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The "Cashless Economy" Is A Myth
Via ConvergEx's Nick Colas,
The “Cashless economy” is myth. Forget what you think you know about credit and debit cards, PayPal, bitcoin, Apple Pay and any other modern conveniences meant to displace physical currency. The truth is that transactional currency ($1 through $20 bills) in circulation per capita today in America is essentially where it was, inflation adjusted, in 1994: $661 then and $649 today. Moreover, the Federal Reserve’s orders from the U.S. Treasury for small bills have grown faster in the last five years than the 20 year average: 4.5% annually versus a 3.5% long run growth rate. This year should be no different, with the Fed ordering $49.9 billion of “small bill” currency, the largest amount since 2010. One bit of good economic news in terms of transactions: $1 bills wear out fastest, and the Fed’s 2015 order of 2.5 billion bills is higher than 2014 (2.3 billion) and 2013 (1.8 billion). That’s growth and relevance any startup online payment company would be happy to see.
* * *
As a New York City resident, the “Fast Cash” button at ATMs in other U.S. cities always amuses me. The most typical offering is $20. That doesn’t even buy you a 7 day unlimited MetroCard in Gotham ($30) or a sandwich at the Carnegie Deli (the Reuben is $29.99). If you want to see “Fifty Shades of Grey” at the Ziegfeld you’ll get a Lincoln back for your Jackson, but you’ll have to choose between a drink or popcorn. You won’t be able to afford both.
And yet there is actually some good data behind that $20 Fast Cash option. According to the Diary of Consumer Payment Choice, a 2012 survey done by three regional Federal Reserve branches, the average adult American carries $56 and the median observation is $22. Only 5.2% of Americans carry a $100 bill, and a Boston Fed paper from November 2014 estimated that 65% of those notes actually circulate overseas. So a $20 bill from the ATM in Des Moines or Charlotte is actually enough to replenish the average American’s wallet. Just don’t try that in NYC.
All this got me to thinking about how many small bills - $1 through $20 notes – it takes to keep the U.S. economy in business. The Federal Reserve issues paper money, ordered from the Treasury’s Bureau of Engraving and Printing (BEP), and keeps records of cash in circulation available on their website. With all the fuss about online payments, credit and debit cards, virtual currencies and the like you’d think paper money would be leaving the stage. As it turns out nothing could be further from the truth.
We pulled the circulation statistics from the last 20 years of Fed data, as well as BEP print runs and the U.S. central bank’s 2015 orders for currency, and here’s what we found (several charts included immediately after this note):
The growth of what we will call “Transactional currency” ($1 through $20 bills) has been remarkably stable over the last 20 years. In 1994 there was $109 billion in such currency outstanding, growing to $207 billion in 2014. There was one hiccup in 1999, as the Fed prepared for worries over Y2K glitches in the banking system, when transactional currency in circulation grew by 15% to $150 billion and shrank by 13% the following year. On average, however, the balance of such bills has grown by an average of 3.5% annually.
Look at transactional currency per capita, adjusted for inflation, and you’d be hard pressed to find any real change over the last two decades. With 263 million Americans in 1994, per capita transactional cash amounted to $414 back then. That is $661 in today’s money. Fast forward to 2014, with 319 million Americans, and the per capita number is $649. That’s a compounded rate of change of only 0.1% annually, or 1.8% over the whole period. Cashless economy indeed!
The most popular transactional note in circulation is the $1 bill, followed by the $20 note. There are some 11 billion of the former in circulation currently and 8.1 billion of the latter. Together they make up 74% of all the transactional currency moving through the U.S. economy. Interestingly, the ratio of the two notes in circulation hasn’t changed very much since 1994. Back then, there was 13.2x the amount of $20’s in the system versus $1’s - $80.5 billion versus $6.1 billion. Now, the ratio is 14.8x - $162.2 billion versus $11.0 billion.
