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- Herausgeber: John Wiley & Sons
- Kategorie: Fachliteratur
- Sprache: Englisch
Why cash is worth preserving in an increasingly “cashless” society
Over the last thirty years, we have witnessed a rapid transformation in the way that people pay for goods and services. Where we used to use cash for all but our largest purchases, many people now prefer credit cards, debit cards, cryptocurrency, and electronic services like Venmo, PayPal, or Alipay. And that's not necessarily a good thing.
In The Power of Cash: Why Using Paper Money is Good for You and Society, Professor Jay Zagorsky, former advisor to the Boston Federal Reserve, delivers a startlingly insightful and eye-opening discussion of the harmful and unintended consequences of the demise of paper money. The author convincingly argues that cash is an essential and helpful tool that's worth preserving for the long run.
You'll learn why using cash makes it easier to control your spending, secures your anonymity and privacy against bad actors intent on stealing your data, mitigates the chaos of climate change and war, and helps the poor, vulnerable, unbanked, and disenfranchised to navigate society. You'll also discover:
- When business and governments can refuse to take your paper money
- How cash maintains your privacy and anonymity from tech companies, hackers, banks, and others
- How cash ensures companies cannot charge you a high “custom price”
- The potential dangers of giving governments control and knowledge of your spending
- How cash controls additional fees and costs associated with electronic purchases
Perfect for anyone with an interest in the way we pay for the things we buy each and every day, The Power of Cash is also a must-read for people interested in the implications of a truly “cashless” society on personal finance, technology, politics, and social justice.
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Veröffentlichungsjahr: 2025
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Table of Contents
COVER
TITLE PAGE
COPYRIGHT
DEDICATION
PREFACE
CHAPTER ONE: INTRODUCTION AND OVERVIEW
SHIFT AWAY FROM CASH
WHY THE SHIFT?
KEY QUESTION – IS THE SHIFT GOOD?
THE SYNOPSIS: A DOZEN REASONS CASH IS POWERFUL
CONCLUSION
NOTES
SECTION I: IS CASH DISAPPEARING?
CHAPTER TWO: IS CASH DISAPPEARING?
CASH USE AROUND THE WORLD
WHY DO SOME PLACES USE CASH MORE THAN OTHERS?
TRENDS IN PAPER MONEY USE
WHO IS LEADING THE US SHIFT?
IS CASH STILL USED FOR SMALL PAYMENTS?
CONCLUSION
NOTES
CHAPTER THREE: IS CASH DISAPPEARING?
TRENDS IN PAPER MONEY HOLDINGS
OTHER COUNTRIES
THE CHANGING MIX
WHAT IT MEANS
CONCLUSION
NOTES
SECTION II: CASH PROVIDES SOCIETY WITH RESILIENCE
CHAPTER FOUR: HOW DO CASHLESS PAYMENTS WORK?
COMMUNICATION DISRUPTIONS
ELECTRICITY DISRUPTIONS – UNDERSTANDING POWER GRIDS
NUMBER OF ELECTRICITY DISRUPTIONS
CASH IS ENVIRONMENTALLY FRIENDLY
COMPUTER SECURITY
CONCLUSION
NOTES
CHAPTER FIVE: NATURAL DISASTERS PREVENT CASHLESS PAYMENTS FROM HAPPENING
TREND IN NATURAL DISASTERS
FLOODS: AN EXAMPLE FROM CHINA
HURRICANES
FIRE AND DROUGHT
VOLCANIC ERUPTION
SOLAR STORMS
CONCLUSION
NOTES
CHAPTER SIX: PAPER MONEY BOOSTS NATIONAL DEFENSE
MODERN EXAMPLES
COUNTERFEIT MONEY – DESTROYING FAITH IN THE CURRENCY
POWER
MOVING MONEY
DESTROYING FAITH
ARE TRANSACTIONS TRUE?
CONCLUSION
NOTES
SECTION III: CASH HELPS PEOPLE
CHAPTER SEVEN: USING CASH HELPS CONTROL SPENDING
DO PEOPLE SPEND MORE?
IMPULSE CONTROL
VISUALIZATION
ENDOWMENT EFFECT
THE BUDGET CONSTRAINT
CONCLUSION
NOTES
CHAPTER EIGHT: OTHER REASONS WHY USING CASH HELPS PEOPLE
USING CASH SAVES MONEY
USING CASH KEEPS YOU HEALTHIER
CASH AND MATH SKILLS
TIPPING
NICKEL AND DIMED
CONCLUSION
NOTES
CHAPTER NINE: USING CASH KEEPS YOUR LIFE PRIVATE
HOW PRIVATE IS COLLECTING AND DISTRIBUTING DATA?
WHO NEEDS DATA PRIVACY?
PROBLEMS OF BEING INCORRECTLY IDENTIFIED
POTENTIAL SOLUTIONS
CONCLUSION
NOTES
CHAPTER TEN: USING ELECTRONIC PAYMENTS BOOSTS PRICES
MERCHANT FEES
HOW COMPANIES PRICE
MERCHANT VIEWS
SURCHARGING AND STEERING
CUSTOM PRICING
EXAMPLES OF CUSTOM PRICING
CONCLUSION
NOTES
SECTION IV: CASH HELPS THE VULNERABLE
CHAPTER ELEVEN: ELIMINATING CASH HURTS THE POOR
EXCLUSION FROM STORES
REDUCTION IN CHARITY
LEGAL AND OTHER SOLUTIONS
HOW THE POOR SUBSIDIZE THE RICH
UNBANKED AND UNDERBANKED
THE UNBANKED PAY EXTRA FEES
HOW MANY UNBANKED ARE IN THE WORLD?
