Since 2000, $1 has had an average inflation rate of 2% per year with a cumulative price increase of 51.26%. The mechanism to avoid debasement in bitcoin and other currencies is a fixed supply of coinage. An existing institutional asset that already solves this is gold. Additionally, something as volatile as cryptocurrencies and cannot truly serve as a hedge against anything, much less inflation.

    Sun, Y. (2019, January 25). Privacy in Cryptocurrencies. Retrieved February 01, 2021, from https://medium.com/@yi.sun/privacy-in-cryptocurrencies-d4b268157f6c

  16. The pandemic Is affecting firms willingness to take cash for transactions. However, based on a report by the San Francisco Fed Reserve Bank, the pandemic has accelerated what was already in motion. (1) Gradually, less people are using cash to make payments.
    It is a positive change in that electronic payment mechanisms like Apple Pay will be increasingly adopted, yet for those who can afford them. That afford part, for many reasons, is crucial for understanding that this isn’t positive for society wholly
    The largest issue present is the fact that there is a vast underbanked or unbanked population, which constitutes roughly 1/4 of the population in the US. (2) It is unjust to not include a significant portion of the population from commerce just because they cannot afford it. To do so would take the US back to its history of exclusion of people of color in commerce and banking. (3)
    Another group affected by such a transition would be the elder generation, already struggling with technological change. (7)
    Additionally, many are concerned that to give up cash significantly is to give up privacy, even for peer to peer apps like Venmo. (4,5) They believe giving up of cash would then allow for more institutionally centralized power. It isn’t a totally unwarranted concern, since we’ve seen Sweden being able to use negative nominal interest rates as a result of a largely cashless society. (6)
    Moving towards a largely cashless society, as set in motion by the pandemic is not a positive . In Ideal, the US commits itself to protecting the rights of the minority. Switching towards electronic form of payment because it’s more “convenient” goes against those ideals and many others. To truly be able to ever move to a more cashless future, systemic inequality has to be addressed, digitally banked money would have extreme security, and future generations need to come of age.

    1. [Cash | 2019 Findings from the Diary of Consumer Payment Choice](https://www.frbsf.org/cash/publications/fed-notes/2019/june/2019-findings-from-the-diary-of-consumer-payment-choice/)
    2. [Who Gets Hurt When the World Stops Using Cash – The New York Times](https://www.nytimes.com/2020/09/11/your-money/cash-credit-cards-coronavirus.html)
    3. [The case for accelerating financial inclusion in black communities | McKinsey](https://www.mckinsey.com/industries/public-and-social-sector/our-insights/the-case-for-accelerating-financial-inclusion-in-black-communities#)
    4. [Everything We Know About What Data Brokers Know About You — ProPublica](https://www.propublica.org/article/everything-we-know-about-what-data-brokers-know-about-you)
    5. [How in the World Does Venmo Make Money? – The Atlantic](https://www.theatlantic.com/business/archive/2017/07/venmo-makes-money-banks/533946/)
    6. [What’s next: The future of cash | UCI News | UCI](https://news.uci.edu/2020/07/08/whats-next-the-future-of-cash/)
    7. [Sweden – the first cashless society?](https://sweden.se/business/cashless-society/)

  17. Cryptocurrencies were created with the primary purpose of having access to a private and decentralized currencies. These currencies can be used in digital purchases and purchases cannot be tracked or monitored by a governing authority the same way a digital purchase using U.S. Dollars would be (1). Cryptocurrencies are promoted as immune to political whims or cronyism and are therefore supposed to be more stable but that is untrue (2). The creator of a cryptocurrency could at any point decide to release more and flood the market, making themselves better off by devaluing everyone else’s currency. Also, the purchasing power of various cryptocurrencies increase or decrease wildly, as shown by Bitcoin which on the day of writing this February 3, 2021, started at $36,292.76 at 8:14 am EST and by 8:14pm EST shot up to $38,215.77, a roughly $2,000 or 5.3% increase in 12 hours (3). That type of fluctuation does not make Bitcoin the stable alternative currency it was promoted to be.

