Last week my family and I went on a summer vacation. While traveling I was amazed to discover just how many merchants no longer accept cash as a form of payment. This transition to a cashless society has been coming for a while but the pandemic certainly sped the whole process up.

Attractions like the local theme park, baseball stadium, and zoo, all had signs saying they were cashless. Several restaurants we ate at had the same requirements for electronic payment. This all got me thinking about the fundamental shift happening in our country.

When I was a young man, I was always advised to carry some paper money for an emergency because you never know when you might need it. However, now I think the rules have completed flipped and the advice that should be given is always carry at least one credit/debit card because you never know when your cash won’t be accepted.

With the advancement of mobile card reader technology, there are very few vendors that can’t accept electronic payment anymore. I even saw a little girl accepting credit cards at her lemonade stand recently.

Outside of the quarter needed to get a shopping cart at Aldi, I don’t remember the last time I needed to pay cash to get something. Perhaps that is why according to a recent Pew study, 41% of Americans report making absolutely no purchases using cash in a given week. https://www.pewresearch.org/short-reads/2022/10/05/more-americans-are-joining-the-cashless-economy/

We are becoming so cashless as a society that there is actually a movement here in the US to move to a Central Bank Digital Currency (CBDC). In fact, last year President Biden signed an executive order to investigate the possibility of creating just such a digital federal currency. But what exactly is digital currency, and how does it differ from the electronic payments we make now?

The primary difference is when we pay for goods and services today, we are still transferring a form of currency that can always be redeemed for paper money even if no paper money is used in the transfer itself. Switching to a digital currency is the elimination of paper money as legal tender altogether. The digital file itself becomes the currency. Not a representation of it.

While we are likely still years away from instituting such a dramatic change to our federal currency, the fact that it is being considered means we need to have a good understanding of the ramifications this kind of monumental shift in monetary policy could have both for good and for bad.

The advantages of CBDC’s include increased efficiency and transparency of financial transactions. It could also add to the flexibility of central banks to react more quickly during times of economic crises, while also reducing both the cost of financial transactions, and the amount of illegal activities paper money is often used for.

At the same time, there are obvious dangers related to a fully digital US currency. First and foremost, are the privacy concerns associated with all monetary transactions being able to be monitored and tracked through one central database. Clearly the opportunity for Orwellian misuses of such information is substantial.

Second, opportunities for large scale fraud and scams are also greatly increased through such a system. The elderly, that might not fully understand digital currency and how it works, would be particularly vulnerable to such abuses.

Finally, the establishment of a CBDC would only further our dependence on technology and could lead to a widespread economic collapse in the wake of a natural disaster or other catastrophic event that takes out our electricity or internet connectedness for an extended period of time. https://en.wikipedia.org/wiki/Central_bank_digital_currency

When I was in college, one of my old history professors would always say that while technology is perpetually evolving, human nature is not. He would often argue that you can’t hope to stop new technology by pretending it doesn’t exist, you can only try to account for our old human nature when utilizing it. I have no doubt in my lifetime all paper currencies will be replaced digitally. All we can do is put enough safeguards in place that the benefits of this change ultimately outweigh the costs.

(Past performance is no guarantee of future results. The advice is general in nature and not intended for specific situations)