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David Austin, CetoLogic
David Austin, CetoLogic
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Reports of Cash's Death Greatly Exaggerated

Consumer preferences and the actions of the Federal Reserve indicate that cash will remain an important part of the payments ecosystem for a long while.

A recent Bank Systems & Technology article, ‚Banking on the Death of Cash, asserted that cash is headed for the same fate as the now-extinct subway token. While cash may no longer be as ubiquitous as debit, credit and prepaid cards, the reality is that currency and coin is too powerful of a payment form to ever be fully eliminated from the economy. From a historical perspective, no payment innovation has rendered one of its predecessors obsolete ‚ from cash, to checks, to plastic, to the mobile wallets of today.

While the percentage is certainly lower than it was a decade ago, it is estimated that cash was, in fact, used for about 29 percent of all U.S. retail payments in 2012, according to McKinsey & Co. As retailers forego the traditional cash register for mobile technology and check-out scanners, this may force consumers to adopt these new payment technologies and ultimately displace cash further down the line. However, consumer behavior clearly shows an affinity for cash as a way to better budget and in some cases, keep purchases private. As personal finance pundits like Dave Ramsey suggest, grandma's way to handle money via the old cash envelope is still a very effective budgeting plan. From a security standpoint, many consumers view cash as a safer alternative in light of recent high profile data breaches tied to card payments at retailers like Target and Nieman Marcus.

The U.S. Bureau of Engraving and Printing produced more than $8.4 billion in notes during 2012, with $100 bills accounting for more than $3 billion of that total. Credit card companies, banks and emerging technology providers are still competing with cash because it remains prevalent in the U.S. economy, is the superior form of payment outside the U.S. and remains the primary payment transaction option for the unbanked.

From a regulatory standpoint, consumer bank fees tied to the Durbin Amendment are actually driving consumers to use cash more often for small transactions, and on the other end of the spectrum, mortgage lenders have returned to the norm of requiring increased levels of borrower liquidity to facilitate meaningful down payments. While cash's role in the economy may not be as significant as in previous generations, it still has an important role to play today.

Perhaps most notably ‚according to the Federal Reserve Bank of St. Louis ‚ currency in circulation is projected to increase to a level of more than $1.2 trillion by 2015, which is counterintuitive to what many industry experts claim. This increase in cash is being driven by the Federal Reserve as a tool to stimulate the economy and at present, the Fed has stated no plans to take this circulated cash out of the system. Currently, the Fed continues to pump cash into the economy at a rate of about $75 billion per month.

As long as the Fed continues to put more cash into the economy and banks still sit on millions of dollars in cash, greenbacks are not going anywhere. Should financial institutions be excited about the payment technology evolution? Absolutely. Developments in new technologies are giving consumers more choices in how to make their payments. However these innovations simply do not change the fact that there is a glut of cash remaining in circulation and how consumers continue to embrace the classic currency.

David Austin is Vice President of Atlanta-based CetoLogic, a provider of software and analytics solutions for financial institutions and retailers.

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Becca L
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Becca L,
User Rank: Author
1/29/2014 | 10:29:40 PM
re: Reports of Cash's Death Greatly Exaggerated
The idea that we could go cashless also ignores the reality that there's still a significant portion of the population without proper bank accounts or the credit to participate in many of these cash-less alternatives. This likely spurs on the underground economy mentioned by @ubm_techweb_disqus_sso_-abce443a05f667f1d01ff9241d2f116d:disqus
Becca L
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Becca L,
User Rank: Author
1/29/2014 | 10:26:27 PM
re: Reports of Cash's Death Greatly Exaggerated
So true! Many budget conscious people (including myself from time to time) turn to the "cash diet" to keep spending in check.
Jonathan_Camhi
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Jonathan_Camhi,
User Rank: Author
1/28/2014 | 8:55:40 PM
re: Reports of Cash's Death Greatly Exaggerated
I definitely agree. Americans use cash more often than consumers in many other developed economies. It will take something big to change consumer behavior enough for customers to largely abandon cash. On the other hand we really favor using cash for small transactions, which would be the ideal transactions for mobile payments.
Byurcan
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Byurcan,
User Rank: Author
1/28/2014 | 8:26:24 PM
re: Reports of Cash's Death Greatly Exaggerated
I agree with this premise, if cash does go away for good, it literally won't be until at least 70-80 years from now. You need several generations of people not using cash to make it obsolete.
Becca L
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Becca L,
User Rank: Author
1/28/2014 | 6:58:33 PM
re: Reports of Cash's Death Greatly Exaggerated
You cite some interesting examples. It shows this idea is certainly by no means the first of its kind and that there are a lot of cases for economists to examine before pulling any similar moves in the US. There is indeed ample evidence, obvious and obscure, that show the need for a cash currency. The underground market is particularity compelling.
Kelly22
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Kelly22,
User Rank: Author
1/27/2014 | 3:46:11 PM
re: Reports of Cash's Death Greatly Exaggerated
I agree that cash is an effective means of budgeting. I'm much less likely to overspend when using cash as opposed to a debit/credit card.
Greg MacSweeney
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Greg MacSweeney,
User Rank: Author
1/27/2014 | 12:14:31 PM
re: Reports of Cash's Death Greatly Exaggerated
I think epayments, mobile payments, P2P payments and all of the other electronic methods to complete a transaction are cool, but cash isn't going anywhere anytime soon, that's for sure.
PVALERIO020
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PVALERIO020,
User Rank: Apprentice
1/26/2014 | 5:39:39 PM
re: Reports of Cash's Death Greatly Exaggerated
There are many reasons why cash will be around for some time. One is the huge amount of cash already out. The US also sends enormous amounts of cash overseas to pay for their operations in places such as Iraq and Afghanistan.
When we converted from 15 currencies into the Euro, the ECB decided to have Gé¼200 and Gé¼500 notes, against conventional wisdom. Now we have a huge underground economy using those. The best solution will be to recall all of them, but no one wants to do it.
Also last year the Israeli government requested a report about the possibility to go cashless. But experts warned that people will use other currencies, such as Dollars and Euros, to continue handling cash.
JasmineK363
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JasmineK363,
User Rank: Apprentice
1/25/2014 | 1:19:19 PM
re: Reports of Cash's Death Greatly Exaggerated
e-banking is now the reason of death of cash.. may be good for country but bad for economy... http://proxyrental.net/
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