Getting your head out of the clouds. Brett Scott argues why cash should still be king.
The war on cash is progressing better than Russia’s war on Ukraine. It is a battle that the banks and state actors are winning, and it’s not a sort of proxy war that exists under our doormats and right under our noses — It is one of which we are active and willing participants. In the war against cash, without us knowing, we are the soldiers armed with banking apps. Having been living in South East Asia, where cash is supposively still king, cash is losing ground even at the level of streetside stalls to admittedly, very convenient QR codes. Cash, it seems, is a nuisance.
But Brett Scott thinks otherwise. Whether we like it or not, cash is a representation of our financial freedom and privacy. And in this light, it is difficult to contradict him. Reading Cloud Money terrifies me more than reading any Stephen King novel. Perhaps it is one of the first books I’ve read which explores our fragile privacy in more detail than I’d like, and it is a stark reminder that in adopting new and convenient ways, we lose the comforts and security which the old ways provided (in this case, our good mate cash).
Scott here uses an apt analogy:
“Partisans with anti-cash agenda paint cash as impendiment — blocking the road for the fast cars seeking to overtake it. Yet there is no conflict in maintaining both systems. The closest transport analogy for cash is the bicycle, and ‘going cashless’ is like closing down bike lanes that run parallel in a city of cars.”
And as much as I fucking hate entitled cyclists taking up the lane and going through red lights, as though they’re not using the fucking road, there are benefits of having bicycles around: they’re green, they’re beneficial for fitness and they’re another avenue to reduce congestion. Living in Kuala Lumpur, where there are more cars than adults, having the option of pedestrian-friendly streets and bike lanes make a lot of sense.
But the banks are trying hard to replace cash to get that precious data of yours: to know what you’re spending your money on, to know when you spend, what sort of customer are you and if you’re worthwhile enough to get a loan. It is also a very profitable information in a digital age becoming increasingly more fragmented and more customised. Cash is king, perhaps, but data is the emperor.
In explaining the importance of cash, Scott also touched upon how money works. This is a subject that I’ve had read about for a long time now, since the 2008 financial crisis when I was still in university. And to tell you the truth, if you ask me to explain how money works, I’d still feel fucking lost. My knowledge wouldn’t be perfect, and I’d have to rely in books like these to pick up information here and there which may be useful, which may not be. Money is elusive as it’s ever been, and like the devil, it is the most dangerous and most tangible fiction humanity had ever created.
What’s money anyway?
Scott’s analogy of the casino is also quite apt — when we trade in our cash money for the casino chips, the chips are not exactly “real” money, but it works as such. It is not something that can be used outside of the casino, but it can be changed for real cash at anytime. PayPal and other payment providers work the same way, as we trade our own money for their proprietary sanctioned method of payment, we are practically using “fake money” to do real cash payment.
“Real money” is sanctioned by the central bank, or the government which backs up the promise of the value of the currency. Without the military behind it, it all is just smoke and mirrors (though we can argue in the first place that the concept of money is no better than said smokes and mirrors). In effect, the cash that we traded in for PayPal cash, or whatever they’re using now, is merely third-rate cash, if we think the money issued by central banks as first-rate.
This distance is important. Private banks would have a direct agreement with central banks in order to change, store and supply money. The question of money supply had flabbergasted economists since the term “economist” existed. Think Keynes and his intellectual battles with Hayek, and the prodigious successor, Friedman. Though banks have these agreements with the government, much of the money is still conjured out of thin air and passed on as credit. Money begets money, until it doesn’t.
The 2008 financial crisis really taught us how thin the ice was, and how heavy the load is, and still is. Yet, in a world getting accustomed to the ice getting ever-thinner, we’ve barely learned our lessons. The collateral debt obligations from banks which assassinated the global economy graduated into more packaged loans which would break the camel’s back when this bubble pops. And if you’re not scared already, you should be.
What are the outs? Should you be taking your cash out of the bank?
Looking for the messiah in the blockchains
With the potential collapse of government backed currencies, we turn to techies for other avenues. The enigmatic Satoshi Nakamoto drafted a new method in constricting the supply of a digital currency by having fixed amount and seeping the supply overtime into circulation. If you haven’t heard about Bitcoin, then you must’ve been living under a rock in the last ten years.
Bitcoin is ruled by mathematics, run on a blockchain which requires immutable consensus of all network and users, yet it also fulfils the conditions of privacy. At a glance, this was an attractive solution to the plights of state-backed currency, and for a while it was. The early adopters of Bitcoin profit exponentially overnight when it hit $20,000 in 2017. Other coins follow suit in its skyrocketing stardom: Ethereum, Neo and Dogecoin (facepalm) just to name a few.
Shortly, anybody with an idea of running a currency in the blockchain could copy its ideas, adjust a few lines of code and sell off their own fictional currency as a road to profitability for willing buyers. And in there lies the issue: that there is no purpose save for short-term gain instead of the belief that the tool is the solution to the long term problem. Anybody seeing these early adopters and crypto-entrepreneurs as the currency messiah would be mistaken.
Overtime, the crypto billionaires, those who had been at the right place at the right time, are themselves converging with the old enemy: the banks and state governments. It wasn’t long before the banks figured out that there is profit to be made and benefits to gain in the blockchain, which led to a situation where countries like Singapore and Kazakhstan fostering cryptolabs to play matchmaker between state, private and cryptocurrency providers. There are no heroes in this story.
Back to basics: back to cash that is
What we are left is perhaps something a bit more innocuous: the possibility of state actors managing the digital finance of its citizen end to end, thus removing the banks as middlemen altogether; or CBDC for short (Central Bank Digital Currency). The implications of this is terrifying, though it is already happening in some countries, that governments will be able to take away privileges based on your spending habits and financial health.
Another potential solution is community-led credit systems, or mutual credit. But these also come with many disadvantages: who’s going to be responsible for collecting pledges? who’s bearing the risk? is anybody going to develop an app for it? And I’ve seen these mutual credit system in countries like Cambodia and have known those who had been burned by borrowers who are unable to repay their credit. I don’t think that this is a great solution either.
The lack of ready solutions if we want to combat the dominance of banks of our end to end financial information means that cash is still the best alternative. The demand of cash is not going away, even though the usage of cash is:
“Overall cash usage has grown, but cash usage for transaction has, in relative terms, declined in almost all countries, sometimes drastically. People still want cash but — often — as a way of keeping their money outside the banking sector.”
The wealthy, we know, have been stocking up on cash like crazy. Images of piles of cash languishing away in pallets a la Walter White comes to mind. But I don’t know many people now storing their cash under their mattress. The argument for cash is a compelling one: my transaction accounts expose my habits and flaws (or strengths, for that matter), but as Scott mentions, having cash allows us to keep our imperfections more discrete.
