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Saturday, July 12, 2008

The Future of Cash

Adam Shostack posts on The Recent History of the Future of Cash. He points out that the choice between cash and electronic payment systems is influenced by questions of trust. In some countries with high inflation, people don't trust cash. But people also don't trust complex and unreliable electronic systems.

Lack of trust increases transaction costs. If I am constantly on guard because of unexpected charges on my account - whether this is due to error or fraud, or simply because the service provider is pocketing a fee for something - then I may have to maintain transaction archives, or copy every transaction into a separate spreadsheet or database. Adam links to a post by Gary Leff, who prints out everything he can think of because he is expecting to be cheated out of some complicated deal on frequent flier miles. This kind of thing is symptomatic of the shallow and short-sighted version of the Support Economy.

Meanwhile, when I buy a book from my local bookshop, the shop accepts cash or debit cards. But if I use a card, the bank will take a cut of the transaction (from the shop). So I prefer to pay cash if I can: cash doesn't really cost me any more than card, but I prefer the shop to get all the money.

Some people feel safer just carrying a card, because cash can be lost or stolen. But which is the greater risk - being mugged by a drug addict in the street, or being ripped off by a major corporation? Different people balance those risks differently.

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