UNABLE TO PAY FOR A PHONE
CONCLUSION
NOTES
CHAPTER TWELVE: CASH HELPS IMMIGRANTS, REFUGEES, AND TOURISTS
VULNERABLE TOURISTS
DYNAMIC CURRENCY CONVERSION
FOREIGN EXCHANGE RATES AND BLACK MARKETS
CONCLUSION
NOTES
CHAPTER THIRTEEN: CASH PUTS LIMITS ON CENTRAL BANKS HURTING THE ELDERLY
THE POWER OF INTEREST RATES
NEGATIVE INTEREST RATES
PAPER MONEY IS A BRAKE
SAVINGS PROBLEMS
CASH LIMITS THE DAMAGE OF BANK RUNS
REAL INTEREST RATES
CONCLUSION
NOTES
SECTION V: CASH IS NOT CAUSING CRIME, TERRORISM, OR TAX EVASION
CHAPTER FOURTEEN: DOES CASH MAKE MORE PEOPLE AND BUSINESSES VICTIMS OF CRIME?
FRAUD, SCAMS, AND IDENTITY THEFT
THE AMOUNT OF STOLEN CASH
CASHLESS WAYS TO COMMIT CRIMES
CREDIT CARD CRIME
DEBIT CARD CRIME
DOES THE CASHLESS SOCIETY REDUCE BANK LOSSES?
THE CASE OF SWEDEN
CONCLUSION: HOW TO AVOID THESE TYPES OF CRIME?
NOTES
CHAPTER FIFTEEN: DOES CASH FACILITATE CORRUPTION, TERRORISM, OR ORGANIZED CRIME?
CORRUPTION
CORRUPTION DATA
THE CASE OF SWEDEN
TERRORISM
ORGANIZED CRIME
CONCLUSION
NOTES
CHAPTER SIXTEEN: DOES ELIMINATING CASH REDUCE TAX EVASION?
INDIA'S 2016 ELIMINATION OF MOST CASH
THE TAX GAP AROUND THE WORLD
US TAX GAP
ELECTRONIC TAX FILING
INFLATION TAX
CAN TAX EVASION BE REDUCED WITHOUT GETTING RID OF PAPER MONEY?
CONCLUSION
NOTES
SECTION VI: CONTROL
CHAPTER SEVENTEEN: CASH PREVENTS GOVERNMENT CONTROL
SHUTTING OFF BANK ACCOUNTS
DIGITAL CURRENCY
GOVERNMENT CONTROL OF THE UNBANKED
CURRENCY TRANSACTION REPORTS
CONCLUSION
NOTES
CHAPTER EIGHTEEN: CAN BUSINESSES AND GOVERNMENTS REFUSE TO TAKE CASH?
ARE THERE LAWS FORCING BUSINESSES TO TAKE CASH?
TRYING TO PAY THE IRS WITH CASH
WHY DOES THE IRS NOT WANT CASH?
CONCLUSION
NOTES
CHAPTER NINETEEN: WHO IS PUSHING THE WORLD TO GO CASHLESS?
CREDIT AND DEBIT CARD COMPANY INCENTIVES
CREDIT AND DEBIT CARD COMPANY GROWTH
SMALLER CREDIT CARD COMPANIES
BANKS’ INCENTIVES
GOVERNMENT'S INCENTIVE
HIGH TECHNOLOGY'S INCENTIVE
RETAILERS' INCENTIVE
FINANCIAL TECHNOLOGY INCENTIVES
CONCLUSION
NOTES
CHAPTER TWENTY: CONCLUSION
INDIVIDUAL ACTIONS
COLLECTIVE ADVOCACY
BUREAUCRATIC FIXES – ATMS
INFLATION ADJUSTMENT FOR CURRENCY TRANSACTION REPORTS
BRING BACK LARGE BILLS
LEGISLATION DESIGNED TO ENSURE STORES TAKE CASH
SIN PURCHASES
OTHER SIN OR VICE PURCHASES
YEAR‐END BONUSES
MILITARY PAY
MANDATORY PREPAREDNESS FOR FINANCIAL COMPANIES
THE END
NOTES
ACKNOWLEDGMENTS
BIBLIOGRAPHY
INDEX
END USER LICENSE AGREEMENT
List of Tables
Chapter 2
Table 2.1 US ATM Usage
Chapter 3
Table 3.1 Currency per Person for the Five Most Frequently Traded Currencie...
Table 3.2 Amount of Currency per Person in BRICS
Chapter 4
Table 4.1 Reported Cyberattacks Against US Financial Institutions and Custo...
Chapter 5
Table 5.1 Count and Cost of Major US Natural Disasters (Inflation‐Adjusted)...
Chapter 10
Table 10.1 Amount Mastercard Charges Supermarkets for Credit Card Purchases
Table 10.2 Merchant Cost to Accept Cash and Credit Cards When Customers Mak...
Chapter 11
Table 11.1 Percent Adults Unbanked in the World
Chapter 14
Table 14.1 Summary of People Sentenced for US Federal Bank Crimes in 2010s...
Chapter 15
Table 15.1 Average Corruption Score and Cashless Payments
Table 15.2 Average Annual Terrorist Attacks and Cashless Payments
Chapter 19
Table 19.1 Key Data on Five Major Credit Card Companies in 2022
List of Illustrations
Chapter 2
Figure 2.1 Cash in circulation as a percentage of GDP: 2020.
Chapter 3
Figure 3.1 Cash per person in the United States.
Chapter 4
Figure 4.1 Steps in making a credit card purchase.
Chapter 10
Figure 10.1 How fees affect merchants.
Chapter 13
Figure 13.1 US Treasury five‐year posted and inflation‐adjusted interest rat...
Chapter 14
Figure 14.1 Amount of cash stolen each year in the United States (inflation ...
Chapter 16
Figure 16.1 India's federal government gross tax revenue.
Chapter 20
Figure 20.1 Number of banks and bank branches in the United States.
Figure 20.2 How much a US$500 bill purchases.
Guide
COVER
TABLE OF CONTENTS
TITLE PAGE
COPYRIGHT
DEDICATION
PREFACE
BEGIN READING
ACKNOWLEDGMENTS
BIBLIOGRAPHY
INDEX
END USER LICENSE AGREEMENT
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THE POWER OF CASH
WHY USING PAPER MONEY IS GOOD FOR YOU AND SOCIETY
JAY L. ZAGORSKY
Copyright © 2025 by Jay L. Zagorsky. All rights reserved.
Published by John Wiley & Sons, Inc., Hoboken, New Jersey.
Published simultaneously in Canada.
