The Case for the Abolition of Coins and Banknotes
Martin Bartels
3 September 2020
The trend towards abstraction
Starting with the barter economy, the tangible component for the processing of transactions between human beings has been the standard for thousands of years. Even when divisible objects were used as expressions of prices (cowrie shells, cattle, salt, metals etc.), the culture of physical experience continued. The introduction of coins without significant metal value, paper money, and cheques started to reduce the tactile element.
The existence of banks that execute orders given in writing, and today mostly digitally, to transfer money from one account to the other resulted in more and more abstraction. In recent years, we have moved towards triggering even everyday small transactions only with signatures or combinations of numbers. Increasingly, we proceed with a short electronic contact between our card or a phone and a reader. Transactions that are only set in motion by the provision of biometric data may soon become prevalent. All this means that evolving electronics will continue to melt the physical ingredients of payments like butter in a hot pan.
Technology accelerates abstraction
Payment transactions require reliability, speed and low transaction costs. The robust legacy systems, which have been built up over decades and are protected by regulatory authorities, are delivering that, but there is still much room for improvement. Numerous interdependencies of old and new systems make it difficult to incorporate something new into well-functioning old systems.
Under these conditions, it is easier for outsiders, who initially operate without dependence on existing systems, to innovate. They begin their work at the doorstep of existing systems, not within them.
Many newcomers from outside the established banking industry were able to focus their development work strictly on practical needs. They have not reinvented the wheel, but have instead come up with many valuable innovations to meet the needs of consumers:
Real-time electronic transfers (national or international), initiated from a mobile phone or by card, are executed instantly. Other services include immediate notifications of completion, analyses of spending behaviour, swift currency exchange, easy securities transactions, balance notifications, budget statements, crystal clear savings plans, and even programmes to introduce children to the use of money. These packages are valuable innovations. The consumer pays very little for them.
The Second Payment Services Directive of 2016 (“PSD2”) acknowledges the value of the new payment services providers’ contribution and paves the way to a more open architecture by giving third party providers access to information which used to be held exclusively by banking institutions.
Traditional financial services providers were initially sceptical of the hype surrounding the new offers, especially from "young people". Now they no longer think these are sandbox games and they give in to the trend. The new entrants have gained the respect of the established top dogs and are entering into partnerships with them, in particular with credit card companies.
The result is that the move away from cash seems irreversible, even in those countries that had a traditional preference for it.
The Covid pandemic has accelerated this tendency because non-physical payment is expected to reduce the risk of infection.
Abstraction impacts behaviour
Through Behavioural Economics, we learn more and more that economic behaviour is not solely controlled by mental accounting. Emotions, cultural standards, ethics, habits and the history of human development play an essential role. It is not necessary to identify the reasons for a particular form of behaviour. It is sufficient to identify and statistically evaluate regularities.
The replacement of physical money in the form of coins and notes by electronic bookings has a significant impact on spending behaviour.
Uncle Scrooge loved to bathe in gold coins, and he was thrifty. A Behavioural Economist would confirm this combination as slightly exaggerated, but in line with human nature. The use of physical money makes people act more sparingly, and the use of abstract money triggers higher spending.
https://www.behavioraleconomics.com/resources/mini-encyclopedia-of-be/pain-of-paying/
https://thedecisionlab.com/insights/consumer-insights/this-is-your-brain-on-money/
People generally give more generous tips when they pay with a credit card and not in cash.
https://core.ac.uk/download/pdf/145015738.pdf
In fairness, we should acknowledge that the transparency provided by the new technologies outlined above will somewhat level the differences between handling cash and abstract money. Nevertheless, we should be aware that physical payment prompts greater prudence/thriftiness.
Culture, public interest, civil rights
There are areas of life where culture demands physical payments:
- A beggar who needs help expects cash.
- The collection of money in a religious context maintains its proper dignity only through coins and banknotes.
- Our children’s piggy banks must take on weight so that the impulse to save can develop. The best way to convince children is and will always be through physical experience.
The protection of the self-determined highly private sphere of life is one of the civil liberties protected by constitutions. We wish to decide for ourselves where Big Brother may look over our shoulder and where not. In some very personal areas of life, we do not want it to be technically possible to track our spending. Cash does not leave a trace.
There are indeed areas of life in which the state authorities need to have insight. However, the conflict that tends to exist between legitimate civil liberties and the state's duty to prevent criminal activity is not the topic of this article.
