There’s always a lot of talk about a cashless society and it’s certainly technically feasible.
What would be the short, medium and long term effects of the government not making any changes to the law, but simply ceasing to print banknotes (“bills”)? I.e. totally uncoordinated.
Presumably:
Short term - no change except banknotes seem scrappier
Medium term - banknotes drop out of circulation as they are handed into banks in too poor condition to be handed out again
Long term - banknotes are actually scarce.
These steps are obvious but I am curious as to the various nuances. Could a market in banknotes develop where people would pay more than face value for the remaining ones? What would happen to the few people who don’t have the means to accept electronic payment?
This is all, of course, completely hypothetical - but hopefully an interesting thought experiment nonetheless
There are too many factors affecting the micro or macro economy that depend on currency, so it’s not easy to speculate results of such a hypothetical.
Now the Gov is reprinting only damaged and destroyed currency, so there’s no more new currency in the market – in general.
Even controlled printing of new currency can result in immediate inflation and no one wants to do this in our times.
Stopping the issuance of new bills to take the place of the damaged would create some kind of havoc… and a society that would have to create some other type of exchange currency instead of established Gov bills.
In short, stopping the printing of bills or coins is stupid.
I think it would be hard to be completely cashless. I suspect if the government stopped printing bills, some large bank would issue redeemable transferable, checks or something like that. The only real need is that the issuing agency be trusted to honor the things not that it necessarily be the government.
There have been small-scale experiments in the United States where the authorities have attempted to prohibit the use of currency. The result: The experimental subjects used cigarettes in place of currency. See the full story (NSFW):
I did believe that not the Government is printing money but that the Central Bank print it and then
sales it to the Government with interest.
And isn’t or aren’t today almost all the Governments doing just that, that the are getting far more than what is good for us, from the Central Banks and the inflation is on the rise already, am I living on another Plane ort, this is Earth? no?
I did believe that not the Government is printing money but that the Central Bank print it and then
sales it to the Government with interest.
And isn’t or aren’t today almost all the Governments doing just that, that they are getting far more than what is good for us, from the Central Banks and the inflation is on the rise already, am I living on another Plane or, this is Earth? no?
In the United States, currency is printed by the Treasury Department (Bureau of Engraving and Printing for bills, and the US Mint for coins.) It is then sold to the Federal Reserve at face value.
Alternate currencies would be found. If not a foreign currency, the substitute valuables; phone cards, Starbucks vouchers, cigarette packs, Xboxes, handguns, pawn shop vuchers, bigger trade goods?? Whatever has value in the society the transaction takes place in …
This is the situation where a bank (real or underground) starts issuing their own currency.
I’m thinking of the stories of Italy pre-Euro, when they could not make enough coins to satisfy the economy. the story goes that merchants kept dishes of candy etc. near the till, so you took your change in gum and candy. Of course, there’s a big difference between that and $50 bills, but keep in mind that making change would become just as much an issue as simply getting cash to use.
I generally agree with all of md2000’s post just above. But …
The ability for many citizens & businesses to go about their daily operations without cash is vastly greater today than it was in the 90s. Note I said many, not all.
I suspect my local Target store & local grocery store could stop accepting cash tomorrow with little disruption. I’d bet not 1 in 20 transactions is for cash and those are overwhelmingly for trivial sums. As a percentage of daily sailes I’d bet cash is less than 5% & perhaps less than 1% of what these local stores take in. And of those adults making cash purchases today, probably not 1 in 100 would be unable to buy in any other way; for them using cash is a choice, not a necessity.
The corresponding shops in the inner city would have a much larger problem. As would businesses catering to children such as the proverbial candy store or McD’s across from the school.
As would small-purchase stores such as newstand kiosks in subway stations. But even those places are going towards accepting debit cards because their customers are demanding that option now. Obviously there’d be even more push by merchants as a whole for electronic payment platforms whose costs are low enough to work well for businesses with lots of small (<$3.00 ?) transactions.
So IMO we could reduce the cash (= currency & coins) supply by quite a bit and all that would happen is the remaining cash supply would gravitate towards the unbanked consumers and the underground economy. For most of everybody else it’d be a non-event.
Eventually the dwindling supply would become inadequate for those needs. And that’s when we’d see a real growth is use of some parrellel currency.
Were we to extend the OP’s scenario to where the Feds explicitly outlawed any / all parrellel currencies and they backed that up with significant enforcement, *then *we’d see some alternative debit card-like thing evolve for the now-unbanked poor folks, and the rest of the cash would disappear into the underground economy. Which might well grow a bit (a bunch?) in response.