No part of this publication may be reproduced, stored in a retrieval system, or transmitted in any form or by any means, electronic, mechanical, photocopying, recording, scanning, or otherwise, except as permitted under Section 107 or 108 of the 1976 United States Copyright Act, without either the prior written permission of the Publisher, or authorization through payment of the appropriate per‐copy fee to the Copyright Clearance Center, Inc., 222 Rosewood Drive, Danvers, MA 01923, (978) 750‐8400, fax (978) 750‐4470, or on the web at www.copyright.com. Requests to the Publisher for permission should be addressed to the Permissions Department, John Wiley & Sons, Inc., 111 River Street, Hoboken, NJ 07030, (201) 748‐6011, fax (201) 748‐6008, or online at http://www.wiley.com/go/permission.
Trademarks: Wiley and the Wiley logo are trademarks or registered trademarks of John Wiley & Sons, Inc. and/or its affiliates in the United States and other countries and may not be used without written permission. All other trademarks are the property of their respective owners. John Wiley & Sons, Inc. is not associated with any product or vendor mentioned in this book.
Limit of Liability/Disclaimer of Warranty: While the publisher and author have used their best efforts in preparing this book, they make no representations or warranties with respect to the accuracy or completeness of the contents of this book and specifically disclaim any implied warranties of merchantability or fitness for a particular purpose. No warranty may be created or extended by sales representatives or written sales materials. The advice and strategies contained herein may not be suitable for your situation. You should consult with a professional where appropriate. Further, readers should be aware that websites listed in this work may have changed or disappeared between when this work was written and when it is read. Neither the publisher nor authors shall be liable for any loss of profit or any other commercial damages, including but not limited to special, incidental, consequential, or other damages.
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Library of Congress Cataloging‐in‐Publication Data is Available:
ISBN 9781394299911 (Cloth)ISBN 9781394299928 (ePub)ISBN 9781394299935 (ePDF)
Cover Design: Jon Boylan
Cover Images: © ONYXprj/Shutterstock, © DesignSensation/Getty Images
Author Photo: Courtesy of the Author
To Grandma Betty, who started me on this path, and to my wonderful wife, Kim, who helped write down the journey
PREFACE
Thirty years ago most people used cash. Today, the world has turned away from cash and toward a variety of electronic payments, like credit cards, Venmo, and cryptocurrencies. Most young people don't even carry paper money. Although many see this movement as a wonderful trend, the digital shift has overlooked dark sides. Eliminating cash harms us in many ways. It causes us to spend more, reduces our privacy, and boosts prices we pay. It hits the poor especially hard by making them pay for bank services they cannot afford. It weakens our national defense by making us vulnerable to cyberattacks and natural disasters. It increases crime because criminals can target us from anywhere in the world.
Countless times technologists have presented the electronic future as utopia, but they have failed to comprehend technology's problems. This book sounds an alarm because once paper money, ATMs, and cash registers are gone it will cost billions to restore them. Cash is an essential tool, and this book shows why preserving it for the long run makes us all better off.
Cash's benefits are needed in every society from the most underdeveloped to the most technologically advanced. This book's goal is not to turn back the hands of time and revert to the days when all transactions were done with paper money. Instead, the goal is to present a large number of simple reasons why all of us should carry and use cash alongside electronic payments.
Proponents of a cashless society have spent huge sums of money convincing us to abandon paper money. In 2023 US financial institutions spent $1 billion advertising just credit cards on television, radio, and the internet. That doesn't include all the money spent sending credit card offers in the mail to people's homes; plastering credit card logos on shop doors, menus, and cash registers; and advertising other cashless payment methods like buy now, pay later; debit cards; or cryptocurrency. This advertising is incredibly effective. I am a business school professor who teaches a lot of very smart executives and MBA students and the vast majority tell me they never carry cash anymore.
Compared to the loud calls to eliminate paper money, the voices of people extolling the virtues of cash are mere whispers. But even whispers are powerful if true. Cash has many benefits, from ensuring national security to enabling the poor to function. My goal is simply to ensure that cash continues to coexist with electronic forms of payment because once cash is gone and we realize what is missing, it will be difficult and very expensive to bring back.
* * *
Why am I writing a book extolling the virtues of paper money? Have I always been a strong advocate for using cash? No, like most of society, I abandoned cash and used electronic methods of payments for a long time. I was seduced by the offer of “free” credit card rewards and did everything possible to maximize my reward points. Yes, I was that person who charged even trivial purchases, like buying a small candy bar.
What did I do with all those points? During one sabbatical from teaching, my wife and I flew three‐quarters of the way around the world in business class just using reward points. Isn't that reason enough to abandon cash: the opportunity to travel for free to exotic places?
It's not, because nothing in life is free. Businesses exist to make money; when they offer something for “free,” customers pay for it some other way. As I will show in this book, reward cards are seductive but when analyzed closely, they are actually reverse Robin Hoods – stealing from the financially unsophisticated, who are mainly poor, and giving to the financially sophisticated, who are often rich.
My conversion to being a cash advocate started in 2010 when the Boston Federal Reserve, part of the US's central bank, called and asked me to join a team of unpaid advisors helping to create a “Survey of Consumer Payment Choice.” It is important to note that anything in this book is my own view and in no way represents positions of the Federal Reserve System.
In addition to their well‐known task of setting interest rates, central banks send coins and paper money to and from local banks. To understand how much currency needs to keep circulating, the Federal Reserve wants to understand how consumers pay for purchases. They debated the best means of collecting data and wanted guidance on designing and fielding a survey. They recruited me because of my business school, survey, and wealth research expertise.
When I joined the Survey's board of advisors I didn't know much about how people used cash or trends in electronic payments. By the time the board of advisors was disbanded in 2018, I began to understand how simple actions like buying a small candy bar using a generous rewards credit card likely wiped out the store owner's profit, because of the high card processing fees incurred.
I began publishing my thoughts, primarily as short online articles. Then I was asked to review a book called The Curse of Cash, written by Kenneth Rogoff, the International Monetary Fund's chief economist. His book asked a simple question: has the time come for developed economies to eliminate most paper currency?
