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The Almighty Buck IT Politics

Estonian Economist Suggests Abandoning Cash 454

Posted by timothy
from the not-so-specieal dept.
J-Georg writes "Raul Eamets, professor of macroeconomics at the University of Tartu, proposed today during his TEDx talk that Estonia should stop using cash at all when adopting the Euro as the national currency (Estonian original). He also pointed out that abandoning cash would not be only important for the Estonian economy as a whole but also is a real challenge for both IT and banking sectors and would also improve Estonia's image as an IT-tiger."
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Estonian Economist Suggests Abandoning Cash

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  • by Orgasmatron (8103) on Saturday November 20, 2010 @11:26PM (#34295626)

    Steve Keen knows his stuff. I highly recommend his blog to anyone interested in economics, even though I disagree with several of his conclusions and proposals.

    He was recently able to give the full (long) version of his standard presentation in Michigan. Go watch it. []

  • by demonlapin (527802) on Saturday November 20, 2010 @11:52PM (#34295732) Homepage Journal
    There's only one problem: when leaves become currency, everyone becomes immensely rich. But there is a small inflation problem owing to high leaf availability. Unfortunately, it takes something like three major deciduous forests to buy one ship's peanut.
  • by muridae (966931) on Sunday November 21, 2010 @12:50AM (#34295970)

    Who pockets the fractions? So the bank tells you that you get 4.0391759% interest, there is no magical fractions of a penny being made. They round off the number, and pay you from the amount of rounded off payments they get from someone else. All of the money they collect is rounded off from some fraction, but there is no fractional cent being created from thin air.

    I know the whole "magic money" thing made for a great plot device in some amusing movies, but can anyone show how it would work? Show your work, double entry book-keeping records for extra credit.

  • by ChatHuant (801522) on Sunday November 21, 2010 @12:51AM (#34295974)

    In fact the value of currency is psychological.

    In fact it's not. Or more precisely, not only.

    If one dollar buys one candy bar, why should that change if there are more dollars? Nothing has really changed in terms of the candy bar's production costs.

    The price of an item is a function of its scarcity and of the effort required to create it. If everybody had lots of money, nobody would be willing to work to create more candy (why bother making candy for a buck a piece, when you can just shake the money tree in the backyard, and get more bucks with less effort?). So candy becomes a scarce resource, and everybody competes for the same limited amount of candy. The only way to get the sweet luxury is to pay more. The price of candy goes up, and will continue growing until either people give up on candy, or the price becomes high enough that making candy becomes profitable again.

  • by FatLittleMonkey (1341387) on Sunday November 21, 2010 @01:19AM (#34296064)
    In many countries, wait staff are paid a decent working wage so they don't need to rely on tips to survive. The listed price is the price you pay. (In fact, tipping is banned in some industries, such as casinos.)
  • by complete loony (663508) <Jeremy,Lakeman&gmail,com> on Sunday November 21, 2010 @01:29AM (#34296100)
    You are confusing a stock (debt) with a flow (income). It is quite possible for money to circulate around the economy more than once in a year. Assuming bankers spend the money they make from interest, it is entirely possible for debt's and interest payments to reach an equilibrium in the economy without the continual creation of new debt. See the video from Why credit money fails [] linked earlier for more details and simulations of such a working economy. Of course it never works in practice because bankers are greedy.
  • Re:no thanks (Score:4, Informative)

    by pjt33 (739471) on Sunday November 21, 2010 @03:04AM (#34296456)

    Only in America's broken system would you run the risk of losing money by just giving people your account number.

    Or the UK [].

  • Re:no thanks (Score:5, Informative)

    by guyminuslife (1349809) on Sunday November 21, 2010 @03:27AM (#34296544)

    They might use a physical currency. They would not use dollars. The dollar was used historically because is stable, it has a wide international reach, and there wasn't any European currency that could compete with it on scale. Sure, you had British pounds and French francs and German marks, but the dollar was the big boy in town.

    Nowadays, that's no longer true. The Euro is a completely viable alternative to the dollar on a broad international scale. It's even used as the official currency in countries outside of the EU: see, for instance, Kosovo. The physical Euro has some nice advantages for Estonians: you can drive to the country next door and actually spend themat any retailer, as opposed to trading them as a "black market" currency. And as the summary notes, it's already going to be the official currency of Estonia, even if not in physical form, which reduces barriers to depositing physical Euros into, say, a bank account. You don't even have to do a currency exchange!

  • Re:no thanks (Score:3, Informative)

    by makomk (752139) on Sunday November 21, 2010 @04:10AM (#34296700) Journal

    and can charge you essentially whatever it damn well pleases for the "service" of giving you the card, let alone for penalties you may incur.