The state also has an interest in optimising collection procedures in order to capture more taxes. If the tax authorities really can see all money flows and can analyse them in detail in the future with the help of Artificial Intelligence, more money will be channelled into the public coffers. This would bring us close to George Orwell's “Big Brother” regime.
The citizens of states that have never experienced a real dictatorship in their history, such as the Scandinavians, have no fears in this area. Their neighbours further south have good reasons to be more sensitive.
At this point I would like to draw the interim conclusion that the arguments for the complete abolition of physical cash are understandable but not compelling.
https://iea.org.uk/wp-content/uploads/2019/11/Dowd-2019-Economic_Affairs2.pdf
https://scholar.harvard.edu/files/rogoff/files/c13431.pdf
https://centralbankmoneyresearch.com/abolition-of-cash-or-loss-of-anchor/
Sudden standstill for technical reasons
All systems, even the best Swiss watches, can stop. The critical question is not whether this will happen, but when.
And if the unlikely happens, is there an immediate replacement system? Or would a very quick repair possible?
Not long ago, all virologists were aware of the great damage a pandemic could cause. Yet the statistical probability was judged by the decision-makers (not the experts) to be so low that it was difficult to allocate resources to deal with the risk.
In modern societies the functioning of almost everything depends on an adequate and uninterrupted supply of electricity. When this is interrupted because of faults at power stations, damage to electric transmission, cascading failure, severe weather or strong solar storms, emergency generators are switched on in some essential areas (e.g. hospitals). There are well thought-out analyses which describe what happens to an affected society.
https://www.ready.gov/power-outages
https://www.bbc.com/future/article/20191023-what-would-happen-in-an-apocalyptic-blackout
Power blackouts are not rare events.
https://en.wikipedia.org/wiki/List_of_major_power_outages
At this point, we are only interested in payment transactions: if no more electricity flows, we can no longer pay anything. When we go to supermarkets, the cash registers do not work. No single system that deals with money and needs electricity will work. The POS systems will not recognise any card and will not react to those nor to mobile phones whose batteries are still sufficiently charged.
A few people believe that they should prepare for such situations. They collect gold and silver coins to be able to obtain food when the technology fails. These people will most likely not get food because the vendors' systems cannot process Double Eagle or Krugerrand coins. The vendors will also not be able to check whether the coins are genuine.
If a power cut were to last for several days, modern civilisation, which treats electronic payment as the standard, would return to barter in a few days to obtain food. Many people would also revert to uncivilised behaviour when they are hungry and cannot pay.
Marc Elsberg's novel "Blackout" is not only thrilling. It is also based on a careful and realistic analysis of the implications of prolonged blackouts. He comes to the very clear conclusion that we can only get enough to eat if we have enough cash in small denominations with us. Shops will work slowly, but they will sell food for cash. If you don't have cash, you are in dire straits.
Intentional standstill
In reality, however, there is an increasing number of cases of deliberate interference by experts, which are supposed to last for long periods of time. Smart attackers can anticipate the actions of repairers and make it more difficult for them to get the systems working again.
An effective cyberattack on power grids or power plants with the aim of paralysing societies over long periods of time requires a great deal of technical expertise. Among the crazy and fanatical people of this world there are enough specialists who are capable of carrying out such attacks. Whatever drives them to such actions, they are a reality. And these people have already begun to flex their muscles.
https://www.wired.com/story/power-grid-cyberattack-facebook-phone-numbers-security-news/
https://www.wired.com/story/hacking-a-power-grid-in-three-not-so-easy-steps/
https://www.zdnet.com/article/these-hacking-groups-are-eyeing-power-grids-says-security-company/
https://www.youtube.com/watch?v=1Fwh86X-G04
The specialists responsible for protecting vital networks take up the challenge with more sophisticated security technology. But attackers can also adapt their techniques.
They could even implant destructive malfunctions in systems that are in use around the world.
https://futurism.com/the-byte/hacker-reportedly-gained-access-teslas-entire-fleet
If a system has been successfully paralysed for a long time, it cannot simply be switched on again. The process of restarting is delicate and takes longer.
Standstill due to natural phenomena
The risk of cyberattacks is obvious, but the effects of space weather can be equally dangerous or even worse.
https://www.ready.gov/space-weather
Solar flares and coronal mass ejections (“CMEs”) have brought electricity grids to a standstill in the past. “If they're directed at Earth, such flares and associated CMEs can create long lasting radiation storms that can harm satellites, communications systems, and even ground-based technologies and power grids.”
https://www.nasa.gov/mission_pages/sunearth/news/X-class-flares.html
They are not predictable but may be spotted in time to allow electricity providers to close the grid down entirely before the damage materialises. The “Space Weather Protection Center"
is in charge of such forecasts.
