New Front Lines Open in the 'War on Cash', But Is It Ethical?

If you read certain corners of the internet, you may be aware that a war is being waged all around us. It is a global war, in which a major battle has just been waged in India, and new, smaller front lines are opening up in major cities across the United States, including Washington D.C. and New York City. Any consumer who pulls out a $20 (or any other) bill in a Sweetgreen salad bar is now a victim of the 'Global War on Cash'. Cash money will no longer be accepted as a payment instrument, as the restaurant joins a small but growing vanguard of establishments that refuse to handle greenbacks.

But, as with every "war", there are dissenters and objectors, who question the ethics and collateral damage of the unfolding struggle between digital and analogue payment instruments. And while some of the concerns are over-hyped, it is still important not to overlook the ethical and moral concerns that underpin the critique.

Creative Destruction



While "creative destruction" has long been recognised as an essential fact of capitalism, there are those who argue that changing the nature of money itself represents a more fundamental transformation that, in essence, transforms the nature of capitalism itself in an unprecedented fashion. But does the rise of digital payments really represent a fundamental change in the nature of money and capitalism?

The reality is that the nature of money has never been static. It is, after all, a social construct that has evolved and adapted to match the resources and needs of the human societies in which it circulates. These tokens that represent value only work when everyone accepts that is what they are, and history has thrown up examples of shells, precious metals, crops and a whole host of other commodities which have at one time or another been used as tokens of value, until eventually bills of credit were issued by the government (fiat money), or bills of exchange could be redeemed for gold (the "gold standard"), circulated alongside coins, and were trusted as long as people had faith in the institutions that stood behind them.

The Idea of Money



Eventually, governments abandoned the gold standard, and we were left with nothing more than the "idea of money", pieces of paper and bits of metal that are valuable simply because we all agree that they are valuable, and trust in the state to ensure that remains the case. Proponents of the preservation of cash have referred to it as "state money", and advocate treating it like a public utility: any move away from it is a form of privatization, and should be viewed as such.

Indeed, it is inarguable that the great advantage of "state money" is that it is accessible to everyone, whether they like cash or not. Pierre can give it to Sonia who can pass it on to Kamal who can give it to Fatima who can stick it in her piggy bank and keep it for a rainy day (minus inflation). It is open to all and accessible to all; there are no barriers to overcome to participate in a cash economy, and the privacy of transactions is upheld. Cash, in this view then, is a public good that needs to be maintained for both egalitarian and libertarian reasons, representing cash's paradoxical nature: cash is public, but at the same time it is also private. It is unsurprising, therefore, that the supposed 'war on cash' reflects this duality.

A War On Two Fronts



In reality cash is fighting a war on two fronts: against both the private sector and the public sector. So in India, for example, the government is waging war on cash in the name of the public good. The Government of India's recent shock therapy 'demonetization' (unexpectedly withdrawing from circulation the two largest denomination notes in the country) was conceived and executed with the goal of flushing out vast sums of "state money" that operate in the grey and black economies and, ironically, remain forever beyond the reach of the state.

And, although the main targets of this raid were the middle and upper classes in India (notorious for making large purchases with bagfuls of large denomination notes about which the taxman knew nothing), it was the struggling poor who suffered the most collateral damage from this overnight upending of the country's currency. Despite this, however, Prime Minister Narendra Modi's BJP swept to a massive victory in state elections last month, demonstrating popular support for the painful measures.

As Mondato Insight has noted before, however, the recent monetary turmoil in India must be set against the backdrop of an ambitious government plan to provide every family in the country with access to an account at a state-owned bank. Thus, the 'demonitization' attempt to put state money back in the hands of the state where it can be used for the public good is part of a broader agenda to ensure that access to the benefits of the banking system and capitalist economics are available to all, and not just the wealthy, who can choose to switch between public cash and private electronic payments as suits them best. And while the attempts to change the balance between cash and digital payments in an economy such as India's need to be managed carefully, conspiracy theories involving shadowy globalist banking interests remain just that.

Rational Actions, Undesirable Outcomes?



But what about when the war is waged by private actors seeking private gain in more developed capitalist economies? Sweetgreen's decision to eliminate cash was clearly made for clear and rational business reasons, setting aside the wisdom or otherwise of the actual business decision itself. Obviously, the market will offer up an alternative for salad consumption to those unable or disinclined to pay using digital methods.

But what happens if one by one the dominoes fall and the salad market gives up on cash completely? What happens if the fruit and soy and meat markets follow suit? What happens if each individual actor in the market takes a rational decision for their own benefit, but the collective outcome is negative for society overall, or even for just a vulnerable subset of the broader society? It is one thing to be shut out of the market for a particular product, it is quite another to be shut off from money itself.

The issue was highlighted recently, in one of the most cash-lite societies in the world, Sweden, when the country's Pensioners' Rights Organisation managed to gather a petition with almost 140,000 signatures in opposition to the Swedish government's aim to become a cash-free society. Declines in the number of ATMs, bank branches (and even salad bars that accept cash) combine to create unique challenges for sections of society that may not be well-equipped to cope with technological change, such as the elderly and those with disabilities. Change has to be managed slowly, they argued, to allow everyone to adapt at their own pace.

But simple economic theory tells us that if there is a demand for cash then the market will meet it. And in fact recent developments seem to indicate the market is functioning quite well in this regard. Whether it is Uber's moves in India to start accepting cash or Amazon's recent announcement of plans to facilitate cash payments for goods ordered online, (which makes perfect sense for a business that already has brick-and-mortar partners from which goods paid for digitally can be collected) the market is adapting to make sure that money isn't being left on the table and unbanked consumers are not being completely excluded from the digital economy.

War or Revolution



Nevertheless, the underlying concern remains relevant and real: the interposition of third parties into the once simple act of transacting makes us increasingly dependent on those (generally) private actors, whether they are digital banks or 7-Eleven grocery stores. Consumers must enter into these relationships with their eyes open, aware of the facts and their potential consequences. As Mondato Insight observed last week, the balance between financial inclusion and consumer protection needs to be struck carefully.

In reality, though, there is no more a war on paper money than there was a war on the abacus; each was a technological innovation that served society well in a particular historical and economic era. But that is not to say that we should delay imagining what a cashless society might look like, not just for the wealthy and tech-savvy, but also for those who are slower to adapt and adopt. But the beauty of innovation is that with vision and foresight it should be possible to use digital finance and mobile technologies to cater to the needs of these sectors much more readily and precisely than cash was ever able to. Any process of creative destruction involving the fundamentals of the monetary system clearly needs to be handled carefully, but cash is not a victim of war, it is the target of a revolution.

© Mondato 2017


Image courtesy of Armstrong Economics.

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Mondato is a boutique management consulting firm specializing in strategic, commercial and operational support for the Digital Finance & Commerce (DFC) industry.
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