    What's more, apparently they do - to the point that anyone in the US who doesn't have a checking account has to pay a vast fortune to the banks to get a debit card which costs them nearly nothing to issue and run, and which has no risk of going overdrawn.

  • by wrook (134116) on Sunday November 21, 2010 @04:29AM (#34296756) Homepage

    Your value may grow, but money is not a measure of value (it's an odd concept, I know). It's really lubrication that allows you to realize value. So in your example, with the extra money, the farmer can realize value and we get growth. The money supply *does* increase, but not because we increased value. It increases because we increased debt. Even if the farmer doesn't increase his efficiency, we will still increase the money supply because money is created when we have debt. Someone will have more money -- whether or not it is the farmer is a moot point.

    The real question comes when you wonder, "where does the money come from to pay the farmer his extra 20% profit". Well, that also comes from debt. And that money also has to be repaid with interest. So we have bank who makes 2 loans. Loan f goes to farmer F and loan b goes to buyer B. Farmer F sells his produce to buyer B and gives him the money b. The money b is equal to the farmer's load f plus the interest on f. Farmer F uses the money to pay off his loan. But B now has food and a debt for b (which is bigger than f, remember). What can he do? Well he can sell some of the food at a profit. But the money from that has to come from the bank. So the bank make a loan to C for c amount. C buys the food and B repays his loan with c. Remember c has to include the interest for b, so it it bigger than b.

    Since all money poofs into existence from loans, the debt gets bigger and bigger. There isn't enough money in the money supply at any one time to satisfy the debt. It just keeps getting bigger and bigger until people default on their loans and the whole thing comes crashing down. It is a classical Ponzi scheme.

    Except, earlier in this discussion someone pointed out that there is an alternative. The banks make profit, which is the interest that they made on the loans. If they spend their money in on consumable items (like food, fuel, etc), they this money will make it back into the economy and can offset the problem. However, banks aren't really renown for spending their profits on consumables. They usually use those profits to invest in more profit making enterprises.

    The main point is that unless we have continuous growth, we can potentially have serious problems. This is why government panic so much when their population decreases, even when they are overpopulated.

  • by PolygamousRanchKid (1290638) on Sunday November 21, 2010 @06:29AM (#34297134)

    I live in central Europe, and the trend to here is moving towards always paying with your EC bank card. A EC card is basically debit and ATM card, and this is quite common for purchases over 20€. However, it takes longer at the supermarket than paying with cash, because they print out a receipt that you have to sign. Even typing in a PIN takes longer than if you pay in cash. The cashier chicks at my supermarket have built-in abacuses in their heads. And when they grab into the cash registers for change, I have noticed that do not even look at the coins . . . they know from feeling the size how much is right.

    A lot of folks like to pay with cards at the supermarket, because it gives you time to bag your groceries. No, there are no teen-aged "bag boys" where I live, and supermarkets here try to rudely toss you out, as soon as your bill has been paid. It's always a hoot and a half when I visit the USA with my girlfriend: she always jumps to start bagging the groceries, while some teenage guy gives her a look like, "Are you trying to steal my job?" Aldi is the worst offender: after your purchases get scanned, they are pushed to a packing place that is smaller than an average dinner plate. If you don't pack fast enough, they push your stuff onto the floor. If their prices were not so cheap, no one shop there, unless they are masochists who get sexual pleasure from being abused by assholes.

    So anyway, the last time I visited ThePolygamousRanchSister in scenic New Jersey, I asked her where an ATM was. She told me that she never used cash any more. And my observations were that everyone, down to fast food joints, just swiped, and that was quicker than using cash. As soon as swiping a card without a print out and signature or PIN number is possible here, cash will be out.

    Aw, the poor cash counterfeiters . . . this will wreck their business model.

  • by RockDoctor (15477) on Sunday November 21, 2010 @07:13AM (#34297294) Journal

    Aldi is the worst offender: after your purchases get scanned, they are pushed to a packing place that is smaller than an average dinner plate. If you don't pack fast enough, they push your stuff onto the floor.

    The way that the system is meant to work (at least in the several Aldi(i|s ?) I use regularly ; Lidls too) is that you unload your cart onto the conveyor, then you go past the cashier (who notes anything in the trolley and challenges you on it ; stop shoplifting!) and then s|he starts to scan your goods, placing them on the "dinner plate" area. You take each scanned item from the "dinner plate" area and deposit them back into the empty trolley. You then pay, and take the trolley away to pack your goods into the rucksack (dump them in the car, or whatever), while the cashier gets on with the paying work of processing the next customer.

    You still need to take your trolley back to the storage area to release the coin that freed it from it's chains. So why would you not have your trolley with you at the checkout?

    It seems pretty obvious to me, and it is actually very efficient. Which is part of the reason, I suppose, that Aldi (and Lidl) have relatively low prices. (The main reason that I go there is that they have things on the shelves that I can't normally get. Bottled cherries and good sausage in particular.)

