In colonial North America there were two currencies: coins of precious metal and wampum. I would have guessed that a more advanced society would have simpler and more efficient payment and exchange systems, but it doesn’t seem to have worked that way. Let’s look at a person who travels for business up and down the East Coast. He or she will need the following:
- traditional U.S. cash, the only acceptable form of payment in many small businesses
- a credit card, the only acceptable form of payment for many things, e.g., rental cars, airline food and entertainment
- a cash-equivalent card for paying for subway rides on Boston’s MBTA (they spent so much putting in the electronic fare machines that they had to raise the price of a ride from $1.25 to $2, but the new system cannot take a credit or debit card directly)
- a cash-equivalent card for riding the New York City subway and buses
- a smarter cash-equivalent card for riding the Washington, D.C. subway (charges a variable fare depending on distance and time of day)
- various cash-equivalent cards that pay for parking meters in more advanced towns
- an EZ-Pass for paying car tolls in the Northeast (this and other RFID-based toll collection systems are currently optional, as our business traveler could elect to wait in line and pay with cash, but proposals are on the table for making them mandatory (toll collectors can earn more than $150,000 per year, including the value of pension obligations, so there is some pressure to eliminate their jobs)
- an E-PASS for paying car tolls in Orlando
- probably a few more electronic toll payment systems for the states in between
Can anyone think of some more? Is this proliferation of currency hurting U.S. economic efficiency?
[The New York Times yesterday ran a story about running nearly $1 trillion in taxpayer money around in circles through AIG, Fannie Mae, Freddie Mac, and GMAC. I wonder if we’re doing the same thing on an individual basis, i.e., running our money around in circles through various cash-like payment schemes, each time losing about 5 percent.]
There are all kinds of tokens and although the MBTA has phased them out and the NH toll roads have too, I am sure that many still exist.
Also do not forget cassino chips.
And gift cards! According to the New York Times, in 2007,
Retailers will earn $8B in profit on unused gift card value.
So not only are we dividing our money up into ever more illiquid cash-equivalents (want to start calling them M4?), we’re then throwing them away completely.
I am not sure how many different kinds of money we have. But I guess the point is moot when we don’t actually have much of money at all.
World’s leading ‘commie’ nation beats world’s leading ‘capitalistic pig’ nation at its own game. China raised twice as much money from its IPOs this year as US with its vaunted ecosystem of VCs, entrepreneurs, NYSE, NASDAQ etc.
http://www.google.com/hostednews/ap/article/ALeqM5hG4_4MNiRWT3AleX7j7qi3k-4pjwD9CJNEPG0
WOW! Things have come a full circle, haven’t they. Not hard to tell this century will belong to which nation.
-Ritesh
Why stop with that list? What about all the other currencies a world traveler must convert his U.S. dollars into?
“Cash” is a term for a good very broadly accepted in exchange for other goods. A NYC subway card is not cash or even cash-equivalent; it is rides on the NYC subway system, purchased in advance.
The differing cash-equivalents of currency and bank credit in the form of credit cards are accepted by different sellers of goods and services, in large part because they have differing transactional efficiencies. E-Z Pass credit makes life easier and travel more efficient for the buyer because the per-transaction cost of paying U.S. currency at tolls is high, compared to the modest time cost of setting up an E-Z Pass account. Casino chips, MTA cards, and other stores of value are likewise — worth the one-time exchange cost (to either buyer, seller or both) for the benefit of reduced per-transaction costs.
So all these different forms of “cash” exist for the same reason that “cash” generically is a good theoretical idea — it is transactionally efficient. And different forms exist because transactional efficiencies in our modern world can take on very different forms, depending on whether you are buying a newspaper in Times Square, passage over the Delaware Memorial Bridge, or a round-trip ticket on today’s flight to Hong Kong.
Forever postage stamps. All these currencies were attempts to compensate for rapid inflation.
The Washington Post had an article on 2009 May 10 entitled “Bank Card System Weighed For Metro:” http://bit.ly/Bf7MC . As a transit rider, you would have a debit card that would also take note of where you entered and left the transit system, and charge the right amount. The current smart card system is proprietary, but the new one would be based on an international standard. Eventually, a similar card would work around the world, encouraging tourists to use transit in Moscow, Bangkok, or wherever. BTW, Bangkok has a beautiful elevated “Skytrain” as well as a subway.
It’s at least two percent: That’s what cash from non “in network” ATMs costs me (ie: maximum withdrawal a hundred bucks a whack, average $2 fee), and that’s probably roughly the fee for credit cards (once you count my 1% back in miles/”cashback”/whatever).
I bet the transit agencies (and FedEx and other people using prepaid RFID cards) are making more than 5%, the last few times I’ve gone into a FedEx to make a copy I’ve paid a buck, made my two photocopies, and handed the card to the next person I saw coming in, rather than accumulating my collection of cards with $.78 on them in a drawer at home.
Cash-equivalent cards are far from it: on top of the cards themselves (often expensive, depending on technology), plus the cost of building out and implementing those services, is the all-mighty credit card.
What good is an expensive cash-equiv. card if the majority of the users elect to put electronic currency on the card *using a credit card*.
Boom – there’s another $0.45 + say 3.5% to the card companies, a lot more expensive than cash from a processing standpoint.
But then, how much would it cost for the city to hire a government employee to go around, emptying cash-accepting machines? Is it more than the Visa merchant fees?
Also, on the $150k w/pension salary: why is there not more media spotlight on numbers in the 6-figure range? Where’s the outrage? Is everyone full of apathy in this modern robber-baron economy?
Additional thought, probably worth less than what you paid for it:
Any parallels between the proliferation of ways to pay for things and the proliferation of online communication systems? Used to be we had email and Usenet, now we add Wave and Facebook and Twitter and RSS feeds from blogs and…
The UK is getting rid of checks (or rather cheques) http://news.bbc.co.uk/2/hi/business/8415972.stm as they are seen to be outmoded. One of the arguments is the rise of payments via mobile phones. So perhaps the alternatives you mention above are all temporary anyway. It does state “This is driven by the big banks, who will save over £1bn by the demise of the cheque”, but not sure if that’s an argument for greater or lesser efficiency.
How long before the issuers start discounting the funds available through a debit card? (to their own account holders – they already fleece outside accounts)
And the WSJ today quotes vampires saying it is a MORAL obligation to pay off an underwater mortgage loan. It is also a moral obligation to go bankrupt when insolvent, but no bank ever did it voluntarily.
The list seems to be weighted heavily towards the diversity of various transit-payment schemes (tolls, subways and the like), which reflects the lack of interoperability of the systems (to the respective vendors’ benefit) rather than the death of cash. Given the mobility of Americans, I can’t imagine any city walling itself off from the land-based tourism and business trade by making its roadways “locals only”.
Banks are finding it convenient to tout (very profitable) debit cards over cash simply because they’re making money with them and rental car companies (among others) will take cash as payment, but demand a credit line as collateral for the very expensive vehicle you’re about to drive away with. Airlines will also accept cash payments for tickets but similarly require a credit card to electronically hold a reservation.
So cash is often less the issue than an electronic means of verification of capacity to pay; your credit/debit card is the key to temporary access to much more expensive assets.
Philip,
I don’t believe that your initial premise (“In colonial North America there were two currencies…”) is correct. If you mean, “there were ONLY two currencies”, this is certainly untrue. See http://www.coins.nd.edu/ColCurrency/ for a partial list of currencies circulating in colonial times. Paper currency goes back as far as 1690.