(Not) Cash Only
Think of all the things that you pay cash for, from small pastries and coffees to perhaps your groceries and stamps. But a car or a house? Not likely. We have quietly and rather quickly become a cash-less society. Reserving rooms, paying utilities, receiving pensions, buying online. All of it is either done electronically or with a piece of paper that has our signature hastily scribbled on it...the check (also vanishing). Jerry Seinfeld used to make fun of this check writing, playing a timid man who glances down at this piece of paper and tries to explain to a merchant that he gave all of his money to someone in a building called a bank who in turn gave him these paper checks and told him that they were now as good as those similiar-sized pieces of paper called money which was now housed in said bank; just placing his signature on the check was supposed to be good enough for the merchant to go to the bank and get that money. Trust me, he says. When one thinks about it, it's all rather trusting isn't it? We get another piece of paper that tells us that this is how much we have in the bank, and that this is how much we owe and that this is how much we have paid...all printed numbers and all sent from the cloud and all based on trust. Even the coins and bills we hold in our purses, pockets and wallets...burnable in a fireplace, yet a value has been placed upon them and we should trust that they are indeed worth something, or so we're told.
The artist J.S.G. Boggs makes fun of all of this by drawing all sorts of "fake" money (The Atlantic wrote quite an extensive piece of him nearly 20 years ago, but you can catch his work on a recent You Tube video). The meticulous drawings are accurate enough to be considered fraudulent by many treasuries and yet beautiful enough to be considered desirable by the art world. Said the article: ...disconcerting questions about money and worth have been popping up almost everywhere. How is it that the unprofitable Amazon.com's stock could rise by nearly 1,000 percent in a year? Or that Indonesia's currency, the rupiah, could lose four fifths of its value during that same period?...Or, for that matter, that one of Andy Warhol's 5,000 soup-can prints could be worth $10,000 if the soup pictured is tomato but only $4,000 if it's black-bean? Strange stuff -- but no stranger, Boggs would insist, than the little green pieces of paper that everybody just seems to take for granted..."Nobody knows what a dollar is, what the word means, what holds the thing up, what it stands in for. And that's also what my work is about. Look at these things, I try to say. They're beautiful. But what the hell are they? What do they do? How do they do it?"
Some of this came back to light with the announcement in India that the current 500 and 1000 rupee notes (1000 rupees is equal to about $15) would no longer be accepted as an effort to hurt drug dealers who deal in the currency; the result has been long lines --3 hours or more says the BBC-- to trade their bills into smaller denominations (banks limit the amount that can be converted to 24,000 rupees per week). As the article reports: At the root of this chaos is the fact that India is an overwhelmingly paper currency country: some 90% of the transactions are done with cash. India's cash-to-GDP ratio is 12%, some four times that of Brazil, Mexico and South Africa. More than half of Indians still don't have a bank account, and some 300 million have no government identification. The two scrapped denominations --500 and 1,000 rupees-- account for more than 85% of the value of cash in circulation. But as bad as this might sound, the idea is being floated around in the U.S. only the bill to be eliminated would be the $100 bill, again in an effort to diminish the drug trade (both of these monetary decisions and pending decisions give an idea of just how large the drug trade is and how it can control markets).
A piece in The New Yorker highlighted a new book titled The Curse of Cash by former chief economist of the International Monetary Fund, Kenneth S. Rogoff. In the book, author Rogoff notes that 80% of the U.S. currency is in $100 bills, meaning that each person should be in possession of about $4200; this isn't the case, so where's the money? Says the article: They are sitting in Zurich safe-deposit boxes, probably, crossing borders with cartels and traffickers, and doing other awful things. The U.S. dollar is an unofficial currency in both unstable economies (such as the Philippines) and under-the-table oligarchies (China, Russia). Phasing out big bills would make it harder for domestic currency to support corruption abroad. A million dollars in hundred-dollar bills is easy to tote in a shopping bag, but a million in ten-dollar bills weighs an ungainly two hundred and twenty pounds. Hobbling the underground market should also temper tax evasion, a costlier problem than many people realize. The most recent I.R.S. estimates indicate a tax-payment shortfall of four hundred and sixty billion dollars a year—a disparity that’s transferred to those who pay. The author of the article goes on to cite the efforts of Sweden to combat this problem...no cash. A cup of coffee? Electronically paid. Cash, he discovered, if difficult to get rid of in Sweden (with Denmark and Norway following close behind). Cashiers are virtually gone (the largest banks all use a single ATM company) because mobile banking is the norm. And just around the corner of all of this is Blockchain. What??
