The dark side of digital money
The end of cash poses a potential threat to personal autonomy
Twenty years ago, the most that British eurosceptics could hope for was that we wouldn’t join the single currency.
The battle to save the pound was eventually won, of course — but how long before we have to fight it again?
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This time the threat doesn’t come from Europe, but from technology. With more and more of our money going digital, a point will come at which cash goes the same way as the chequebook.
But so what? Most of our money supply went electronic decades ago. That didn’t alter the fact that our monetary system is governed by policies decided here in the United Kingdom. Going completely cashless won’t change this either.
Still, the end of cash will have other consequences. These are explored by Mike Orcutt in a must-read briefing for MIT Technology Review.
Physical currency allows for greater privacy than most forms of electronic money because it doesn’t automatically generate a record of who spends it and for what purpose. Also, if you’ve got cash, you don’t need anyone’s permission to use it — unlike a bank account, you can’t be locked out of the pound in your pocket.
Orcutt points to another key difference:
In theory, any government worth trusting stands behind its banks. But it doesn’t always work out that way — just ask the people of Cyprus.
Therefore the money in your current account isn’t quite the same as the money in your piggy bank. Our national sovereignty needn’t be diminished by the end of cash, but our personal autonomy is another matter.
However, there’s a chance that we could go cashless without having to rely wholly on our bank accounts. This would require an electronic form of money with the properties of cash — i.e. akin to a cryptocurrency, but issued by governments. In fact, the Swedish government is already working on an e-krona project.
I don’t know if our own government has plans for an e-pound, but I bet you an e-tenner that Dominic Cummings would love the idea.
We call banknotes and coins ‘cash,’ but the term really refers to something more abstract: cash is essentially money that your government owes you”¦ The digits in your bank account, on the other hand, refer to what your bank owes you. When you go to an ATM, you are effectively converting the bank’s promise to pay into a government promise.
Strictly speaking, Mike Orcutt is wrong here. Cash is money that the central bank owes you, not the government. There is some money owed by the government to the holder in the US – there are still some ‘red seal’ US Notes around which are liabilities of the US Treasury. But just look at almost any dollar bill, and you’ll see it’s a Federal Reserve Note: a liability of one of the Federal Reserve banks, not of the government. The FRB has some assets, which are often liabilities of the government (government bonds aka “Treasuries”), although they can be other things too. That is why the Federal Reserve Note is (in theory) valuable. Someone could (in principle) obtain the bank’s assets in exchange for writing off the FRN. In practice, it’s hard to see how the Treasuries will ever be paid, so it’s hard to believe they are worth their face value.
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