Law in the Internet Society
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Cash is still King: Arguments for and against (Revised Second Essay)

-- By WyattLittles - 17 Jan 2015


With the rise of electronic payment systems, there has been a simultaneous decline in the use of cash. Many cite rising ancillary costs, i.e. trips to the bank, cash counting, need for increased security, employee theft, etc, as a root of the issue and believe soon these costs will outweigh the advantages of receiving cash. Legally, an individual’s right to use cash in the United States is protected by The Coinage Act of 1965, 31 U.S.C. 5103, which states that “United States coins and currency (including Federal reserve notes and circulating notes of Federal reserve banks and national banks) are legal tender for all debts, public charges, taxes, and duties.” However, given that there is no federal statute that requires a private business, person, or organization to accept currency or coins as payment for goods and/or services, as these private entities may adopt their own policies on whether or not to accept cash as long as it does not violate state law. While the decline of cash may be occurring more rapidly in the developed countries, for several reasons, the death of cash may not be as close as expected. Despite the growth of technology, cash will continue to be a primary means of payment for individuals because of its prevalence in private consumer transactions, the central role it plays in social welfare programs, and the lack of trust or available electronic systems in developing countries.

The underlying costs of electronic payment systems

Since the advent of the credit card and the proliferation of debit cards, there has been increased pressure on many businesses and individuals to carry out fewer cash transactions. This pressure has relied on arguments citing the “benefits” of e-payments, most notably, efficiency, convenience, and mobility. However, these alleged “advantages” of e-payments must be examined in light of the drawbacks that accompany them.

E-payments come along with a lack of authentication and repudiation of charges, credit card fraud, and privacy concerns, mainly the tracking/monitoring of consumer spending. The ability to track consumer spending is the most significant of the aforementioned disadvantages, as it brings into question the issue of anonymity. Consumer monitoring is such a high priority for many retailers, that some companies have summarily dismissed the use of certain forms of e-payment. When applied in the government context and taken to the extreme, if the world were to move to a completely electronic system of payments, individuals would only be allowed to purchase what the government “allows” them to, ultimately compromising consumer autonomy. There lies the greatest benefit of using cash, the power of autonomy. It is much more difficult to leave a “paper trail” that the government or powers of capitalism can track when using paper.

The case for cash: consumer autonomy, individual transactional convenience, social welfare, and it’s role in developing countries

In a cashless society, consumer autonomy is significantly compromised. Cash is the most transparent form of payment. It is the form of payment that connects us most directly to the fact that we are parting with our earnings. Many forms of e-payment alter the point at which the “pain of paying” is experienced, as consumers feel differently about paying for items when there is a gap between the time the product is bought or experienced and when it is paid for. This makes it tempting to enjoy goods or services immediately only to realize the full cost of the purchase at a later time. By altering this point individuals lose some of their autonomy through capitalist manipulation aimed at increasing consumer spending.

Consumers choose cash more frequently than any other payment instrument, including debit or credit cards because of the dominant role it plays in small-value transactions. Similarly, cash stands as the key alternative when other options are not available. In certain cases, including that of mostly lower-income consumers who lack access to alternative payment options or find them too costly or difficult to obtain, cash is also used for relatively larger-value transactions according to the Federal Reserve of San Francisco. Changing global economic forces also encourage the continued use of cash. In times of increased risk and uncertainty people tend to hold on to cash to reduce their risk profile. As markets become more and more vulnerable to negative news flows on global macroeconomic indicators; thus money supplies will continue to be used to counter sluggish or falling economic growth.

As developing countries work to improve the lives of the poor, the use of cash will continue to flourish. For instance, many developing countries are working to improve their labor pools and experimenting with cash incentives. For example, Conditional Cash Transfer Programs (“CCT Progams”) essentially provide cash to poor families conditioned on investment in human capital, such as sending children to school or bringing them to health care centers. As developing nations, continue to rely on cash for their social welfare initiatives, this will affect cash use in the West.

Finally, many developing countries cannot sustain electronic payment systems. As illustrated in the conclusions from an examination of electronic payment systems in Nigeria, many countries are still struggling to develop well-functioning infrastructural arrangements that can sustain reliable electronic payment systems. Even in Nigeria, where the electronic payment infrastructure is comparable to those in the West, the failure to put in place reliable and relevant market and collaborative agreements has not enabled full exploitation of the available infrastructure to sustain a widespread and viable e-form payment system. In the background of this process, there is also a power struggle and distrust between the players and regulators or political leaders and citizens of these countries. This is worth noting, as this dynamic hampers the creation of an environment that would sustain free market activities and the development of e-payment systems.

Considering these factors, it is not likely that we will experience the death of cash in the next decade. While cash has given up some ground to electronic payments, with over three billion people living on less than $2.50 a day, cash is still king.

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r1 - 17 Jan 2015 - 20:43:32 - WyattLittles
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