We are in the world of big data, of shared data (private or not) and murmuration, a term applied to birds and fish that move in massive numbers but appear as one large block. In an opening piece in Bloomberg Businessweek, blockchain was described as: ...nothing more than an ever-lengthening chain of blocks of data. Each block contains a compact record of things that have happened. How it does this is interesting and complicated. The important point is that if something is recorded in a blockchain, it's deemed by users to be true with a capital T...Blockchain, as it’s called, is something new in computing. It mashes up cryptography and peer-to-peer networking to create what amounts to a shared database of transactions and other information—which can be open to all, controlled by no one. It’s not just for securely recording payments in crypto-coinage; a blockchain can handle complex transactions, even entire contracts. Who's using it? Banks have jumped in as has Microsoft, and of course, Bitcoin. Can it be hacked (it has)...yes and no. Much of it is based on encryption...and trust.
The small portion of Dodd-Frank, a banking reform bill by President Obama that has so far been only partially instituted (one portion of which requires banks to curb risky behavior and reduce market speculation by having more cash reserves) has resulted in the larger banks in the U.S. doubling their capital and adding an additional $200 billion to the kitty. Said The New Yorker: Citigroup has shed seven hundred billion dollars in assets over the past seven years, while Goldman and Morgan Stanley have shed a quarter of their assets. JPMorgan cut assets last year to avoid a capital surcharge. And G.E. effectively got out of the financial business altogether by selling off most of G.E. Capital. Profit-making opportunities for banks have also shrunk. Thanks in part to the new capital requirements and to new rules curbing banks’ proprietary trading, fixed-income trading has dried up, costing banks billions of dollars in revenue. Dodd-Frank has also reduced the middleman fees that banks collect—for instance, by moving much of the trading of derivatives onto the open market. More than half of credit-default swaps and seventy per cent of currency swaps now trade through a public clearinghouse. Did you know all that was happening? Another view came from money-market mutual funds, a change in the regulations that wiped out the $1 per share guarantee for most such funds, even if the funds were losing money. The exceptions were for government debt and funds catering to retail investors. Said the commentary in Bloomberg Businessweek: ...the exempted funds, it (the Securities & Exchange Commission which sets the rules) argued, were less susceptible to runs: Retail investors didn't pull much out of money-market funds in 2008, and funds that invest in government debt attracted money...In other words, the SEC says it's OK to maintain the buck-a-share fiction as long as investors believe it. Wait, what was that? Here are those last words...as long as investors believe it.
So if this has seemed a bit like reading a lengthy insurance contract or skimming a boring investment book, swipe your Apple Pay and open those electronic transactions and dump your cash. It's all there in our history of money, first a hard and rare metal (gold and silver), then a piece of paper (whatever the denomination of bill or check amount), then electronically sealed and now...open sourced. It's all good, trust us we're told. It'll all work and is working they say...as long as investors believe it.
The artist J.S.G. Boggs makes fun of all of this by drawing all sorts of "fake" money (The Atlantic wrote quite an extensive piece of him nearly 20 years ago, but you can catch his work on a recent You Tube video). The meticulous drawings are accurate enough to be considered fraudulent by many treasuries and yet beautiful enough to be considered desirable by the art world. Said the article: ...disconcerting questions about money and worth have been popping up almost everywhere. How is it that the unprofitable Amazon.com's stock could rise by nearly 1,000 percent in a year? Or that Indonesia's currency, the rupiah, could lose four fifths of its value during that same period?...Or, for that matter, that one of Andy Warhol's 5,000 soup-can prints could be worth $10,000 if the soup pictured is tomato but only $4,000 if it's black-bean? Strange stuff -- but no stranger, Boggs would insist, than the little green pieces of paper that everybody just seems to take for granted..."Nobody knows what a dollar is, what the word means, what holds the thing up, what it stands in for. And that's also what my work is about. Look at these things, I try to say. They're beautiful. But what the hell are they? What do they do? How do they do it?"
Some of this came back to light with the announcement in India that the current 500 and 1000 rupee notes (1000 rupees is equal to about $15) would no longer be accepted as an effort to hurt drug dealers who deal in the currency; the result has been long lines --3 hours or more says the BBC-- to trade their bills into smaller denominations (banks limit the amount that can be converted to 24,000 rupees per week). As the article reports: At the root of this chaos is the fact that India is an overwhelmingly paper currency country: some 90% of the transactions are done with cash. India's cash-to-GDP ratio is 12%, some four times that of Brazil, Mexico and South Africa. More than half of Indians still don't have a bank account, and some 300 million have no government identification. The two scrapped denominations --500 and 1,000 rupees-- account for more than 85% of the value of cash in circulation. But as bad as this might sound, the idea is being floated around in the U.S. only the bill to be eliminated would be the $100 bill, again in an effort to diminish the drug trade (both of these monetary decisions and pending decisions give an idea of just how large the drug trade is and how it can control markets).
