Is the Demise of Paper Money Inevitable?

The Internet truly is forever. A few weeks ago I was reading about Bitcoin and thinking about an essay I wrote in 1996. I thought I’d lost it forever in a hard drive crash. But thanks to the Internet Wayback Machine it has been unearthed and published here with some light edits.

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Suppose you go to the bank to get some money.

Suppose there isn’t any.

Let’s be clear on what we’re talking about here. You go to the bank, so there’s still a money system. There are still bank accounts and bank balances. There are still bank cards and bank statements. There are still all manner of transactions and transfers; debits and credits; disbursements and deposits. There just aren’t any withdrawals. There isn’t any physical, tangible, put-in-your-pocket, stuff-under-your-mattress, hand-it-over, bank-robbable cash. There isn’t any of this…you know…money!

Just how close are we to this state of affairs? How far are we from the full realization of digital money? Perhaps not very far.

Conducting financial transactions solely in the digital, rather than physical, realm is nothing new or revolutionary. My money is not sitting in a box at my bank. When my employers pay me, they don’t hand me a wad of cash for me to take to the bank to put into that box. In fact, an amount is wire transferred from my employers’ financial institution to a payment agency that directly deposits my salary in digital form into my checking account. What could be less physical than that? It sounds like digital money to me.

At the same time, a dollar is not, as a physical object, inherently worth anything. It’s paper and ink. However, it represents a legal contract. When I present this paper, I can legally expect to use it to obtain an object of equal or lesser value, or other monetary units of equal value.

Furthermore, the dollar is already becoming largely obsolete, except for small, trivial transactions. No one buys a house, car, or even a sofa with dollars. Instead, we rely on inter-institutional transfers, charge or credit cards or checks.

There are no two ways about it. For decades, society has steadily moved in the direction of adopting non-physical forms of monetary transactions and worth. Probably the trend in this direction will continue, even accelerate. Even now the only question is about the threshold for cash exchanges. If you could only use cash for purchases under $10 would that be okay? How would you feel about a dollar and under? And what if you never actually had to handle and use physical money again?

So, is this therefore where the digitalization of money is heading? Does the emergence of digital money present the prospect of the complete eradication of physical, paper money? There is direct evidence that society can already knowingly and enthusiastically adopt non-physical forms of money. But does this pattern support our opening scenario of no longer being able to withdraw cash from the bank because the dollar, as we know it today, no longer exists?

Let’s think about this for a minute.

When we put our money in a bank, we are trusting them to give it back to us whenever we ask for it. Moreover, we expect them to give it back to us in physical form, as cash, and not merely, say, in the form of a statement.

The total disappearance of paper money means that I can never get back, in any physical, tangible form, what I’ve put in. In such a system, money would be redefined only as a means to purchase and I could never access it except to make purchases. Even then, I would never actually handle money on individual terms. Instead, every transaction would be mediated by the third-party institution in which the ethereal record of my financial worth resides.

Our current acceptance of the digitalization of financial transactions does not extend — at least at this time — to the complete unavailability of paper money. Money in physical form resonates in our consciousness. It represents a material definition and confirmation of our personal financial worth. If I can take money out of the bank and carry it, then I can conduct my financial dealings completely independently of any institution.

I can throw my digital money card away, but my account (and my ethereal money) is still there. Today, if I want to, I can go in and close my account and get my money back in the form of paper bills. But, if there is no paper money for me to get back, then I can never really close my account, can I?

I can do a lot of things with paper money that has nothing to do with making purchases. I can burn it and it will cease to exist as an object of value. I can’t do that with my digital money card. The money is still there and I can only use it to buy something. I can give paper money to a beggar on the street. On the other hand, my digital money card, unless he can guess my access code, is worthless to him. I have given him nothing. And the money is still there. I can pool paper money with coworkers to buy a pizza. My digital money card will not work in a casual, joint-purchase scenario. I can put paper money in a drawer and keep it there forever. It is truly mine. My digital money card, however, is a symbol of what is mine but I can never actually get my hands on what it symbolizes, which today means paper money.

Why is the availability, the tangibility, of paper money so important? Because if I can handle it then I am free to dispose of it (or not) in any manner I choose. This capability is essential to my individuality and independence. The disappearance of paper money would severely undermine that capability. So much so that it is very hard to imagine that people would be willing to part with that particular aspect of paper money. We have an internal history, a psychological relationship with paper money that would make the radical changeover to digital money extremely difficult, sociologically speaking.

Technologically, it would not be difficult. Given our slow but steady adoption of larger forms of digital money, most of the pieces are already in place.

But the point is this: the disappearance of paper money would not represent the dominance of a particular technology; it means we would be living in a different society.

I’d like to take a moment to point out that what I’m trying to get you to think about here has nothing to do with privacy or security. These are both key issues, but the heart of the matter is that digital money represents not a technological possibility but social change on a vast scale. For a fully-realized digital money system would come into direct conflict with our deeply rooted and complex relationship to cash. This is the question I would like to ask: could the massive psycho-social shift that would be necessary to eradicate paper money possibly take place?

The complete disappearance of paper money from our daily lives will necessarily engender a social debate that goes way beyond (and will ultimately determine the relevance of) those other issues of privacy and security.

I think we can agree on one thing: social and technological developments come into existence (and stay in existence) only because they are both possible and desirable. If both those criteria are not met, the technological or social development will fail.

But just because we are technologically capable of eradicating paper money doesn’t mean that we’ll choose to. And it will be a matter of choice. Our historical and current adoption of a form of digital money came about not because it was forced upon us, but because people saw enough benefits in it.

The technology behind digital money will not determine its ultimate acceptance or failure (and by ultimate acceptance, I am referring to the complete eradication of cash). The psychological response to what the technology proposes will be the determinant.

“What has to actually happen for people to give up their cash for a card? It would have to be done by the Feds. How else?”
— Journalist Denise Caruso

In Denise Caruso’s question I sense an anxiety that we will one day wake up and be told that we can only use our digital money cards and that dollar bills are not real anymore. A mandate such as this would entail creating a different society overnight. It’s simply not possible to do so without extreme ramifications.

The adoption of digital money would require a near-total social consensus in its favor. It would probably demand global acceptance as well, since we are now firmly entrenched in a global marketplace. Those who did not accept it simply could not exist in this society, which is why I would define it as a different society.

The decision to opt for a cashless society will be made in the psycho-social realm. If we opt for it, it will only be because we have decided that the benefits of digital money outweigh whatever psychological and spiritual discomfort we feel about abandoning our physical relationship to paper money.

Just because we can do something doesn’t mean we will do it. And just because we choose to do something doesn’t mean we can’t choose to stop doing it. No technological decision is inevitable, and no adoption of a new technology is irreversible.

The potential for social change embodied in any given technology (or the technology of any given time) can never be actualized by that technology alone. Society must accept it as desirable.

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