As a practical matter in the USA, any move by the Feds to officially reduce the supply of cash or curtail its use would launch the survivalist freedom fighters / conspiracy theorists into orbit. Folks like the the Idaho militias & their fellow travelers would consider this an act of war or treason, and the beginning of the truly final phase of their expected descent of the US government into absolute tyranny.
Lots and lots of people would be lots & lots up in arms about this from Day One. The ensuing political fallout would be quicker, larger, & much more chaotic than any eventual impact on retail microeconomics.
I could see parallel economies emerge where the bulk of transactions are done electronically and a cash society (based on coins as bill deteriorate) existed for those unable or unwilling to move to electronic cash.
I imagine a premium would emerge for those who wished to continue to use cash due to the increased workload and inconvenience.
Also, as noted upthread, international currency could be adopted (say Canadian or Mexican), like several countries (Ecuador) who have essentially adopted the US greenback.
It occurs to me that there is already some evidence of the consequences - namely the $500 note which is worth more than its face value because of its portability.
Actually the first thing that would happen after news got out is that people would go to their bank and withdraw as many banknotes as they could. Soon banks would run out of servicable banknotes (since nobody would pay them into a bank account until they were too worn to use) and so ATMs would disappear almost overnight.
Since society is not yet ready to get rid of cash there would be a premium on having it and so a black market would instantly develop. ("This costs $20, but if you have a $10 note I’ll take that). What I actaully suspect, though, is that other currencies would come into play.
In the UK, for example, a populist adoption of the Euro might take place before too long if the main currency became thin on the ground. I’m not sure what the US would fall back on (Canadian dollars perhaps).
It wouldn’t apply so much with USD vs CAD, but pounds vs euros do not have parity with each other. So it would be fascinating to see if the business/people that accepted euros strictly followed the exchange rate to the pound (£3 a pint = €3.61), followed but rounded roughly (£3 a pint = €3.50), or was isolated from the pound price (say €4 for a pint and didn’t change even after the exchange rate did).
Given that it would be effectively a separate economy I suspect the third would be what would happen. But I guess it depends crucially how spendable the euros would be.
In Canada it is quite common to accept US currency at an exchange rate taht favours the merchant. Now that the currecies are almost at par, this is not as desirable. When a dollar was worth 70 cents US, a US dollar was worth 100/70 or $1.43; stores would accept a US dollar at $1.30 or $1.25; but give change in Canadian coins. (US coins were accepted at par, since they were identical size and often mixed in…)
There was a big controversy in the USA recently because congress limited the banks to charging merchants (IIRC) 22 cents per debit transaction. If you recall, many stores had signss such as “No debit transactions under $5” because the fee was 40 or 50 cents; paying a 10%-plus surcharge on such transactions was not worth it. What do you think banks would do if they had a captive clientelle? (My Canadian bank also charges me 50 cents per transaction unless I pay them $10 to $20 a month in bank fees for a fancier account.)
Anything portable, with intrinsic value, like gold pieces (Jewelry, etc.) would become a medium of exchange.
There’s nothing illegal about any bank or other business printing promissory notes (their own banknotes) but like anything else, where’s their real value - do you trust that bank, will others accept them, will they work outside the local area? This is where banknotes were at 150 years ago…
In some third world countries people use their cell phones for financial transactions. I suspect if cash disappeared a similar system would appear pretty quickly in the U.S.
I think you meant €500 note. There has not been a circulating USD $500 note for decades. There isn’t a current CAD $500 note either, although I don’t know how long ago they were withdrawn.
If US banknotes disappeared for whatever reason, and US people started using Canadian banknotes, what would it do to the Canadian economy to have such a large ‘note sink’ next door? Would banknotes become rarer in Canada? Would someone at the Bank of Canada look over the numbers one day and say, “My, we’re printing a lot of fifties these days. What gives?”
My guess is that the Canadian government would be happy to see its banknotes circulating in the US, due to the seigniorage (the difference between the face value and the production cost of the currency).
My understanding (and I visited Italy briefly so saw it myself) was that it wasn’t because there were no coins – I can vouch that there were plenty of 1000 and 5000 and 50,000 lira notes, and various coins down to I think 100 lira, and no problem getting bills or substantial coins in change. Rather people just didn’t want to screw around with the equivalent of pennies or half pennies or whatever. So rather than give the equivalent of $.03 in change, they’d let you take a couple penny candies. So this wasn’t really a currency shortage, just an alternative to the ‘take a penny, leave a penny’ dish.