Rogoff believes cash has outlived its usefulness and should be regarded as a curse in modern economies. After reading his book and thinking about what I had learned while studying the Boston Federal Reserve's data, I came to the opposite conclusion. Cash is not a curse that should be eliminated; instead, cash has some problems, but also many advantages even in a digital economy.
As I studied the issue and became a full‐fledged cash advocate I realized no book existed that laid out simply why cash is a powerful tool, so I began to write. Although I am an academic who specializes in business data, this book uses stories in every chapter to get many of the points across, rather than a massive number of graphs, charts, and details.
I learned about the power of telling stories from my grandmother Betty, who was a master storyteller. She also was a strong advocate for using cash. Grandma had an amazing brown wooden dresser in her bedroom. As a very small child I would stand on the chair next to this dresser and watch as she opened the top drawer. The left side had a large tray filled with shiny coins lined up in neat rows from pennies to large dollar coins. She would often take a few out. In the summer we would take these coins and walk down the block to a store called Spritzie's. Giving a few coins to the man behind the counter would result in lemon or watermelon slush: wonderful, shaved ice mixed with sugar and syrup. In cooler weather we would take the coins and walk a few blocks further to a store selling toys.
As a small child I was fascinated by that tray. By taking shiny coins out, treats and toys magically appeared in my life. More important, using coins showed me a basic financial lesson: the bigger the slush or toy purchase, the more money was needed. This simple concept is tougher to explain to children in today's cashless world.
I was also fascinated by some of the other walks Grandma and I took. Sometimes we would walk to places where Grandma could “pay the bills.” I especially remember her paying the telephone bill. This seemed silly to my young mind because the phone was already in Grandma's home. On most walks when we used money we got something in return. On these walks we got nothing in return!
Grandma, and many members of her generation, were among the last people to function in a purely cash economy. They used cash for everything. Today, these stories sound cute and nostalgic. Many people have trouble imagining using just cash to make purchases. They have trouble because over my lifetime the world has changed rapidly from one based on paper currency to electronic forms. In some countries like Sweden and China, cash is rarely used. Did we lose something in the transition? The rest of this book argues both individuals and society did, with the goal of convincing you to use and hold cash more often. You don't have to go to Grandma Betty's extreme, but I am sure she would not mind.
Boston, Massachusetts, 2024
CHAPTER ONEINTRODUCTION AND OVERVIEW
A sudden loud noise wakes you from a deep sleep. What was that? You reach for your bedside lamp but it won't turn on. Suddenly your bed is shaking. Earthquake! Your lamp dances across the bedside table and falls off, crashing on the floor. You clutch the sheets and wait for the quaking to stop. Then you slip out of bed and walk carefully to the bathroom to splash water on your face and wake up fully.
A dribble of water comes out of the faucet and then stops. Looking out the window you see your neighbor's house has a huge crack. Part of the roof is hanging over their front door. You pull on some clothes, thinking fast as you feel another tremor shake the floor. No electricity, no water, more quakes coming – you need to get out of here!
In the dark you quickly collect your phone, computer, wallet, and keys. What else do you need? You grab your medications, and some warmer clothes, just in case. Wishing for coffee, you grab some juice and leftover dinner from the refrigerator. You back your car out of the driveway, listening to the news on the radio. The earthquake destroyed the city near you and many roads are impassable. Which way should you go?
Two houses away you see your elderly neighbor waving frantically from her front steps. You roll down your window and ask how she is. Her house is badly damaged and she begs you to take her with you away from this dangerous place. You agree and she rolls a small suitcase to your car and climbs in.
You drive to the route recommended by the radio broadcast. Along both sides of the road you see fallen trees, cracked buildings, and dazed people. The streetlights and traffic lights are out but there aren't many cars of the road yet. You hope you can make it to the next city where your sister lives.
After driving for about an hour you need to get gasoline. Up ahead you see a service station and pull into the line of cars waiting for the pumps. Thank heavens they are still working! You leave your neighbor with the car and go in to the convenience store to buy some food and coffee. At the checkout you present your credit card only to be told, “Cash only. The phones are out and the credit card machine is down.”
Shocked, you stumble back to the car to tell your neighbor you can't buy anything. Not even gasoline! She says, “I have cash. My daughter told me two weeks ago I should always have some for an emergency so I got some. And I think this qualifies as an emergency!”
Thank goodness you brought her along! You thought she would be a drain but here she is saving the day. You fill the gasoline tank and buy sandwiches, fruit, and bottled water, along with that coffee you need so badly. Now you can make it to your sister's house. What would you have done without cash?
You haven't used cash in months. You either use your phone for electronic payments, or tap a credit card on a keypad. But the earthquake has knocked out the telecommunications that electronic payments require.
So many people have, like you, shifted to relying on electronic payments. But when a huge hurricane, raging wildfire, towering tsunami, or colossal solar storm knocks out electricity or telecommunications, electronic payments don't work. When a hacker takes control of central computer systems, your credit cards, debit cards, and Bitcoin can no longer be accepted in payment for food, transportation, or services. That's when cash is a lifesaver. Cash works when your phone runs out of battery, or your phone falls out of your pocket into the toilet, which happens more often than you think. Cash even works when it's soaking wet. In today's electronic payment world having cash gives you resilience.1
SHIFT AWAY FROM CASH
The world has seen a dramatic change in just a few years in how people use and conceive of money. Until the end of the 1900s people primarily used coins and paper money. Then, beginning in the early 2000s, people started abandoning paper money and switching to electronic forms of payment like credit cards, debit cards, cryptocurrency, and mobile payments.
The switch is not happening at the same rate everywhere. It depends on which country you live in. Places like China and Sweden are currently almost entirely cashless. Sweden has abandoned paper money to such a large extent that the Swedish government passed legislation forcing banks to handle cash. China has so thoroughly adopted mobile payments that some tourists try to get a Chinese cell phone number to effectively pay for purchases when visiting the country.
Other places in the world have not abandoned cash. Japan is still a cash‐dependent society, where making large purchases with paper money is normal. If you want to purchase a home or apartment in Argentina, most transactions are done in cash. However, because Argentina's economy and currency are unstable, most sellers want the funds in US paper money. Around the world many rural communities, often located far from banks, still primarily use cash for transactions.
