The latest edition of IEEE Spectrum focuses on the electronic alternatives to money as we know it. I was amazed to learn that the costs of the printing, recycling, guarding, and transporting cash in the US amount to over $100 billion per year. This one fact cries out for an electronic alternative to money. 
One huge advantage to physical cash, however, is it’s less abstract to the mind than electronic alternatives. Money itself is an abstraction of value. It takes some mental effort to remember that I worked all day for a pile of cash that I can optionally exchange for any number of goods and services. It requires even more mental effort to keep track of the value associated with numbers on a screen. For example, if I fill my wallet with a few large-denomination bills to cover the costs of a particular task, say a vacation or outfitting a lab, it’s very easy for my mind to weigh how fast I am using the money versus how much of the task is complete. Just counting out the bills for a single purchase makes me think on visceral level of the amount of billable hours it took to earn those bills. If you think you’re immune to this effect, try making two similar purchases, one with cash and one with another payment vehicle and see if you think about them at all differently.
Technology has made card payments common even for trifling purchases for which it would have been unthinkable to use a card 20 years ago. I sometimes wonder if this has caused people to lose sight of the purpose of money. During the real estate bust, there were many stories of people who couldn’t sell their houses offering to “throw in” cars or other valuables to make their house more appealing. Maybe this was a backdoor way of getting the additional items financed on a mortgage, but I suspect the sellers simply forgot that the original purpose of money was to be a medium of exchange so people could trade goods and services individually.
In his article for Spectrum, David G. W. Birch says electronic money replacing cash is inevitable. He says that it will take the form of many organizations creating their own currencies, like an advanced form of “Camel Cash” that will be mutually interchangeable in a free market. This presents exciting questions for society and the economy.
- 18%-19% of the economy is currently underground. Much of it involves trading things that the government does not want people to trade, primarily drugs, undocumented labor, and sex. (See Reefer Madness by Eric Schlosser) Some otherwise legal exchanges are made in the black market to avoid taxes. Will the elimination of paper money make these illegal exchanges more difficult? Will it force us to evaluate the merits of trying to prohibit these transactions for which there is a large market of willing buyers and sellers?
- Critics of the US Federal Reserve system say attempts to even out the economic cycle by expanding and contracting the money supply incur an indirect cost on the economy by creating uncertainty about the value of currency. Will these people vote with their feet (or their touchscreens) and abandon US currency for most transactions in favor of something else, perhaps an electronic currency backed by precious metals?
- Things of value in our society are increasingly intellectual property rather than physical things. When someone went to buy music 20 years ago, she handed over a $10 bill and received an audio cassette tape. If the bill and cassette are no longer necessary for this transaction and the player is trivially inexpensive, will the human mind be able to keep track of these abstractions on a daily basis? Will a new generation of people who have never seen a cassette tape have a better ability to keep track of the scarcity of money on their smartphones and the scarcity of the digital property they can purchase with it? Or are some of the fundamental ideas of scarcity and how value is created being upended?