Many assume that physical cash is on its way out of our financial system. You’d be forgiven for thinking this, given current advances in technology, widespread adoption of mobile phones, higher inclusion of people into the ranks of the “banked” and the broader FinTech revolution taking place. However, deeper reflection leads to a different conclusion: As long as dire poverty exists in any society, cash cannot be done away with.
Let me explain.
Any monetary value in our society is allocated to individuals in two ways – bearer instruments or registered instruments. A bearer instrument is something that is assumed to be owned by the holder of the instrument. An example is physical cash. You don’t need to prove to anyone that the cash in your wallet is yours. You have it and so you’re the presumed owner. Registered instruments, however, are assets whose ownership is determined by referencing a database managed by a trusted institution (think houses at the Deeds Office or your digital money that is in your bank account).
Now let’s compare cash (a bearer instrument) with the digital money in your bank account (a registered instrument). Even assuming zero bank fees, to access the money in your bank account incurs costs. You either need to have a device with internet access (costly) or you need to travel to your bank branch (also costly) to access or spend the money in your bank account. Physical cash on the other hand incurs no costs to be spent or accepted.
It is socially untenable for a government to require its poorest citizen to incur costs in order to accept value in the form of its currency. As such, it follows that cash will remain in our society as long as the “access cost” to digital money is not insignificant to the poorest member of our society. And of course, this assumes that fiat currency (i.e. government-issued currency) will last longer than it takes us as a society to eradicate extreme poverty! (More on this another time.)
by Farzam Ehsani