The abandonment of cash is both generational and based on income. Older individuals who grew up using cash still use it at a much higher rate than younger people. Poor people are using cash more often than the rich.
Although the rush away from cash is happening at different speeds around the world, it is clear that paper money is being abandoned from all directions. Restaurants, stores, and even many types of transportation are steadily preventing customers from using cash. For example, airlines used to accept cash to purchase in‐flight food and drink. Today no major airline accepts cash for in‐flight purchases. Not only do airlines no longer accept cash to buy a snack while flying but also it is difficult to pay for a plane ticket with cash. Decades ago many airlines had ticket offices located in major cities that accepted cash. Today many of those offices are shut and customers are directed to buy a ticket on the internet using a debit or credit card.
WHY THE SHIFT?
The shift is happening because there are many powerful groups pushing to get rid of cash.
Credit card companies like Visa, Mastercard, and American Express; financial service companies like PayPal, Afterpay, and Klarna; and a host of smaller financial startups want you to use electronic payments instead of cash because they get a small cut of every purchase. Although the percentage each takes is not large, a small percentage times billions of purchases adds up to huge amounts of money.
Banks and stores want you to use electronic payments because they know people who use electronic payments overspend. Stores are in business to sell. Encouraging people to overspend is a simple way of boosting sales. Cash, for reasons discussed later in the book, restrains people's spending, and electronic payments do not. Banks encourage overspending because after overspending, people borrow money, on which banks make billions each year in interest payments.
Companies selling on the internet also don't want you to use cash. It is impossible to hand paper money through a computer or phone screen to them. Instead, getting your financial information like a credit card or bank account number is far more efficient for them. Giant internet retailers want the online shopping experience to be as fast and frictionless as possible. Storing your financial information in their database enables them to offer one‐click shopping. This sounds wonderful, but heavy internet shoppers need to ask themselves – how often do packages show up and you don't remember what you ordered?
Last, governments and the world's central banks, which print and distribute paper money, are also encouraging the trend away from cash. Many government officials believe most cash is used by criminals to hide their activities. The idea that eliminating cash will boost tax receipts, reduce crime, and eliminate corruption is demolished later in this book, but not all public policy decisions are based on facts or data. Central bankers dislike paper money because it reduces their ability to control a country's macro economy.
KEY QUESTION – IS THE SHIFT GOOD?
The shift to electronic payments is wonderful for credit card companies, banks, high‐tech companies, and governments. However, what is good for them is not necessarily good for either you or society. Every large‐scale societal shift has both good and bad points. People and companies benefiting from electronic payments are trumpeting the positives and ignoring the negatives.
This book shows the overlooked power for individuals and society of continuing to use paper money. The book's goal is to puncture the fairy‐tale world presented by the world's largest banks, high‐tech companies, and governments by showing that keeping and using “old‐fashioned” cash has many positive aspects, ranging from improving a country's self‐defense to helping individuals spend less.
The book is needed for three reasons. First, because of immense profits many types of businesses have a strong incentive to convince you that using paper money is bad and electronic payments are good. Next time you take a flight, count how many ads there are for credit cards and other cash alternatives. There are giant billboards, leaflets in the plane's seat pockets, flight crew announcements, and even small ads snuck into places like napkins and baggage carts. Then try counting the number of ads trying to convince you to use paper money. There are none. No advertising is pushing back against this tidal wave of persuasion.
Second, people's financial literacy is low and falling. FINRA (Financial Industry Regulatory Authority), a US organization responsible for protecting investors, found the typical American could only answer half of its basic financial questions correctly, down from 60% a dozen years ago. Reduced knowledge combined with increasingly complex payment choices enables businesses to take advantage of consumers. Cash, with no bells, whistles, or fine print protects consumers better than any watchdog agency.2
The last and most important reason for this book is that humans overreact. We quickly declare revolutionary new things are better than the old. Often the old is discarded. However, over time the flaws and problems of the revolutionary new product or idea show up and people reconsider what they have lost.
One of the simplest examples is social media. When social media first started, people hailed it as a revolution whose use would enable people to reconnect; find new friends; deepen relationships; provide access to unfiltered, unbiased news; and boost democracy. Today social media is blamed for almost every type of social ill from alienation to bullying, the rise of hate speech, and fringe groups.
After the overreaction, the world often sees the value of older technologies. While writing this book I have been amazed at the resurgence in old technologies, like manual typewriters and even fountain pens. All were considered obsolete until recently. Now they are coming back. The revival is occurring because now consumers understand that although digital technologies have many advantages, they also have unexpected problems and faults.3
The problem with overreaction is that once the old methods are discarded it is very costly to bring them back. One of my favorite examples of an old technology experiencing a startling resurgence is vinyl records. Recording Industry Association of America (RIAA) figures show vinyl records were king of the recorded music industry until the end of the 1970s. Record sales plummeted in the 1980s, first with the advent of compact discs and then with portable MP3 players. The promise of these digital technologies led me to sell my top‐of‐the‐line record player and an extensive record collection built up over decades. By 2005 new vinyl records were almost extinct with total sales of just $14 million.
However, since that low, US vinyl album sales have been rejuvenated as people recognize their benefits. In 2023, record sales were $1.4 billion, which is 100 times larger than sales about two decades earlier. I am now tempted to switch back to vinyl because today's digital music files just don't have the same dynamism and life of records. However, because all of my equipment and music is gone it will cost me a small fortune to rebuild.
It is the same with cash. If society stops using paper money then cash registers, ATMs, coin counting machines, safes, armored cars, and even many bank branches will disappear. Bringing them back will be very costly once people understand what is lost by eliminating cash. If society does not overreact and uses both electronic money and “old‐fashioned” cash simultaneously then we can maintain the resiliency and benefits paper money provide.
Digital technologies promise a utopian future. The world's experience with digital money has shown it has advantages, like speed and convenience. However, with these benefits come a loss of privacy, higher costs, and a total reliance on a network of computers, telecommunications equipment, and electricity, among many other concerns.