Not only is paper currency holding its own in the Internet age, it is actually growing faster than U.S. GDP. For example, aside from the correction in 2000 to reabsorb bills issued in 1999 for Y2K, transactional money in circulation has risen every year since 1994 – no recessions here. Over the last 4 years, the average growth of $1s through $20 in circulation has been 5.1%. Look at the Federal Reserve’s currency order from the Bureau of Engraving and Printing for 2015, and you’ll see they are expecting to receive $49.9 billion of new transactional notes. That’s the largest order since 2007 ($51.4 billion) and 2010 ($50.3 billion).
The $1 bill wears out the fastest of any face value, for the obvious reason that it changes hands the most in small value transactions. On average, a $1 bill circulates for 5.9 years, according to the Federal Reserve. Twenty-dollar bills last an average of 7.7 years. For reference, $100 bills stay in circulation for 15 years since they are typically more a store of value than a transactional currency.
Despite the half-decade average life, the Federal Reserve has ordered more $1 bills for 2015 than either of the last two years. The amounts are 2.5 billion this year versus 2.3 billion in 2014 and 1.8 billion in 2013. Given that the Federal Reserve bases their orders mostly on how much they need to replace paper money worn out through use, this is a promising sign about economic growth in the U.S. More money usage should mean more transactions, after all.
So what’s going on here? After all, the rise of shopping on the Internet, the “App economy”, virtual currencies, incentive program credit and debit cards, and online banking were all supposed to make paper currency obsolete. Yet the American economy is using more paper currency, even adjusted for inflation, than ever before. Population growth only takes this calculation to flat, with the net $12/person reduction we noted above but a still-sticky $650/person in circulation today. And, of course, there is the simple fact that the Federal Reserve is still growing the supply of transactional currency faster than GDP or population growth combined with inflation.
A few possible explanations fall to hand:
The underground economy is growing faster than reported/official economic growth. Ask any housekeeper or day labor how they would prefer to be paid, and the answer is invariably cash. There are plenty of good reasons for this response, ranging from tax avoidance and immigration status to the lack of a bank account. The same goes for a myriad of other workers, from New York City doormen at Christmas to the local automotive repair shop or the burly guy manning the ropes at a hot new club. Cash talks… You know the rest.
Cash is still more convenient than many other payment options for small amounts. The Diary of Consumer Payment Choice showed that the typical American uses cash some 50% of the time for transactions less than $50. It is still the preferred method payment for food and personal expenses (51%) and personal to person gifts and transfers (67%).
Contrary to popular belief, young people (18-24) prefer to use cash more than any other age group. Fully 40% prefer old school legal tender; their parents (45 to 64) only rate it as the preferred method of payment some 25% to 32% of the time. Since this age cohort typically has a larger amount of small transactions, this preference does make some sense. It does, however, present a real challenge for online and app-enabled payment solutions to gather this most tech-savvy group into their fold.
Low inflation and interest rates make holding cash less costly. After all, if the opportunity cost of holding cash is zero – that’s currently the average interest rate on a bank deposit, after all – then what incentive is there to keep money in the financial system?
The rise of lower income households. Another finding from the “Diary”: households making less than $25,000/year preferred to pay in cash some 55% of the time. That compares to 22% for households with $50-75,000 in income and just 10% for those making more than $200,000 annually. The preferred payment mechanism for those high-earning households is actually credit cards, at 66%, likely due to the various incentive programs on offer.
Everyone uses cash for something. Regardless of income, every household uses cash for approximately 22 transactions per month, again according to the “Diary”.
The “Cashless Economy” seems very far away indeed, and the demographic targets and use cases for companies seeking to build alternative payment systems are harder to develop than many entrepreneurs likely realize. In the meantime, real cash money continues to grow in relevance and use. They might just be dead presidents and Treasury secretaries, but when it comes to the American economy, they are very much alive and well.
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At my local BAC branch people are cashing checks and taking hundreds and thousands of dollars out the door. This is the underground economy where everything is cash. Only we chumps that pay electronically end up paying taxes.
BTW, the $1 bill is like the old 1000 lira note in Italy before the Euro (about 50 cents back then). Everyone had a roll of them in their pocket.
I do what I can to support the Underground Economy.