The implication of a grid standstill, possibly over days, will be a standstill of electronic payments.
Low-tech protection against high-tech risks
If we admit, against our inclination, that our modern networked world is easily vulnerable and can become quite uncomfortable in a short period of time, we should insist on a simple protection and always keep enough cash in small denominations. We should vote with our wallets and oppose all initiatives aimed at abolishing physical money. We should pay in cash as often as possible to keep the physical system alive.
To set the stage
Lao Tzu’s words sum up a dramatic contemporary scenario: While in some parts of the world people are increasingly affected by water scarcity, others face the growing threat of too much water due to extremely heavy rainfall and rising sea levels.
While the poem captures the ambivalence of water perfectly, the words "soft and weak" also seem to describe the way modern civilisations have responded to it. Their foggy perception and sluggish action is just as dangerous as the threats themselves.
Why Water?
The focus of this essay is to use the prominent example of water to help identify concrete approaches for dealing rationally with the issue of climate change. Climate change affects us in many ways, including the expansion of deserts, forest fires, the salinisation of soils, landslides, extreme weather events, agricultural crop losses, loss of biodiversity, spread of disease and human and wildlife migration.
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Scientists and engineers have laid the foundations for our prosperity. And only these elites can show us the way to overcome the harmful externalities of these very engines of our wealth. This article supports the thesis that we are technologically and organisationally in a position to successfully meet these challenges, step by step.
One obstacle to the mobilisation of existing resources lies in the fact that the general public has only a vague understanding of the issue. They do not realise that, unless we make controlled sacrifices, nature will impose uncontrollable sacrifices on us.
We urgently need to overcome the human tendency to trivialise and understand with our minds and hearts what will happen if we do not listen to the guidance of our scientists and engineers. However, while these experts hold the keys to the right strategies, they are only trained to communicate with other scientists. This leads to a situation of misunderstanding and therefore a lack of adequate action.
Blurred perception of facts
Every day, we are all exposed to an overdose of reports about minor and major disasters in all forms of media. We more or less defend ourselves against this by ignoring some news, i.e. reducing the strain on our nerves by filtering information. It is human nature to rely on the mostly correct assumption that unpleasant developments will eventually end and change for the better. In the case of climate change, however, looking away and hoping things resolve themselves doesn’t appear to be a winning strategy.
A wealth of scientific analyses on climate change is available to everyone, but these are mostly comprehensible only for other scientists.
We should openly acknowledge that most people in the northern hemisphere have a sense of empathy for people "in the south" who are plagued by overpowering rains, flooded lowlands, islands disappearing into the water, eroding coastlines or droughts. However, the geographical distance and lack of awareness of the frequency of such disasters dilute solidarity. Collective psychological repression can set in quickly.
Most people in the northern hemisphere do not consider an increase in average temperatures of a few degrees to be alarming. Many even express relief that the winter is often milder than in the past. Loud protests by campaigners are experienced and understood by most citizens as a disturbance or perhaps exaggerated fearmongering.
At the level of policy, scientifically informed decision-makers attend international conferences on climate change, where they negotiate with other decision-makers on action plans that have no teeth but are presented as hard-won progress. And they are increasingly supporting “green” sectors of the economy. However, they are often reluctant to share the full extent of their knowledge about the problem because they do not want to jeopardise their recognition by “rocking the boat”.
The factual impact level is decisive for citizens
There is controversy about the interplay of causes of climate warming (industrial emissions, volcanic activity, ocean currents, etc.). We don't want to debate that here. What is more relevant are the changes in global average temperatures and their trends, as determined by scientific methods.
Instantaneous interruption or reversal of a climatic process?
Changes to the climate are not new in human history, and certain events have triggered reductions in temperature. A striking example of a break in climatic developments is the eruption of an Icelandic volcano in the year 536 CE, whose dust made the atmosphere in the northern hemisphere so opaque to sunlight over a period of more than 20 years that temperatures fell drastically ("Little Ice Age").
Recently, it has been hypothesised that ice ages were triggered by asteroids.
It may be tempting to pin our hopes on the possibility of such events helping us to mitigate climate change, but while we cannot rule them out, events of this kind are rare and unpredictable, we must not include them in projections. It would be absurd to hope for random external causes that could interrupt or stop the progress of global warming. While hope is a human propensity, it is not suitable for contingency planning.