Is cash perfect? No, but neither are electronic payments and money. Let me be clear, this book does not argue that we should abandon electronic money. I use credit cards at times, pay some bills online, and occasionally use my cell phone to send money. But I also use paper money.
The goal of this book is to convince you to not abandon cash. The book's message is simple: use cash as well as electronic money when making payments and saving. Doing this will provide many powerful benefits to both you and society.
THE SYNOPSIS: A DOZEN REASONS CASH IS POWERFUL
Life is busy. There is never enough time to do everything we want. Reading books is no exception. I personally read bits and pieces of nonfiction books and do not always read books from cover to cover. For those of you who also jump around when reading a book, here are my personal favorite dozen reasons why cash is powerful. There are far more than a dozen reasons in this book, but this is a quick synopsis and guide.
For those who read straight through, this book contains six parts. The first section lays out the facts and figures of the transition from using cash to a cashless society. The second part discusses why using cash benefits society, the third explains the benefits for individuals, and the fourth shows how cash helps the vulnerable. The fifth section explains why cash is not causing crime, but instead is a symptom of criminal activity. The sixth section explains how cash provides limits on government's control, and the conclusion provides some simple ideas for boosting cash use. For straight‐through readers the following reasons provide a preview.
The Dozen Reasons Why Paper Money Is Powerful for You and Society
Cash works all the time
. The cashless society is dependent on electricity, communications, and computers. For cashless transactions to work, the electrical grid must provide stable uninterrupted power, the telecommunication network must transfer all messages seamlessly, and computers and their data must be secure. When any one of these three parts is broken, cashless transactions do not happen, but cash still works.
Chapter 4
details how cashless payments work and shows how cashless transactions depend on three fragile pieces of technology.
Cash reduces problems caused by major natural disasters
. Mother Nature is hitting the world with increasingly frequent and costly catastrophes. Natural disasters are the very moment when people are most desperate to spend money. In the face of impending hurricanes, typhoons, fires, and earthquakes people are trying to flee or buy supplies. After a natural disaster many people are frantically spending money rebuilding their homes and lives. During and after natural disasters, cashless transactions work poorly or not at all. Paper money, however, does work because it does not need power, connections, or computers.
Chapter 5
delves into the problems of cashless societies facing increasing natural disasters.
Cash protects a country from external enemies
. War has been a concern for thousands of years. One common method when waging war is to soften up an enemy's population. In previous generations this was done with tactics like naval blockades, starving cities into submission, and bombarding military and civilian targets. In a cashless society a simpler and more effective method is to deny people access to their money and the ability to spend it. Destroying the ability to move electronic money around in a cashless society grinds an economy to a halt by making it impossible to buy food, pay for medical care, or use transportation. A current example is Russia's repeated bombing of Ukraine's electrical grid. No electricity in Ukraine makes cashless transactions impossible. By using cash, Ukraine is thwarting Russia's intentions.
Chapter 6
looks into how cash boosts national defense.
Cash protects society from rogue individuals and criminal groups
. It is not just enemy nations that sap a country's resilience. Hackers and criminals have broken into networks that run our banking, transportation, health, communication, and other crucial infrastructures. Because electronic payments are dependent on computer systems, threats that shut down or compromise the massive databases holding our financial data can cripple a country's economy. As an example of why shifting to a cashless society makes a nation more vulnerable, just imagine the following: your bank and all the other financial institutions where you keep money have all accounts locked by ransomware. You might have lots of money in those accounts. However, until all the financial institutions come back online, you are broke. How will you make purchases if you do not have cash?
Chapter 6
has details.
Cash helps people spend less money
. Cash helps control impulse spending because we experience a tiny amount of regret on giving up paper money. Tapping a card, waving a phone, or clicking on a link does not feel like spending real money, so we spend more. Cash also provides a hard budget. When there is no more paper money in your pocket you are forced to stop spending. Cashless methods break this hard budget and enable more spending to happen. Businesses love this feature, which is why so many accept a variety of payments.
Chapter 7
looks at spending in more detail.
Cash gives you privacy
. Cash is an anonymous means of payment. The cashless society generates a large amount of data with every transaction. It is clear people don't want to be associated with illegal purchases. No one wants a permanent record of buying illegal drugs like heroin or spending money on prostitutes or escort services. However, spending privacy goes well beyond purchasing illegal products or services. Not everyone wants others to know they are using weight loss products, coloring their hair, or buying lottery tickets. Privacy is covered in
Chapter 9
.
Cash reduces the price you pay
. Cash hides both what you bought and how much you paid, but every cashless transaction generates data. One of the most valuable aspects of this information is the ability to create custom ads and prices for each customer. Some customers are willing to pay more, but currently don't have to. Your buying patterns can enable businesses to charge you higher prices. Pricing is covered in
Chapter 10
.
Cash helps the poor
. A cashless society marginalizes the poor and those who are unbanked. Not everyone in society has or can get an account at a bank or financial institution. Moving to a cashless society forces all people to get bank accounts. For the rich and middle class, bank accounts typically have no out‐of‐pocket cost. However, for the poor, bank accounts are expensive. Bank accounts with little money in them typically have an up‐front monthly charge. The up‐front charge, overdraft, and other fees make banking costly for poor people and those living paycheck to paycheck. As one advocate told me, “the fees charged to my poor clients are predatory.”
Chapter 11
focuses on the problems the poor have in the cashless society.
Cash enables charity
. How often have you been asked for “spare change” or “can you help us with a small donation?” With cash if you are feeling charitable you pull some money from your pocket and continue on your way. In a cashless society making small donations and helping the poorest of the poor is difficult. Without cash what are you going to do: send money via PayPal, Venmo, or some other instant payment program? The person or group asking for change might not have a phone or an account. Charity is talked about in more detail in
Chapter 11
.
Cash makes the lives of immigrants and tourists easier
. Immigrants and foreign tourists don't have local financial connections. For them it is easier to do things in cash than using the cashless system. Both groups often face language barriers. Electronic transactions come with a host of things that must be read, understood, and signed. With cash you only need to recognize a few commonly used digits. Making it easy for people to pay for lodging, food, and entertainment without excess fees and surcharges boosts local economies.
