Estonian Economist Suggests Abandoning Cash 454
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."
On the subject of economics and money... (Score:4, Interesting)
a professional economist and a long time critic of conventional economic thought. As well as attacking mainstream thought in Debunking Economics, I am also developing an alternative dynamic approach to economic modelling. The key issue I am tackling here is the prospect for a debt-deflation on the back of the enormous debts accumulated in Australia, and our very low rate of inflation
Re:Abandon all your cash (Score:5, Interesting)
It is an outdated model stuck on physical money and a scam run by institutions pocketing the fractions (think salami slicing).
The rise of "paperless" money, rapid currency exchange fluctuations + digital microtransactions at consumer level have made this very feasible.
I want my bank account to be able to say ".0238538327" after the whole numbers' place. If I make games, I want to be able to sell virtual goods at $0.00056 per transaction if I want to. When your audience is the entire internet, small amounts like that can rack up to substantial numbers. I want institutions to be able to do that for me affordably, and I want to see that number reflect in my account instead of being thrown away.
I mean in this age of digital, how much does it cost to actually make/record/monitor a transaction when everything's already digital?
Any takers? Maybe this is an opportunity to create a new startup. Maybe this is a niche that can challenge Paypal. Take it. Run away with the idea. I don't care who implements it, as long as it gets implemented.
Re:no thanks (Score:5, Interesting)
So I won't be able to give $20 to a friend without: 1) being tracked; ...
Yup; and this is exactly why it won't be implemented, not in Estonia, not in the US, not in any other country.
A more illustrative example would be: You want to give $20,000 to your favorite local politician, in exchange for "consideration" during part of the law-making process. This only works well if your "gift" can't be tracked and be made known to the voters (and to legal authorities).
The recent election in the US is a good example. Political gift-giving used to be mostly public information. But recently, our Supreme Court changed the rules, making it legal for anyone to give money to politicians and keep the source of the money a secret. So before this election, political contributions went up roughly an order of magnitude over what they had been in previous elections. Mostly to the Republicans, but the Democrats got a large increase, too.
This would be very difficult with an all-electronic money system. The political system relies on the non-tracability of most of the "gifts". So we can trust that the politicians who got elected won't pass laws that eliminate the money that put them in power.
All the recent news of financial systems being "hacked" and their information made available to the wrong people is all the proof our politicians need that electronic money can't be trusted to keep a secret. So they won't allow it to happen while they're in office.
I've got to agree with the Fundies on this.... (Score:4, Interesting)
There's much to be said for streamlining financial transactions, but there are limits to what we should allow, for reasons others have stated. There is simply too much opportunity for mischief in an economy where there can be this sort of control.
I'm surprised no one mentioned it, perhaps the /. readership is too young and secular to remember the concerns of Fundies from the 60's, 70's, and 80's, but I will give the relevant quote from the Book of Revelations, chapter 13, verses 16 & 17:
"16 It also forced all people, great and small, rich and poor, free and slave, to receive a mark on their right hands or on their foreheads, 17 so that they could not buy or sell unless they had the mark, which is the name of the beast or the number of its name."
(The number is, of course, 666, or in a few ancient texts 660.)
Regardless of whether one believes ancient prophecies, I think those Fundies had one thing right: Don't trust ANYONE - not even the "Majority" - to have that sort of control over humanity.
"Professor" has no clue about economics (Score:1, Interesting)
Professor Eamets seems to have not much of an understanding of economics. I was already skeptical about this and when I forwarded the link to one of my friends who is a prominent economics professor at the Harvard Business School, he immediately confirmed that someone suggesting to abandon cash has obviously no clue about the very principles of economics and that in his 36 years of doing research in macroeconomics he had never heard of Mr Eamets.
Re:no thanks (Score:3, Interesting)
A somewhat correctable problem with debit cards is that there ARE some people who's credit is so terrible that they can't even get a checking account -- I'm not saying they don't deserve being frozen out of check writing, generally they do, but if you eliminate cash transactions the merely "unbanked" would become destitute.
A more pressing problem is that debit cards are offered by private companies to individuals on an at will basis -- a bank can cancel or decline your card, or forbid issuing you a card, according to whatever its policy is, 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. It's dangerous when you let private banks become a gatekeeper to your monetary system, because, as I said before, there's a profound risk of them collecting rents instead of competing to deliver service.
As always, the most laissez-faire solution to any monetary problem is to get the government out of the banknote business entirely and only tolerate privately issued instruments, valued according to the worthiness of the issuer. (Of course this solution, like most of libertarian economics, is elegant but completely unworkable.)
Re:no thanks (Score:4, Interesting)
History teaches us this is likely if only because the US dollar was the black market currency of choice in Eastern Europe during pretty much the entire Cold War. You could exchange your dollars with the Communist government at a rate tilted ridiculously in their favor, or you could ask your taxi driver if he wanted to buy dollars, which he did, and you'd get around 3-5 times the "official" government exchange rate. Dollars were always in demand because they were so much more stable than the constantly inflating local currency.
