Cash money, ain’t got no use for you

18 12 2010

No no no no no no NO! No. No no no. NO!

In terms of public safety and national security, the sooner the world moves to a digital cashless economy, the better.

So says Professor Jonathan Lipow. To which I respond, well, you read my first line.

Consider the opening graf:

THE 500-euro note is sometimes called the “Bin Laden” — after all, Europeans may never see the 500 euro, but they know it is out there somewhere. Unfortunately, Al Qaeda’s leader and the 500-euro bill are connected in another way: high-denomination bills make it a lot easier for terrorists to operate.

Got it? A joke about a name actually reveals a deeper reality!

Although, exactly how high-denomination currencies make it easier for terrorists isn’t really explained so much as it is “analogized”:

Organized crime has always been a cash industry. In 1969, the Treasury stopped issuing $500, $1,000, $5,000 and $10,000 bills specifically to impede crime syndicates — the only entities that were still using such large bills after the introduction of electronic money transfers.

It is up to the reader to suss out the reason for big bills: My guess is that it’s a lot easier to store a load of cash if that load is a pallet-full rather than a room-full.

In any case, while it is clear that terrorists and other assorted bad guys [and presumably a few bad broads] prefer cash to credit because, as Lipow helpfully points out, one can collect and dispense cash without showing any ID whatsoever(!!!!) it is not at all clear that bin Laden and his henchmen [what a great word, by the way, henchmen: it even sounds sinister] are actually using those 500-euro notes.

But no matter: the point about the mob was just to reinforce that bad guys and dolls use cash, and that the government can make it harder for those bad guys (and dolls) to use lots and lots of cash.

(Did such actions lead to a lessening of organized crime? Well, no, since Lipow himself notes that drug traffickers pile up the cash, only now in $100 denominations. But that’s another column, right?)

(And for another aside: We should be grateful that after distribution about $19 billion in cash in Iraq and Afghanistan,

the military has gradually realized that the anonymity of cash makes it easy for terrorists and insurgents to smuggle in money and make purchases without a trace.

So the Treasure figured out in 1969 that cash was king among the kingpins, but it took the military 40 years to figure this out? Or is that, too, another column?)

Anyway. Lipow then tells us the solution to all these terroristic and trafficking woes is to move from actual to virtual cash, not just cell-phone based but, preferably, “smart cards with biometric security features.” He offers the charming example of the Universal Electronic Payments System:

In South Africa, the technology company Net1 now distributes social welfare grants to almost four million people. It’s simple: with a battery-operated, point-of-sale device akin to a credit-card terminal, money is transferred from one person’s card to another; during the process, the cards download and record each other’s transaction records.

Every few days, employees from the payments system head out to the villages and make their own money transfers, downloading the transaction histories of the cards they come into contact with, which contain the histories of the cards they interacted with, and so on. That data is then downloaded into the company’s mainframe, as a way of monitoring the flow of funds across the cards.

Best of all, the system can function offline and off the power grid, providing a secure means of payment under all conditions and without any geographic limitations. And the incremental cost of executing a transaction via this system is essentially zero. It is a promising model for the global economy.

It’ll be cheap, easy, and fun!

No, what’s important about this system is not any benefit provided to consumers, but that the crooks, absent the ability to accumulate funds off the books, would find their transactions open to audits:

In a cashless economy, insurgents’ and terrorists’ electronic payments would generate audit trails that could be screened by data mining software; every payment and transfer would yield a treasure trove of information about their agents, their locations and their intentions. This would pose similar challenges for criminals.

Because in a cashless economy, there’s no way—no way—these criminals could dodge a (gasp!) audit, amirite? And since electronic systems are by definition impenetrable, there’s also no way that these same criminals could smash their way through or tunnel their way under these virtual walls to hide, steal, or otherwise mess with these currency bytes, right? Right?

I’m snarking on Lipow, perhaps undeservedly—after all, I’m hardly a fan of either Al Qaeda or organized crime—but he hijacks the wheels (and grease) of the economy in service to the omnipresent national security state without a consideration for all of the other licit purposes of real-world currency, or any inconveniences (or worse) to people of that same world without cold, hard, cash.