Chapter 12
discusses paper money, immigrants, refugees, and tourism.
Cash prevents governments from controlling protestors, minorities, and opposition groups
. A cashless society gives governments the power to shut down dissent quickly. Shutting off access to cashless payments and financial accounts is a simple way of restraining protests or punishing groups and individuals. You think this only happens in dictatorships or in countries most people cannot find on a map? In Canada truck drivers protested government policies by driving their tractor trailers slowly around Parliament while honking their horns for days. The government crushed the demonstrations by shutting off the drivers' access to their money, which meant no food, gas, or ability to post bail for the protestors. With cash the truckers could have continued to dissent.
Chapter 17
has other examples of government control.
Cash ensures central bankers do not have unfettered ability to wreak economic havoc on the vulnerable
. For most of history people who saved money were paid interest and people who borrowed money owed interest. Saving was rewarded and borrowing was punished. Based on these rules in preparation for old age, many people saved money during their working years and lived off the interest and principal in retirement. Electronic money has turned this entire system on its head by allowing central banks to push interest rates below zero. Negative interest rates were common in Europe from 2014 to 2022 and also in Japan for many years. Negative rates punish anyone who saves money because a negative rate means savers have a portion of their money confiscated every month. Borrowers who get negative interest loans are rewarded for spending. Central bankers use negative rates to spur spending. However, what is good for a central banker is not good for the many elderly people who are concerned that spending too much today will leave them destitute tomorrow. Cash puts a brake on central bank policies, because taking paper money out of banks prevents central bankers from pushing interest rates much below zero.
Chapter 17
goes into detail about negative interest rate problems.
CONCLUSION
Although I've identified my top dozen reasons, I always urge my business school students to give customers a bit more than expected. The bakery industry codified this by giving customers a “baker's dozen,” which is 13 items instead of 12. Following that model, my 13th reason is cash is fun to hold and use.
At the beginning of my academic career I was very poor. Because of that experience, today I get a thrill out of holding a wad of cash and using it to make purchases. Holding these bills in my hand is fun because they are a concrete signal I have money and can now afford to buy things.
Beyond cash being fun, it provides clearer feedback on how well or poorly you are doing financially than is available in a cashless world. Many of us have no clue how rich or poor we really are. I wrote a series of research papers comparing people's perceptions of their wealth with reality. The findings were dramatic; the vast number of people underestimated their financial situation and the average person believed they only had about 62¢ for every $1 of wealth they actually held. One reason for the underestimation is for many people their paycheck, bank account, or retirement savings are just numbers that exist as a string of zeros and ones in some remote digital database. Having and using paper money makes your financial situation real instead of abstract.4
Many pundits have predicted the demise of cash. Hopefully, these 13 reasons, plus all the others in this book, will convince you of the power cash has over electronic forms of money. When you are convinced, join me in using paper money more frequently in your personal and business life. This will ensure cash does not become a thing of the past but, like vinyl records, enjoys a resurgence as an important method of paying and saving around the world.
NOTES
1
. One in five admit to dropping their phone into the toilet (Bialik and Orth 2023).
2
. Urban and Valdes (2022).
3
. For typewriters see Free (2018) and for fountain pens see Kelly (2019).
4
. Zagorsky (2000).
SECTION IIS CASH DISAPPEARING?
The next two chapters look at data on how fast paper money is disappearing from society. Chapter 2 investigates trends in cash use for payments and Chapter 3 investigates cash use for savings.
Chapter 2 shows that although cash was once king for making purchases, it has been dethroned. The shift from cash to electronic payments was accelerated during the COVID epidemic, when people did not want to touch money. Chapter 3 shows something rather startling. Cash is not disappearing! Instead, the amount of paper currency in circulation has exploded.
Together, these two chapters point out that people are switching from using cash to buy things to holding it in case of emergencies. This presents a major conundrum. If no one uses cash for daily purchases, businesses lose the ability to handle it so when an emergency happens, no business accepts paper money.
CHAPTER TWOIS CASH DISAPPEARING?: THE CASE OF SPENDING
I'm sure you have seen pronouncements that cash is dead, or predictions that cash will become obsolete. Are these statements accurate?1
Although you might know many people who have stopped carrying cash, is it really on the way out? The first step to solving any problem is to quantify it. There is an old expression: “You cannot fix what you cannot measure.”
How can we measure if cash is disappearing? We can track the percentage of people using cash over time. People use paper money for two primary reasons: to spend it and to save it. This chapter looks at the data to see how cash is faring in the fight over what methods people use to spend their money, and Chapter 3 focuses on savings.2
A national US survey highlights the dramatic shift away from using paper money for spending. It asked people if they were holding any cash. In 2015 about one‐fifth (17.1%) said they were not carrying any paper money. By 2022 the figure was over one‐third (34.6%). In less than a decade the percentage of people walking around without any paper money doubled! If people don't carry cash they cannot experience any of its benefits.3
Before jumping into more numbers, let me tell you a couple of quick stories highlighting this transformation. When alternatives to cash, like credit cards, first started there very stringent rules about who got cards. Neil Armstrong was the first man to walk on the moon. For this feat he became internationally famous, got one of New York City's largest ticker tape parades, and received medals from 17 countries. Five years after his historic feat he applied for a Diners Club card, one of the first national credit cards. Armstrong was rejected because he didn't have enough income.
After walking on the moon Armstrong quit the space program and became a relatively low‐paid professor at the University of Cincinnati. A half‐century ago, immense fame did not help get him a credit card. The Armstrong family actually got the last laugh in this story. After Neil's death the family auctioned off his memorabilia and a collector paid $30 thousand for just the credit card rejection letter.4
While a half‐century ago getting approved to use a cash alternative was tough, today it is trivial. After my father‐in‐law died, his mailing address was changed to my home. Five years after his death we continued to receive credit card offers in his name. Hopefully, banks investigate if a dead man decides to accept their “preapproved” offers, but other types of electronic payments do not. Cryptocurrencies attracted early interest because they were completely anonymous. When they first appeared, no name, address, or other identifying information was needed to buy or sell them.