A piece in The New Yorker highlighted a new book titled The Curse of Cash by former chief economist of the International Monetary Fund, Kenneth S. Rogoff. In the book, author Rogoff notes that 80% of the U.S. currency is in $100 bills, meaning that each person should be in possession of about $4200; this isn't the case, so where's the money? Says the article: They are sitting in Zurich safe-deposit boxes, probably, crossing borders with cartels and traffickers, and doing other awful things. The U.S. dollar is an unofficial currency in both unstable economies (such as the Philippines) and under-the-table oligarchies (China, Russia). Phasing out big bills would make it harder for domestic currency to support corruption abroad. A million dollars in hundred-dollar bills is easy to tote in a shopping bag, but a million in ten-dollar bills weighs an ungainly two hundred and twenty pounds. Hobbling the underground market should also temper tax evasion, a costlier problem than many people realize. The most recent I.R.S. estimates indicate a tax-payment shortfall of four hundred and sixty billion dollars a year—a disparity that’s transferred to those who pay. The author of the article goes on to cite the efforts of Sweden to combat this problem...no cash. A cup of coffee? Electronically paid. Cash, he discovered, if difficult to get rid of in Sweden (with Denmark and Norway following close behind). Cashiers are virtually gone (the largest banks all use a single ATM company) because mobile banking is the norm. And just around the corner of all of this is Blockchain. What??
We are in the world of big data, of shared data (private or not) and murmuration, a term applied to birds and fish that move in massive numbers but appear as one large block. In an opening piece in Bloomberg Businessweek, blockchain was described as: ...nothing more than an ever-lengthening chain of blocks of data. Each block contains a compact record of things that have happened. How it does this is interesting and complicated. The important point is that if something is recorded in a blockchain, it's deemed by users to be true with a capital T...Blockchain, as it’s called, is something new in computing. It mashes up cryptography and peer-to-peer networking to create what amounts to a shared database of transactions and other information—which can be open to all, controlled by no one. It’s not just for securely recording payments in crypto-coinage; a blockchain can handle complex transactions, even entire contracts. Who's using it? Banks have jumped in as has Microsoft, and of course, Bitcoin. Can it be hacked (it has)...yes and no. Much of it is based on encryption...and trust.
The small portion of Dodd-Frank, a banking reform bill by President Obama that has so far been only partially instituted (one portion of which requires banks to curb risky behavior and reduce market speculation by having more cash reserves) has resulted in the larger banks in the U.S. doubling their capital and adding an additional $200 billion to the kitty. Said The New Yorker: Citigroup has shed seven hundred billion dollars in assets over the past seven years, while Goldman and Morgan Stanley have shed a quarter of their assets. JPMorgan cut assets last year to avoid a capital surcharge. And G.E. effectively got out of the financial business altogether by selling off most of G.E. Capital. Profit-making opportunities for banks have also shrunk. Thanks in part to the new capital requirements and to new rules curbing banks’ proprietary trading, fixed-income trading has dried up, costing banks billions of dollars in revenue. Dodd-Frank has also reduced the middleman fees that banks collect—for instance, by moving much of the trading of derivatives onto the open market. More than half of credit-default swaps and seventy per cent of currency swaps now trade through a public clearinghouse. Did you know all that was happening? Another view came from money-market mutual funds, a change in the regulations that wiped out the $1 per share guarantee for most such funds, even if the funds were losing money. The exceptions were for government debt and funds catering to retail investors. Said the commentary in Bloomberg Businessweek: ...the exempted funds, it (the Securities & Exchange Commission which sets the rules) argued, were less susceptible to runs: Retail investors didn't pull much out of money-market funds in 2008, and funds that invest in government debt attracted money...In other words, the SEC says it's OK to maintain the buck-a-share fiction as long as investors believe it. Wait, what was that? Here are those last words...as long as investors believe it.
So if this has seemed a bit like reading a lengthy insurance contract or skimming a boring investment book, swipe your Apple Pay and open those electronic transactions and dump your cash. It's all there in our history of money, first a hard and rare metal (gold and silver), then a piece of paper (whatever the denomination of bill or check amount), then electronically sealed and now...open sourced. It's all good, trust us we're told. It'll all work and is working they say...as long as investors believe it.
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