BTW, It is 11:00 AM NY Time, do you know where your Dip was? ES right on schedule. Did you partake? I see more PM stackage in my near future.
As long as there is a CIA, there will be cash!
Cash is absolutely the way to go. Why?
Because when you pay for your groceries with your debit/credit card, that transaction will live in a database for essentially ever. If one had access to that database, one could analyze the eating habits and adjust, say, insurance premiums accordingly.
In the not to distant future, to "curtail health insurance costs" (like they don't know why its going up) you can bet your sweet ass Congress will allow this sort of shit and most of the population will be truly fucked.
Pay cash.
Regards,
Cooter
Too late, I am already getting unsolicited ads for eyeglasses and eye exams due to my frequent purchase of hand lotion and 4 ply tissues.
pods
Those are both luxuries, BTW.
People don't roll with Benjies because they are a pain in the ass, a lot of places can't break them.
Cash is king!
Cash isn't going to be king much longer, because the queen wants everyone on the block chain!!!
http://galeinnes.blogspot.com/2015/02/digital-terrorism.html
"BTW, the $1 bill is like the old 1000 lira note in Italy before the Euro (about 50 cents back then). Everyone had a roll of them in their pocket."
That's definitely the case when I go visit my friends 'Asia' & 'Desire' on the occasional Friday Night at TABOO...
Yep, those little shopper rewards cards are evil. Even if you don't fill out the name, address...... they know who you are by cross referencing Checking or card info. My suggestion is to get a new card and then pay only cash. First time you use anything but cash you are screwed and have to start over.
I've had an anonymout Safeway club card for nearly 20 years. I always pay cash at the grocery store, and I got my wife to start doing so a few years ago.
Agree with you cooter, but another reason cash is king is because plastic money is expensive. Lots of businesses (mine included) set a minimum amount for use of a card because every time you use plastic the banks/Fin companies skim some. This is a cost to sellers so we avoid taking card payments when we can because Cashless is too costly. Also cash can be stashed under your mattress which is a much safer place for your money than a dodgy bank.
Same here my family business use to give customers 3% discount (same as charged to us by cc company) for paying in cash but many still insist on using card so we changed our model to 3% fee for using credit card since we can't continuously increase our price just to reflect the service fees that we are being charged. Now we are getting much more customers to paying in cash, people don't care about discount as much as they care about extra fees.
Isn't setting a minimum amount for use against your card holder agreement?
Pretty much all the ones I have ever reviewed indicate that it is, but perhaps they have changed the terms in the interim since I last inquired?
Beware tech companies bearing digital fiat trash.
Money with an expiration date, what a concept!
http://www.outsiderclub.com/fed-tapering-delusion-larry-summers-plot-to-steal-your-money/641
The internet has always been rife with fraud, scams, and total BS, why should we expect anything less from digital cash? (Read Digital foolery)
They suggested the same thing during the great depression. The thought was that a person would buy stamps to attach to bills for them to retain full value. Otherwise they would be discounted by a percentage. Shows you the country has been run by turds for a long time.
Oh look, another back-patting article congratulating everyone who has ZH-sanctioned assets. I'll just be over here, watching while the large banks dig their holes ever deeper, while people have nothing to spend, and while the USA turns into a third-world shithole.
Oh, and transaction trends in Bitcoin are positive, but we can't let that rain on the prepper parade, can we? HURR DURR GET 'DAT GOLD AND AMMO DURRRRRR
I would go further and say the majority of the economy is a myth. Paper shufflers paid for by debt creation.
I use cash for everything. It lets you know what you spend and it is entertainment.
It's fun seeing people trying to do the math when they count out your change.
If my little snapshot of life runs true writ large, we are absolutely and totally fucked!
pods
Rare these days that the change is actually counted back. More like, "Here, you figure it out."
Please try to consider who controls cash...
The stupidity of the plebs is just amazing.
A $29.99 Reuben? Damn.... you see that NoDebt? ;->
The $50 bill is the new $20
but does that cash circulate? mine doesn't.
