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Hot Frogs and the Monetisation of Money

Categories : Cash and Crises, Cash does not require a technology infrastructure, Cash is a contingency and fall-back solution
March 2, 2021
Tags : Cash and Crises, Financial inclusion, Privacy, Resilence
We have succumbed to the inevitability of digitalisation and the associated monetisation of money, the cynical conversion of the public good called cash into its privatised digital equivalent. In the process, we are losing the social utility of cash.
James Shepherd-Barron

Disaster Risk Management Consultant, Author, and Founder of The Aid Workers Union

This post is also available in: Spanish

Like so many other aspects of our lives, the Covid crisis has forced us to re-examine that which, only a year ago, we once took for granted. One of these relates to our relationship with money. Not the lack of it – which is problematic enough for many of us – but how we pay for the stuff we consume. Stuck at home, we are forced to shop online. And when we do venture out, we find retailers less than keen on accepting the folding stuff. Rumours about possible transmission of the virus via notes and coins, exacerbated by poor risk communications from the World Health Organisation at the outset of the crisis, helped accelerate the pre-crisis trend towards a ‘less-cash’ society.

But is a cashless society really what we want? Is the conversion of cash into its contactless digital equivalent really so desirable? Does the convenience of paying for our shopping with a mobile phone really outweigh the downside to society of deleting cash altogether? Do we even know enough about how cash adds value to society to decide?

The inherent risks of digitalisation

Inherent risks involved in the global rush to electronic payments suggests that we will regret it if we let cash disappear altogether.

Because disaster management now prefers ‘cash and voucher assistance’ over distribution of physical relief commodities, it has been possible to test many of these risks in the ‘sandbox’ of humanitarian aid: The practicality of iris and voice recognition as a viable biometric identifier at ATMs and point-of-sale terminals, for example, was – and is being – tested in the ‘real (closed loop) world’ of Jordanian refugee camps; the use of blockchain for keeping identities of persecuted minorities private was fine-tuned for the Rohingya fleeing Myanmar; stablecoin ‘crypto-currency’ options were tested on islanders in the South Pacific following Cyclone Harold last year; ‘smart’ contactless debit cards are being trialed on Syrian refugees in Turkey; and micro-lending apps are in late-stage development in the poorer parts of northern Kenya.

We have become comfortably numb

These technologies are all part of a wider push by banks, card companies, mobile network operators and fintech companies to nudge us towards an acquiescent world where we are so comfortable with being able to pay for things electronically that we are happy to wave goodbye to cash forever. Slowly but surely, they have helped us become what Pink Floyd would call “comfortably numb”. We have succumbed to the inevitability of digitalization and stumble around in a state of what Manuel Castells, the great Spanish sociologist, has referred to as “informed bewilderment,” watching societal value being extracted without our permission just as our data and our identities have already been. Like ‘hot frogs’ who fail to notice the water in which they are immersed slowly reaching boiling point, we are aware that the world is changing around us yet seem unable to comprehend what it means for our lives.

The final scene in this global act of pillage is now underway in the form of the monetization of our money … the cynical conversion of the public good called cash which circulates freely in local markets into its privatized digital equivalent from which value is extracted every time it passes hands in a new form of commercial exploitation. Like the ‘hot frogs’ we are, our collective failure to appreciate the social utility of cash and the role it plays in maintaining the democratic freedoms and civil liberties we enjoy today means that we have not fully grasped the implications of what this means.

There is nothing new in monetization; it has been going on since money was invented, and everybody seems to be at it: our data has been monetized ever since Google first introduced search engine optimisation; Prince Harry has been monetizing his royal status ever since he married Meghan Markle and started forging a career in TV and film production; and Mark Zuckerberg ‘un-friended’ the entire continent of Australia in a spat over Facebook’s monetization of the journalistic endeavours of others.