The increasing ease of obtaining alternatives to cash is one reason why paper money is disappearing in daily transactions around the world. For those people who don't like numbers, feel free to skip to the conclusion of this chapter. For the rest, let's first take a look at which countries use cash the most and least. Then we will dive into who is still using cash and why it is important.
CASH USE AROUND THE WORLD
The fight over cash is happening all across the world, but the results of each battle vary widely. In some countries, like Sweden and China, the fight is over and the anti‐cash forces have won. In other places, like Japan, pro‐cash forces still have the upper hand.
Data showing which countries are the most and least dependent on cash are tracked by the Bank for International Settlements (BIS). The BIS, headquartered in Switzerland, is the world's bank for central banks. BIS has been tracking data on the shift from cash to cashless payments for years. One of their key indicators is the amount of cash in circulation as a percentage of GDP.5
We can use this ratio as a proxy representing cash demand. Countries that use a lot of cash to run their economy have a high percentage value, and cashless economies have a low percentage value.6
Figure 2.1 graphs the ratio of cash in circulation as a percentage of GDP for some of the world's major economies. The heavy cash‐using countries are on the figure's left side. The more cashless societies are on the right.
Japan, at almost one‐quarter (23%), is the most cash‐intensive country, followed by India. The least cash‐intensive country is Sweden at about 1% (1.3%), followed by the United Kingdom.
The United States, at about 10% (9.7%), is in the middle of the graph. Comparing the most to the least cash‐intensive shows Japan uses about 18 times as much cash as Sweden to run its economy. The United States, in the middle of the pack, uses about seven times as much cash as Sweden.
Figure 2.1 Cash in circulation as a percentage of GDP: 2020.
WHY DO SOME PLACES USE CASH MORE THAN OTHERS?
There is no simple explanation why people in some countries love cash and others do not. One example of dramatic differences is seen comparing two European neighbors, the Netherlands and Germany. Cash is widely used in Germany, but not in the Netherlands. The two countries share a long common border, both use the euro as currency, and quite a few people in the Netherlands speak German. There is, however, a clear divide in cultural attitudes toward the preferred payment method.
Dutch friends tell me, “We hate cash and Germans love it.” This succinctly summarizes the cultural differences. However, for those interested in specific numbers, both country's central banks ran comparable surveys tracking cash use. In 2021 only 4% of Germans did not carry any cash.7 When Germans were asked their preferred method of payment, roughly 30% said they liked paying with cash. The Germans don't lack access to electronic methods. Ninety‐nine percent of Germans said they had a debit card, over half of all Germans stated they had a credit card, and about 30% stated they held multiple cards. Germans are fully able to use electronic payments, but many do not like to use them.
In that same year the Dutch national bank surveyed its population about cash use and found 24% stated, “No, I don't usually carry banknotes.”8 Six times as many Dutch people did not carry cash as Germans. It is not only people in the Netherlands who do not like cash but also businesses. The Dutch central bank commissions annual surveys to track business acceptance. The most recent survey found over half of all parking garages and lots, a third of all cinemas, and a quarter of pharmacies did not take cash. The pharmacy figure is the most disturbing because it means people who need medicine and only have cash in the Netherlands might not get the drugs they need.
No specific underlying reason for this split has currently been pinpointed. What is not driving the differences is either cell phone or internet penetration, which makes it easy to perform mobile banking and payments. Cell phone penetration in Germany is actually higher than it is in the Netherlands, and the two countries have roughly similar internet use rates.9
Government rules and regulations are a possible reason why people in some countries use or do not use cash. El Salvador is a small Central American country whose official paper currency is the US dollar. The country's president, however, is trying to wean the country off US paper money to reduce Washington's influence on the El Salvadorian economy.
To wean the country, in summer 2021 El Salvador declared the cryptocurrency Bitcoin as legal tender for all transactions. To boost cryptocurrency use, the government created its own app and gave away free cryptocurrency to any citizen who downloaded the program.10
After three years, El Salvador's policies clearly favoring electronic payments over cash have had no impact. A recent news article states, “To date, most Salvadorans ignore Bitcoin. They worry about the cryptocurrency's volatility in a cash‐based economy where many live hand‐to‐mouth.”11
Figure 2.1 shows stark differences in cash use between countries. Although the reasons for these differences are not yet clear, these differences ensure there are many more countries that will have battles between cash and electronic payments.
TRENDS IN PAPER MONEY USE
What is happening over time in paper money use? Let's first look at a low‐cash‐use country, the United Kingdom. The British Retail Consortium is a trade group that tracks the type of payments made in everything from the smallest shops to the largest stores across the UK. In 2015 the Consortium found almost half (47.2%) of people paying retailers used paper money to make a purchase. By 2022 the figure was down to one‐fifth (18.8%). In less than a decade the use of cash by British retail customers was more than cut in half! As Chapter 10 points out, this denies UK businesses the lower costs of handling cash, which boosts prices for consumers.
People in the United States, a country that falls in the middle of the spectrum in Figure 2.1, are also steadily shifting away from paying using paper money. In the United States, a Federal Reserve's survey shows the percentage of payments done using cash is steadily declining. In 2015 the typical person made about one‐third of their transactions in cash. By 2022 the number had fallen in half to just over 17%.12
Not only is the number of cash transactions decreasing but the average amount spent when using cash is also falling. In October 2015, the typical US adult made $470 worth of cash payments per month, after adjusting for inflation. However, by 2022, just eight years later, the amount spent had fallen by about half, to $238.
The drop in cash spending is not due to a reduction in overall spending. In 2015 the survey found the typical adult spent $4,500 during October after adjusting for inflation. By 2022 spending was over $5,000. Over this eight‐year period, overall spending rose while the amount spent using cash dropped, showing cash use is falling out of favor.
WHO IS LEADING THE US SHIFT?
Not surprisingly, the young are leading the charge away from cash. The young are the least likely to report having any paper money on their person. In 2015, when the survey was first started, one out of every four people between the ages of 18 and 34 held no cash. Among older people the answer was very different. Among people over the age of 55 at that time more than 90% of people said they were holding cash.