"$29.99 Reuben"
Wall Street folks would pay $50 if that was the going rate in the area. Pocket change for the big-money folks. When stocks/commodities are riding high money is not an issue.
Screw that. I can get a good Reuben here in Indiana for $8.00. Of course you never know what kind of meat you are getting, but people tell me road kill isn't bad if you get it fresh.
With less people driving to work, roadkill is getting hard to come by...a guy has not truly lived unless He's procured and eaten roadkill woodchuck......(got this merit badge in the minor early 80's recession)
The pickle that comes with the sandwich is what tips the price over, probably.
What does their pastrami cost these days? Is the mustard extra?
I never begrugged the wealthy, until we all (those who read zh) learned the inside of the CB money game..now a fair contract with profit i am all for , but corzined is not my idea of fair..h paulsons bailouts is not my idea of fair, so now I hate em all, and too bad maybe there is one in there who is human, but it;s like finding a virgin in a whore house like hollywood, they may be there but don't hold your brreath.
MUSTARD?!
Not on my Reuben!
I got nothing to do with NYC. You'd need to contact Fonzannoon to get a read on whether that's normal or not.
I have my rabbit food lunch to look forward to (salad). They tell me you can live on the stuff, but I don't want to test that theory.
"The “Cashless Economy” seems very far away indeed"
Just one Executive Order away.
You snatched the words right outta my head... I was going to say: 'Which means it's right around the corner...'
Nope. Both the red and blue teams love thier illegal border crossers, who live on the underground economy. Since nobody wants to shut that down, cash will be in use for a long LONG time.
Also, underground econ. could mean a national sales tax.
Memoranda: they're all hush.
Terrurusts! The lot of 'em.
When I do a table at the fun show, there are always one or two noodles asking if I take debit cards. I tell them to take a long walk off a short pier with that shit.
not it's not a myth, I got no cash. and more month than money..sum ting wong
Printed money supply is growing? Get outta here...
We'll all be Irish Travellers laying blacktop at this rate...not that theres anything wrong with that... Nettie Stanley is pretty hot for an old steamer...
...because polititians want their bribes in untracable money.
Cash in fact is traceable.
No more bearer bonds either.
Yes, and the barter economy is exploding higher!!!
"Full faith and credit"...
tick tock...
Go to the high-end eateries around Wall Street or DC and their flush with money.
What's a $1500 bottle of wine to them? Not much.
Not miuch to them, yes, because you and I are paying for it. I bet half the fuckers wouldn't know the difference if you served 'em 2-buck-chuck (no longer 2-buck).
"There are plenty of good reasons for this response, ranging from tax avoidance and immigration status to the lack of a bank account."
my hood has a thriving immigrant population that goes "to work" at the same locale every day (where contractors come by and pick up as many as they need) ... the going rate is $10 hr CASH + lunch
I see everywhere people paying even small amounts with Maestro cards. It seems my family members are the only ones collecting each of our bills. People have absolutely zero oversight over their expenses and they love to pay with plastic money, because even filling up the wallet is too laborious.
People thirty and fourty years ago definately were not that insane in their economic behaviour.
The zombification is going on at full speed.
This article comes to such extremely false conclusions, because it doesn't contain for example median data.
a simple google search can show how smaller and smaller valued purchases are done in cash, meanwhile there is a decline in use for cash for larger (still fairly minor) purchases and an increasing push in many nations to eliminate the use of cash through various subtle means
<-- Gold Bitchez.
<-- What Color Is The Dress?
I thought the dress was blue and black, but then someone dared me to dump a bucket of ice water on my head and now I see it as yet another thing I have to file in the "I don't give a fuck" folder.
pods
The color of that dress is big news here to all the braindead progressive liberal scum bags.
i hope those maggots choke on their $30 carnegie deli reubens
Damn, we'd better put a stop to this cash stuff. We can't have the goyim not paying their mandatory tribute to the Chosen Ones.