Following Lipow’s example, I won’t bother actually to spell out all those inconveniences (Matthew Yglesias provides some possibilities in the link, above), but let’s consider some of those “or worse” scenarios.

  • You don’t have enough money to open a bank account, or enough of a steady infusion of funds to overcome any of the fees associated with low-money accounts. As a result, you are shut out of the economy.
  • You lose your e-cash-card (loss, theft, catastrophe) and have no way to access your account. No one can lend you money to tide you over, because the problem is not the lack of money, but lack of access to the money.
  • You are in an abusive relationship and need funds to get away. Abuser is able to track you through your purchases, or in some way interfere with your ability to access your funds.
  • The government doesn’t like you and slams down a gate between you and your money. (Think this can’t happen? Consider what happened to Muslim charities designated in some way as “terrorist”: their funds were frozen; search “muslim charities funds frozen” for examples. Or asset forfeiture when the cops think you’ve committed a crime; see here and here, among others).
  • The government doesn’t like you and pressures financial institutions to block your access to funds; see WikiLeaks.

The thread running through these possibilities? The loss of access, which can inhibit not just your purchases, but your purchase on the economy, your mobility, and your ability to engage in disfavored political activity.

Admittedly, the last three examples  could be used against me just as I used the only-partial-effectiveness of Treasury Dept. actions to halt crime against Lipow, to wit: these things are already happening in the cash-ready world. Unlike, Lipow, however, I don’t argue that this means we should get rid of all e-money and rely solely on cash.

The virtual economy is useful, which is one of the reason that so many of us have moved happily into it, i.e., we were neither suckered nor coerced into doing so. Common currency was developed, as Adam Smith pointed out, as a convenience to both buyer and seller (as well as a way for sovereigns to accrue and maintain creditable wealth), and while some might have grumbled at the loss of commodity-barter, it is likely that most others liked the fungibility and—wait for it—accessibility of currency.

In other words, currency gave its holder options.

This mix of actual and virtual money seems to me to offer money-holders a reasonable array of options. Don’t like holding cash? Go with the debit or credit card. Prefer shopping online? Ditto. Like being able to fish a buck or two out of your pocket to buy a slice of pizza or to toss into a busker’s guitar lid? Cash. Don’t want a store (or another household member)  to track your spending—or know it was you who bought something embarrassing? Ditto. Want the convenience of the card as well as the ability to buy and sell anonymously? Duh, both.

You can do variously nefarious things with cash, of course, as well as have variously nefarious things done to you, but so, too, with electronic monies. And I wouldn’t be surprised if it were more likely for you to be victimized electronically than, um, cash-ically—but I won’t push it.

So we make our choices—sometimes after much thought, sometimes with no thought at all—and do what we can.

I disdain the glib security-versus-liberty equations, not least because they are not necessarily opposites, and don’t necessarily have anything to do with one another; this particular “versus” implies a death-match which doesn’t necessarily exist.

“Necessarily” is the key term: Sometimes they are in relation to one another, and sometimes one does have to choose more risk in exchange for more freedom, and less freedom in exchange for less risk (although, even here, I question whether trading away one’s freedom will result in greater security—but I’ll leave that for another day).

Lipow, however, commits the opposite error: he doesn’t even consider that his quest for security could have any effect on liberty, large or small; in his eagerness to close off the options of criminals, he doesn’t much consider the effects on the options of the rest of us.

“Money’s destiny is to become digital,” he quotes an OECD report. But he and the report’s authors forget that money doesn’t have a destiny.

It has a use.

Which means we should, theoretically, have some say in how it is used.


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2 responses

20 12 2010
geekhiker

I could honestly see both sides of this. Cash, no doubt, has both worth and convenience, all the more so in developing nations. Yet I see the up and coming generations moving further and further away from having physical currency. Where it will all pan out, I’m none too sure…

20 12 2010
absurdbeats

I adamantly don’t want to align myself with the black helicopter types, but I’m enough of a privacy crank that I’d like the option to spend money without having every damned cent tracked.

So, virtual currencies, sure, but not just that. Or perhaps some form of ‘anonymous’ virtual currency, kinda like a pay-as-you-go cell phone.

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