Re:Abandon all your cash (Score:2, Interesting)
Re:Might I suggest an alternative currency (Score:4, Interesting)
Furthermore, those who are first in possession of the new money have a huge advantage: the market has yet to be affected by it, so they can use it to purchase lots of goods at uninflated prices. By the time the new money gets to Joe Sixpack in the form of a necessary wage increase to keep up with inflation, the new equilibrium is all but settled and he ends up about where he was before.
Fiat money is a tool for the rich to get richer.
Re:Might I suggest an alternative currency (Score:3, Interesting)
Fiat money is a tool for the rich to get richer.
But we don't have "fiat" money, we have debt-based money (which is indeed a tool that enables concentration of wealth). The best explanation I've read involved money and anti-money: there is no $ without debt. Here's the quote:
While I'm at it, I just read Ellen Brown's explanation of the Fed's recent Quantitative Easing 2 [wordpress.com]. This should be required reading for everyone who's hyperventilating about the Federal Reserve's recent plans to buy another $600 Billion in bonds.
HTH, HAND.
Re:no thanks (Score:3, Interesting)
A somewhat correctable problem with debit cards is that there ARE some people who's credit is so terrible that they can't even get a checking account -- I'm not saying they don't deserve being frozen out of check writing, generally they do, but if you eliminate cash transactions the merely "unbanked" would become destitute.
Just another symptom of the America's broken banking system. In sane countries, you can get a debit card that linked to your savings account.
Re:Abandon all your cash (Score:4, Interesting)
Your getting close to the real problem of abandoning cash, I live in Ireland and many smaller businesses will not accept a bank card for transactions of less than 10 euro's due to the transaction fee's charged by the banks.
Trouble is a lot of the time you will make small transactions from your morning cup of coffee, buying a paper , a carton of milk and you can't always make the value of the transaction raise above 10. Then there are some transactions which cannot really be done other than in cash, such as taxi rides.
There has to be some sort of symbolic token which can be exchanged for goods and services, like um cash maybe.
Of course you could have some sort of credit account or prepay system but then you can have your micro payment but either your customers have to prepay a minimum amount or your customers all owe you a small amount.
Google is one example if you run Google ads on a small website you need a good number of clicks on the ads before you can even go to Google to get your payment. So essentially you can end up hosting ads for free and Google gets its revenue from the advertisers as they are actually billed per click.
Even the phone company which bills by the second tends to have a minimum of a minute or a 5 cent charge which is largely covering transaction costs.
Money is here to stay even if most of us don't need to carry more than a few dollars/euro's/ ...
Re:And just person to person transactions (Score:4, Interesting)
Indeed - I stuck £40 in crisp used notes through a neighbour's door yesterday. I could have done an electronic bank transfer but she'd have panicked if I'd knocked on the door and asked for her bank account details.
I like using cash anyway, it gives me a tangible way to observe my general expenditure. If I used a card for everything I'd have less of an emotional link between spending money and having a lower bank balance.
Re:Without cash... (Score:3, Interesting)
Re:Abandon all your cash (Score:3, Interesting)
Assume a bank in the USA will only track dollars to the second decimal. 0,01 USD is then the smallest amount that can be traded.
A bank in Europe has a similar granularity, tracking 0,01 EUR.
Banks in China, Thailand and Turkey track their currency to an comparable precision, so I'm pretty confident a Thai bank will track amounts as small as 0,25 THB. After all, there are coins in actual circulation for that amount. Maybe they follow the worldwide model and track the THB with two decimals, having 0,01 THB as the smallest transaction possible.
Why is it reasonable for a bank in Thailand to track a transaction comparable to 0,00025 EUR (1 EUR ~ 40 THB) while this is seen as unreasonable for European banks?
That is what the banks want you to believe. (Score:2, Interesting)
Better yet, you save money from your ongoing business profits and as soon as you have enough money, you buy a small cart.
That whole 'debt and lending is required for an economy to prosper' is just a meme the banks want you to harbour.
Re:On the subject of economics and money... (Score:3, Interesting)
Re:Regulation D (Score:3, Interesting)
It allows the bank and Federal Reserve to better classify deposits for the purposes of maintaining reserves. For every dollar on deposit at a bank, they need to have some fraction readily available to repay withdrawals, and another fraction on deposit at the Fed.
By limiting withdrawals on a savings account, the reserve fractions can be lower, since statistically speaking, you're less likely to have single large redemptions from the entire account base at once. If I've got $5M in aggregate savings accounts from all my depositors, it's likely I'm not going to have redemptions that claim a significant fraction of that in any limited time span (days or weeks).
On the other hand, if I've got $5M in aggregate checking account balances, I may end up redeeming a much larger fraction on any given day, like the first of the month when everyone pays their mortgage. I need to keep checking account deposits much more liquid than properly classified savings accounts. In return, a bank generally pays better interest rates on the savings account.