    Ah, perhaps like me, you want to arrange the cans at the bottom of the rucksack ; uncrushable veg on top of them ; household chemicals in the side pockets, then crushables in the hand baskets? That you do on the big wide shelves at the front of the store, not blocking the payment tills from their allotted purpose of processing payments.

    Now that I think about it, I suspect that there was a time-&-motion man somewhere in the design of the system.

  • by Pikoro (844299) <[init] [at] []> on Sunday November 21, 2010 @08:18AM (#34297532) Homepage Journal
    I used to work at a place where we did credit card transactions with our customers every month. We would automatically pull the amount from their card. Catch is, we bill in yen but the customer's bank accounts are in USD. We commonly would pull the equivalent of around $15000 per month. On a whim, we decided to add in some code to our test run to show what those fractions would add up to since in USD you have $x.xx and yen has no decimal point so everything is rounded. Turns out that that $15000 would generate about $0.02 (two cents) every month since the rounding up and rounding down tend to cancel each other out. Hardly worth the effort. I would imagine that dealing with equivalent of millions of dollars of transactions per day might net you something, but otherwise it's not all it's cracked up to be.
  • by icebraining (1313345) on Sunday November 21, 2010 @09:04AM (#34297742) Homepage

    You assume he's talking about credit cards. I don't know about GP's country, but here we mostly use debit cards.
    Most people already use it, but they also keep cash because most shops don't accept it for payments under 5E (they have to pay a fee for each transaction), and because they're still slower than cash.

  • by icebraining (1313345) on Sunday November 21, 2010 @09:20AM (#34297822) Homepage

    He's not demanding, he's suggesting.

  • by icebraining (1313345) on Sunday November 21, 2010 @09:27AM (#34297838) Homepage

    "The utility of a thing makes it a use value. But this utility is not a thing of air. Being limited by the physical properties of the commodity, it has no existence apart from that commodity. A commodity, such as iron, corn, or a diamond, is therefore, so far as it is a material thing, a use value, something useful. This property of a commodity is independent of the amount of labour required to appropriate its useful qualities. When treating of use value, we always assume to be dealing with definite quantities, such as dozens of watches, yards of linen, or tons of iron. The use values of commodities furnish the material for a special study, that of the commercial knowledge of commodities.[5] Use values become a reality only by use or consumption: they also constitute the substance of all wealth, whatever may be the social form of that wealth. In the form of society we are about to consider, they are, in addition, the material depositories of exchange value."

    -- Marx, Das Kapital

  • by tepples (727027) <<tepples> <at> <>> on Sunday November 21, 2010 @09:59AM (#34298046) Homepage Journal

    Where I come from debit cards are useless without the PIN.

    In the United States, this is true of an "ATM card", which carries only the ATM network logo (Cirrus or PLUS) and has no embossed number on the front. These can be used only for PIN transactions. The term "debit card" is more commonly used to refer to a debit card that carries both the ATM network logo and a MasterCard or Visa logo and an embossed number. These can be used for PIN transactions or for signature transactions. They became popular because when they were introduced, few merchants took ATM cards.

  • by amorsen (7485) <> on Sunday November 21, 2010 @10:33AM (#34298244)

    Then there are some transactions which cannot really be done other than in cash, such as taxi rides.

    Why those? I can't remember the last time I paid cash for a cab. In the old days they did offline transactions, but these days they just connect via GPRS.

  • Re:no thanks (Score:3, Informative)

    by ArsonSmith (13997) on Sunday November 21, 2010 @10:41AM (#34298274) Journal

    that is now legally an opt-in service from the bank. If I no longer have the money in my account it denies the transaction, and no fees or interest is charged.

  • by Anonymous Coward on Sunday November 21, 2010 @11:08AM (#34298422)

    Aye. One might add that this is particular prevalent in the Nordic countries, which Estonia is trying hard to position itself as being a part of.

    I can't speak for the rest, but I can tell you that in Iceland, tipping waitstaff is not just not expected, it'll get you some very strange looks if you try (and there's always tourists who do) - you could just as well tip the clerk at the supermarket, or the doctor at the hospital, or anyone else providing a service.

  • by currently_awake (1248758) on Sunday November 21, 2010 @12:40PM (#34298986)
    Actually money is a form of cloth, not paper. You would realize this if you've ever washed money, as paper dissolves in water.
  • by jonbryce (703250) on Sunday November 21, 2010 @03:09PM (#34300012) Homepage

    In Britain, taxes are rounded down. For income tax, you round down to the nearest pound, and then apply the tax rate to that. For VAT (sales tax), you round the VAT on each line item down to the nearest 10th of a penny, then round down the total to the nearest penny.