The US will (I don't know when) progress into a cashless society when the Government decides it's time. The government wants this in order for them to be able to capture their perceived fair share in real time. This is the ultimate and most efficient tax collection system ever. Just think about how easy it would be for the government to do this. How will you fight it? You'll either go get a card or you won't be able to buy anything. Want to pay your house keeper, well your 2 phones will facilitate the transaction and the government will immediately skim their tax share on the spot. Don't have a phone? No problem, Obama or one of the banks will give you one for free, or maybe even the NSA. Want to try to fool the government. Just make the transaction look like a purchase of goods. OK then the government will skim their consumption tax right then and there. They won't care, as long as they get a piece of the pie in each and every transaction conducted on the planet. The potential increase in revenues for the government seem to me to be mind blowingly high. Want to barter? Seems to cumbersome. I am convinced that these crooks will, at some point, do this.
Yep, that's exactly where we are going. It's just a matter of when.
I keep expecting to hear an announcement that all FRNs out there will expire at a certain date.
Unless you turn it in to the authorities for credit it becomes not only worthless but criminal to have in one's possession. This could be blamed on terrists perfecting counterfeit, or some other boogieman.
I supspect it hasn't been done because TPTB engage in incredible amounts cash transactions, like drug deals.
There was a scam in Russia a few years ago. A rumer was started that $100 bills were going to expire because a version was being issued. So people ran to the banks to get the new notes - minus a 3% service charge, of course.
Clever bastard theives.
That is probably why Immigrants, Illegal Immigrants are getting official ID Cards & Drivers License.
That's definately the way it goes and the above article suggests otherwise, so you are a conspiracy theorist with a tinfoil hat.
And once again the stupidity of the sheeple is paving the way for the evil plans: people are dumb enough to even freely implant RFID-chips for "easier payment": "That's cool."
Drugs, kids, drugs. The narco-economy is vast and doesn't use debit cards, credit cards or checks. Just ask NATO and the CIA. Daily planeloads of dollars coming out of South America, Europe and Asia and into the greasy palms of black-project managers, mercenaries and politicians.
How can tptb profit from illegal activities without something untraceable.... Hey man smack for 30 eggs? The cia can ship drugs and eggs all over the planet. How many eggs does it cost to overthrow a government? 14 yachts per million population or I'll give you a deal, 16 tanks per 25 million?
You can't hire illegals unless you pay them cash.
That's right.
And then they will be *technically* in poverty and collecting benefits.
It is a game played on the backs of tax payers.
Except if you wanted to hold $661 of 1994-5 money in 2015 you would need to hold about 1400-1800... or something around there.
Because as we all know $649 in 2015 dollars would probably buy you about $200 or so dollars worth of 'stuff' in 1994-95
What this tells us is that the cash economy is flat in real terms, and all the GDP growth is in cashless transactions.
For instance, I rarely see anyone paying for restaurant meals in cash anymore.
And $600 bucks per person per year in cash really isn't all that much. Think about it. I usually draw out the max of $300 every time I use the ATM, at least once a week.
What will you have wished you had done before you die?
Fuck what you know! You need to forget about what you know, that's your problem, forget about what you think you know, about life, about friendship, and especially about you and me.
It was always a fantasy. How can the State Department and the CIA bribe officials, pay assassins, and make money from the sale of drugs??? They can't do it using accounts.
We need to pinky-swear eternal friendship : )
Diamonds and other such things work in the intl drug trade.
Debt is Dumb. Cash is King.
Yes it is. And a lot of people will find that out shortly. Folding money is directly above gold in John Exters inverted Pyramid. When everybody is scrambling back down towards the point, there isn't nearly enough. Rick Ackerman suggests a shoe box full of the stuff under the bed.
I've been using cash for face-to-face transactions for 20+ years. There is a massive cash economy, and that's not even bringing the use-to-be-legal markets into it.
Even more worthless than the $1 or $5 is the debased coins you get back at POS. Unless it hits a $.00 mark I go with the card, just settle it multiple times a month and bask in the sweet rewards, like $5 off at Radiocrapshack.
I must say that since my awakening, I've been using cash as much as I can, even for paying bills, even if it is at the expense of my convenience. I used to be all-in card payments and bank transfers, now anything I can do to piss the banks is worth the effort.