Our real bottleneck
What is preventing us from taking appropriate action to minimise and reverse the rise in average temperatures?
Citizen perception of the nature and dimension of the threat is inevitably blurred, because the daily reports from the media are mostly unstructured and not comprehensible to non-scientists. The reports do not allow us to recognise the essentials.
Citizens need an overview that is communicated in an honest, understandable and clearly structured way. Only when citizens have realised the nature and scale of the problem will decision-makers have the courage to take action with determination. In essence, it is about legitimising protection strategies that are considered unpopular today.
Given that citizens do not have access to graspable knowledge, we have a transformation problem. And this can be overcome if science presents the overall scenario from a certain distance. Figuratively speaking: It is not about describing every pixel point of an image, but about showing the image as a whole. The holistic representation deviates from the usual approach of scientists, because each of them is professionally held to focus on "pixel points" in their respective area of specialisation. This is the only way science makes progress, but that's not what is needed here.
The contours of the hologram can be communicated in an understandable way using e.g. the key points mentioned above:
If the effect of a detail is not legible, the presentation of the measurement can be improved. In particular, the exponential impact of very small changes in average temperatures in the atmosphere goes very much against human intuition. We can compensate for this disadvantage in perspective: Instead of referring to changes in temperature in degrees Celsius, we should consistently communicate changes in basis points, i.e. in hundredths of a degree Celsius. For example, labelling a temperature rise as "32 basis points" would be correct and would make the difference easier to comprehend than "0.32 °C". This method is a common practice in the financial industry. There, too, this method of representation is helpful in raising awareness that a small change can have massive implications.
Comparing our planet with human bodies helps us to comprehend the effect of changes in temperature: If your body temperature rises by 1° Celsius, you have a fever and are not feeling well. If the temperature rises by 1.5 or even 2° Celsius, you are very ill and hardly able to work. It is similar with our planet: If it experiences increases in average temperatures of this magnitude, it shows the symptoms of a "serious illness". However, this "fever" does not go away after a few days.Truthful and comprehensible holographic description will work like a call to action as sensible citizens will refuse to accept the idea that their lives, that of their children or that of their grandchildren, will be exposed to significant and unparalleled danger.
Here is a simple example of a call to action: It is true that the onset of toothache does not necessarily trigger a reaction in us straight away. We are perhaps still hoping that it will go away on its own. But at some point we turn to the dentist for help. We may later find the dentist's bill stressful, but the relief of finding a solution to the problem outweighs this. It is necessary that we anticipate, that we sense the expected greater pain, in order to take the initiative.
Governments will only act vigorously when informed citizens demand it vigorously. There has been pressure from sections of the population for a long time, but its direction has always been vague and therefore not sufficiently effective.
And like a dentist, a government cannot act for free, but will send bills to taxpayers. The later the comprehensive strategy is implemented, the higher the bill.
Defensive and offensive measures
The necessary government action plans are not the subject of this article. It should only be mentioned that defensive measures are necessary first, e.g., improved meteorological warning systems, raising and strengthening of dams and dykes on the sea coast and rivers, preparation for the abandonment of non-defensible areas. In addition, measures are needed to halt the dangerous trend and then slowly reverse it. These essentially consist of avoiding emissions and removing greenhouse gases from the atmosphere.
Desperate measures?
The keyword for desperate actions is "geoengineering". This could imply approaches such as making either the atmosphere or our oceans absorb less sunlight or bind more CO2. While these approaches sound exciting, they are not fully developed and run the risk of causing irreversible damage. As such it is unlikely they will be used.
Sabotage of the communication of scientific work
There are two groups working against open and fair communication between science and the citizens.
Refuseniks who are not interested in facts work against this. They are used to believing their own feelings and those of their friends from social networks. There should be no discussion with them, because deviations from their assumptions act as fuel for them. Science will not lead them out of their dream worlds.
Then there are the sceptics, who may have expert knowledge but only select those parts of it for their thinking and communication that seem to support their rejection of action. This is a dangerous species, because “expert” sceptics can claim some credibility and can disrupt societal communication successfully. The only way to weaken these people is to persistently ask them for better and well-founded alternatives. Then they have to provide verifiable answers or quietly hoist the white flag.
Acknowledgements:
My heartfelt thanks go to Professor Reinhard Gast. As a practising geologist and experienced researcher, he has helped me to grasp the exponential impact of seemingly minimal changes in the temperature of our atmosphere, similar to our own bodies, and the uniqueness of the current situation.
Authorship disclosure:
Fully human generated