In praise of cash

In fact, trying to pay cash can cause problems -- so many people use the electronic methods, the doorman might not have any change. (This is often the case at the weird gigs I go to, where only 25 people attend anyway, and it barely breaks even for the promoter).

I've heard of a trial to donate money to the homeless using a card, but it was only a trial. It's not normal to tip in a restaurant (or anywhere else).

However, the post spoke of having to buy illegal alcohol at college, so the person is clearly in America. But there are always queues at the cash machines near Christiania in Copenhagen, where everyone goes to buy weed. That's the only remaining thing Danes use cash for...

All of them, including (but not limited to, since barter predates money) all the ones that also have a money economy.

Look at how the underground economy of drugs uses commodities like detergent [1]. This would just take that economy to the next level. Clearly to prevent currency from failing outright, going cashless would likely result in the ban (effective or not) of cryptocurrencies and the like.

[1] http://nymag.com/news/features/tide-detergent-drugs-2013-1/

This raises a question in my mind which probably shows my ignorance of finance more than anything, but here goes:

Why not just have a public system of electronic transactions?

What I mean is, the current system of electronic transactions feels to me a lot like the way things were back in Ye Olden Days with cash. Cash didn't start out as state money, it started out as private money -- notes issued by individual banks, promising to pay the recipient in coin or specie on behalf of the bearer. (Which is why paper money is still referred to in some places as "bank notes.")

Which was fine for a long time, but as commerce got bigger and more widely distributed, it reached a point where it didn't scale anymore. Every note was only as dependable as the bank it was drawn on, and the farther away the transaction was from that bank the harder that reliability was to evaluate -- uncertainty which added risk to transactions. So governments started removing that uncertainty by organizing central banks and issuing their own notes, which became the paper currency we all know today.

Fast forward to now. We have modern cash, which has all the virtues the article cites; and we have a separate system of online payments which lacks those virtues, run by private companies who take a non-trivial piece of every transaction for themselves. Those drawbacks weren't too important when electronic payments were a new thing, because it wasn't clear then that they would ever be more than a niche product for the convenience of rich people. But now they're everywhere, and it seems inevitable that at some point they'll become the universal method of payment.

So why not do like we did with bank notes and cut out the middleman? Why not have electronic payments systems operated by governments, in the same way that they print currency? It seems like it could solve a lot the of problems with a cashless society at a stroke, and help the economy to boot by returning the percentage of each transaction that used to go to the banks back to productive circulation.

(The cynical part of me says that the reason is because the middlemen in this case are banks, and in the modern world banks tell governments what to do rather than the other way around.)

"The transaction is authorized either online and offline. For an online authorization, transactions proceed as they do today in the U.S. with magnetic stripe cards. The transaction information is sent to the issuer, along with a transaction-specific cryptogram, and the issuer either authorizes or declines the transaction. In an offline EMV transaction, the card and terminal communicate and use issuer-defined risk parameters that are set in the card to determine whether the transaction can be authorized. Offline transactions are used when terminals do not have online connectivity (e.g., at a ticket kiosk) or in countries where telecommunications costs are high."

http://www.emv-connection.com/emv-faq/

It's in wide use in Europe, for instance a ticket machine on a train or tram, or for low-value transactions (bus tickets, fast food), or where there's no connection (purchase on a plane -- where they will probably only accept credit cards beyond a certain amount).