You might have seen this topic many times over. Nevertheless, I am preparing for a presentation and am just jotting down the points. What better place other than my blog to jot?
Who bears the cost of cash?
Printing cash notes and bills borne by treasury/mint department (tax payers bear it indirectly) Cash processing costs, cash transportation costs, cash storage costs, admin and ATM/teller related costs (by banks) Time, effort and money spent in withdrawing cash, securing it safely and managing it (by consumers) Accepting cash, securing it, depositing it, managing theft/robbery (by merchants)Total cost of managing this cash is around 0.5% – 0.8% (~ €60b - €100b) of GDP in Europe. Much higher in developing countries.
Cash is used primarily in Retail, P2P and Bill Pay transactions.
Retail payments
75% – 80% of transactions paid by cash (in terms of number of transactions) in US/EU (McKinsey Payment Report 2009) Upto 99% of transactions in developing countries About $500b (out of $4 trillion) is paid using cash in the US (Aite report)P2P and Bill Pay payments – TBD. Get some statistics to get some perspective
What does cash provide?
Ubiquity. Almost everyone accepts cash Convenience undoubtedly! Definitely Anonymity! Large bills are one of the drivers of the “grey economy” leading to Loss of tax revenues Unless managed properly, the cash spending cannot be tracked fully. About 65% – 75% of cash spending is unexplained by households Since USD is the fiat currency in many parts of the world, a large number of US currency notes are circulated outside the US. Essentially, US is bearing the cost of printing/transporting those additional notes.My case in point
As a normal citizen, I do need ubiquity and convenience. Do I need anonymity? No.. as long as my records are not available to every Tom, Dick and Harry, I am fine. If I am a drug dealer, I definitely want this anonymity! Do I have a need to stash huge amounts of notes and bills and avoid tax? If I am a drug dealer or a hoarder of “black”/”grey” money, yes I like this feature of money.Closing points
As long as a “digital money system” is ubiquitous, secure, reliable and as convenience to use as cash, ANONYMITY is not a must!
Typically, coins, $1 – $20 bills are used for retail payments and $50 – $100 and above bills are used as store-of-value.
The number of coins printed in the US in 2010 was as shown below:
| Denomination | Number of notes/coins produced |
| $100 bill | 7,046,000,000 |
| $50 bill | 1,338,000,000 |
| $20 bill | 6,531,500,000 |
| $10 bill | 1,659,000,000 |
| $5 bill | 2,292,000,000 |
| $1 bill | 9,730,000,000 |
| $1 coin | 4,000,000,000 |
| Sub $1 coins | 358,300,000,000 |
The GDP of the US was $14.5 trillion. A cost of 0.5% (at the lower end) amounts to $72 billion.
Bulk of the notes/coins as seen in the table above are to produce $20 bill and lower denomination. Also referred to as micro-payments. Does it make sense for the feds, banks, consumers and merchants to adopt a micro-payment system if it were available?