The social utility of cash

If we want to avoid the worst excesses of monetization, we need to get over our apparent inability to appreciate that cash has a social utility value far beyond that of the numbers printed on something as intrinsically worthless as a banknote and remind ourselves that cash adds value to society in ways that electronic payments do not and cannot:

First, cash is resilient. Cash plays a key role in reducing disaster risk, especially in sudden-onset crises where the demand for cash typically triples immediately prior to the arrival of, say, a hurricane and remains higher than usual for months afterwards. When ATMs are sucked out of walls – as they were when Hurricane Maria devastated the Caribbean island of Dominica in 2017 – people quickly learn not to rely on electronic payments. This experience may help explain why cash volumes in terms of both value and the number of notes in circulation, far from decreasing, have been increasing well beyond the rate of GDP growth per capita throughout the Covid crisis.

Second, cash is crucial for financial inclusion. Electronic payments, especially those using smartphone apps and artificial intelligence to rate credit risk, stimulate over-borrowing in low-income societies. Loan repayment defaulting rises as a direct consequence, eventually leading to the downgrading of an individual’s credit score.

Fintech apps hold great promise to help millions of people become financially included and able to manage their finances at low cost and for low effort. But the ability to access easy credit combined with our human bias towards optimism can quickly lead to levels of borrowing that there is no hope of ever repaying. With indebtedness fast becoming a real problem at both household and national level in many developing countries, the promise of financial inclusion quickly turns to the sour reality of financial exclusion. This then serves to deepen the gulf between the have’s and have-nots, the connected and the disconnected.

Third, cash does not discriminate. It is universal; it does not recognise the digital divide and does not rely on a sophisticated payments infrastructure, electricity, fragile software or platforms which are not interoperable. It’s not just that half the world’s adult population did not make a single digital transaction last year – mostly because, being poor, vulnerable or financially illiterate or lacking the means to access the internet, own smartphones or pay for data packages, they could not – but because many – the politically aware and financially literate who fear where surveillance-capitalism (and philanthro-capitalism) is taking democracy – would not. This is as true today in Tigray and Myanmar as it is in Clapham.

And finally, cash is more efficient. It provides better value-for money than its electronic alternatives for two reasons: First, transacting in cash is lower in cost than all other means of payment. According to the British Retail Consortium, debit cards are four times more expensive than cash, representing 8% of merchant transaction costs; second, according to the Cash Learning Partnership, a non-governmental information exchange, when cash recirculates, it generates local economic multiplier effects of up to 2.7 times nominal face value.

Then there are additional social implications connected with electronic payments relating to protection, privacy, fraud, sustainability and empowerment: The means of electronic payments can be switched on and off at will by any dictatorship whose views might not align with yours. Just ask anyone in Northern Ethiopia or Yangon. Our purchasing behaviours are no longer private when we transact digitally; buy a blood-pressure monitor over the internet and watch your health insurance premiums rise. Coincidence? Digital financial fraud is rising dramatically. And the mining of Bitcoin consumes more electricity than that used by the whole of Argentina.

We have been caught off guard by our digital illiteracy. It’s as if we are emerging, tortoise -like, blinking and befuddled, into the sort of brave new world that George Orwell would have recognised. Ever so slowly, we wake to the realisation that democracy has been, “sleepwalking naked” as Shoshana Zuboff put it in her book Surveillance Capitalism, “while unprecedented concentrations of knowledge, power and privilege have been amassed at our expense.”

So, if the monetization of our money is the final frontier in a world of surveillance capitalism, where do we go from here?

Our money, like our data, belongs to us

First, we have to re-assert the basic democratic principle that our money, like our data, belongs to us. It is private. Second, we have to demand that the ability to pay with cash is maintained. Central Banks cannot be ‘neutral’ in this regard; it is their duty to uphold their independence and impartiality by insisting on maintaining a universal cash payments infrastructure which is free at point of use. And third, the full cost of transacting has to be made transparent. Only then, when the opportunity costs are known, will we understand the cost of monetization and the true cost to society of taking away the choice of paying with cash.

The moment is fast approaching when we will have to choose what kind of future for cash we would like to see and that we don’t end up doing more harm to society than good in our self-interested quest for convenience.

This post is also available in: Spanish