All I can say is that you are learning them banks but good. I bet they're seething!
Yeah you are right, I shouldn't do anything at my level cause it's above me, just come here and keep whining about how rotten is the system, right ? No wonder why we are stuck, too many "realist" people on board.
I still file IRS paper. I use credit cards as long as they pay me to. Lose/lose for them.
Much like in Grease we have a little shop here that gives you a 5.25% discount for paying in cash and guess what 5.25% is in our state. Then we have the great big flea market where cash is king and the tax man get the shaft for a change.
Card based payment robs you faster as it removes the physical link between your worth and your spending. If you don't see the cash you never perceive the value it represents (ie your accumulated effort).
Once I switched back to near 100% cash I noticed I spent less on useless crap as I could see the physical notes disappearing.
Oh, and the "Apple Pay" future can fuck off. Its never happening. Kinda gratifying to see that corporate attempts to modify people's behaviour are failing so massively.
Remember as well that the bank gets to skim a little off the top of every transaction. Pay cash, starve the cunts out.
I use credit cards because they pay me. I beat them at their own game. The last time I had a fee charged was about 18 years ago. I overreacted(because they sent the bill to the wrong address) and cancelled the card. Never even missed it. I get paid around $300-400 per year. If everyone did this, credit cards would vanish. I never use debits, at all. When they stop paying me, I'll blow the dust off my cash.
Cc company won't vanish even with your abuse, they still skim off from the business side so even if you get their reward they just charge extra from the business and business just pass on the cost back to you in hidden increase on price overall.
My business made those fees more noticeable by charging as a cc transaction fee.
If you think "outside the box", meaning outside the US, what is the picture like then? In Europe, the Nordic countries, for example? You know, the developed countries with chip-and-pin (EMV) ...
I remember seeing a stat that showed germans using more cash than any other developed economy on earth.
Weimar lives long in the memory.
How am I to bribe my Senator with Pay Pal? Maybe a $100,000.00
prepaid Visa?
My little brother makes $12,661 a week in cash, working from home, letting banksters diddle his thingy.
They are getting us to a cashless economy, regardless what this piece says, and people are happily complying. When I go to stores, all I see is people swiping cards of one kind or another. Same thing at the Post office {where they encourage it}. Go to Fedex or UPS and try to use cash, and you better have exact change, as they try to pretend they have no cash to make change, and direct you to the card terminal that is already in your face. The only place where i see cash being exchanged is my local flea market {underground economy}. There, it is cash only, no credit, no checks. They want a cashless system, and we will be dragged to it if necessary.
I always pay cash.
The underground economy will continue to grow. Burdensome gov. guarantees it! Obamacare will drive many people into cash only jobs. See the USSR, late 1980's.
The author is missing this one important point the reason it looks like people are using more cash is because people are hoarding cash in the "mattress". If 300 million people put away 20 dollars week into a coffee can that screws the whole system. Remember it is the flow of currency that makes it worth something. No flow of currency so the FED is forced to print more.
I guess that Obama by executive order will implant a chip in everybodys shoulder so money can be deducted from your account as soon as you pass the electronic gates. Welcome in the land of the free.
Give me a break!!!! How can you have a "Cashless Economy" when you have 100s of millions of illegal immigrants living off the books and working for cash only. Add to that 100s billions of dollars of drug money. Our whole system is rigged to screw the average working man.
Cash is non traceable.
Credit cards tell the government exactly where you are, when and they can link it to your purchase history at the store. For example. The government and supermarket will know your wife is pregnant before you do.
HTH.
As always don't do somethin' stupid like Jerry (a tribe member) Springer. From WikiPedia.
Springer was elected to the Cincinnati city council in 1971.[11]He resigned in 1974 after admitting to hiring a prostitute.[11]The episode was uncovered when a police raid on a Fort Wright, Kentucky massage parlor unearthed a check Springer had written for its services. The check subsequently bounced due to lack of funds in the account. Springer came clean at a press conference.
How does the CIA and FBI do their drug trades in a cashless society?