    Cryptocurrencies will never replace a state-issued currency, central bank digital currencies already do a satisfactory job at handling digital transactions. Banks and other financial institutions work to protect against fraud and other forms of theft that may occur and the American people have enough faith in the stability of the future value of the dollar to keep using it. However, just because cryptocurrencies will never dominate a state-issued currency does not mean they will disappear. Cryptocurrencies ensure almost total privacy, something that central bank digital currencies fail to do. This privacy allows for consumers to partake in illicit digital purchases. For example, purchasing cocaine or fake IDs off the deep web (4). It was estimated that in 2015, roughly $100,000,000 of drugs were purchased illegally on the dark web, and many of these transactions were completed using cryptocurrencies (5).

    (1) https://medium.com/the-capital/why-cryptocurrencies-exist-6c32b6b1c9f9
    (2) https://the2bowmans.com/about-finance/why-do-cryptocurrencies-exist#:~:text=Cryptocurrencies%20exist%20to%20address%20weaknesses,by%20central%20banks%20and%20governments.&text=This%20means%20that%20governments%20and,money%20when%20they%20see%20fit.
    (3) https://www.coindesk.com/price/bitcoin
    (4) https://www.thebalance.com/what-is-a-dark-market-391289
    (5) https://www.wired.com/2015/08/crackdowns-havent-stopped-dark-webs-100m-yearly-drug-sales/

  18. Though cashless payments are increasingly becoming more common, it will be a long time before cash begins to become obsolete. There are many groups and industries who rely on cash daily. In 2015, about 7% of American households were unbanked, meaning they did not have a bank account (1). Further, those that fall in this group tend to be in low income or minority groups. Not accepting cash discriminates against low-income groups and homeless communities who cannot qualify for credit cards or cannot afford their fees. When businesses do not accept cash, they turn away potential customers. As a result, several U.S. cities have made it illegal for businesses to refuse cash (2).
    Contrastingly there are those who may have access to banking systems but still use cash. First, many elderly people are wary of new technology and prefer to use cash as that is what they grew up with. Next, parents often do not trust their children with credit cards and instead give them cash allowances to teach them proper budgeting. Lastly, tipping is heavily engrained in American culture, and it often takes the form of cash. Not only do consumers carry cash specifically for this purpose, service workers have a surplus of it from their job and use it more often.
    Many of the above-mentioned groups will become more accustom to using cashless payments in the future. The aging population will become more accepting of new forms of payment; debt cards for children are already becoming more popular, and services such as Venmo and Zelle may become more commonly used for tipping. Cash is slowly becoming more uncommon, but complete elimination of it will be extremely difficult, if not impossible.

    (1) https://www.moneyunder30.com/what-is-the-future-of-cash
    (2) https://www.nytimes.com/2020/09/11/your-money/cash-credit-cards-coronavirus.html
    (3) https://fortune.com/2020/06/25/cashless-society-coronavirus-cash-america-fintech-unbanked-privacy/

  19. The growing trend of digital currency usage by American consumers has certainly become more apparent over the past two decades, but cash certainly remains king. With the COVID-19 pandemic underway, cash to cash transactions have decreased with the fear of the transfer of the virus through bank notes looming over our heads. Because of these recent trends, it may appear that cash is on its’ way to the history books, but it is still too early to definitively say. While it is true that Venmo, Paypal, and other “banking” institutions have grown in popularity in recent times, a recent report by the Federal Reserve of San Francisco has shown that “cash continues to be the most frequently used payment instrument, representing 30% of all transactions and 55% of transactions under $10” and that “debit and credit cards were generally used for larger transactions”. (1) The fact of the matter is that cash is still a poor store of value and the usage of cash on a day-to-day basis will continue to negatively impact poorer Americans. Paper cash provides zero interest and under the current target inflation rates, paper cash continues to decline in value. Unlike corporations or extremely wealthy Americans with money market funds, the typical small business or average consumer will continue to deal with a growing inflation tax.

    (1) https://www.frbsf.org/cash/publications/fed-notes/2018/november/2018-findings-from-the-diary-of-consumer-payment-choice/

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