Estonian Economist Suggests Abandoning Cash

J-Georg writes "Raul Eamets, professor of macroeconomics at the University of Tartu, proposed today during his TEDx talk that Estonia should stop using cash at all when adopting the Euro as the national currency (Estonian original). He also pointed out that abandoning cash would not be only important for the Estonian economy as a whole but also is a real challenge for both IT and banking sectors and would also improve Estonia's image as an IT-tiger."

Comments

no thanks

[Trepidity]

So I won't be able to give $20 to a friend without: 1) being tracked; and 2) giving a cut to some payment processor like PayPal? I'd rather use cash.

Re:no thanks

[0123456]

So I won't be able to give $20 to a friend without: 1) being tracked; and 2) giving a cut to some payment processor like PayPal? I'd rather use cash.

But that's the whole reason for governments wanting to eliminate cash: it means every transaction will be taxed and no transaction will be possible without their permission.

Well, except that everyone will start using US dollars or whatever for their free market transactions.

Re:no thanks

[iluvcapra]

Use virtual cash to buy ounce of silver, hand silver to friend. Another serous problem is that, if this were done in the US for example, you'd probably have people starving to death because they have bad credit, or at lest you'd be giving banks a huge potential to become rentiers. A solution would be to create a banker or last resort, like a postal banking/remittance system that will do business with anyone.

Re:no thanks

[guyminuslife]

Or Euros because the currency in question is the Euro, and it's already printed and minted in Europe where this is taking place.

Re:no thanks

[Kjella]

if this were done in the US for example, you'd probably have people starving to death because they have bad credit

Heard of debit cards? They're very common over here in Europe and go directly against your bank account. As long as you are using an online terminal, like pretty much every grocery store has, then the card will only work if you have money. The only people taking something on credit would be private transactions or backup solutions if the terminals are offline, everyone who regularly handles money today would get one if they don't already. What I don't like around here is that they're using the "by volume" argument to say removing cash is not a problem, which is ridiculous. It's no secret that I do groceries and pay for utilities and insurance and so on, but maybe I don't want that medical specialist or strip club or whatever on there even if they make up 1% of the volume. Same with my location, I'm often at home or at work so by duration I mostly don't care if everyone knows where I am. Again, it's the exceptions that matter.

Re:no thanks

[khchung]

Please don't use the broken banking system in the US as your reference.

I have no problem doing instant electronic bank transfer of 20 bucks into my friend's bank account at no extra cost to either of us. In fact, we often settle the our lunch bills this way.

Only in America's broken system would you run the risk of losing money by just giving people your account number.

Yes, it made it possible for the govt to find out these records. But you have to fear being taxed only because of America's broken income tax system. Other people in sane countries don't have that problem at all.

Without cash...

[arunce]

No way. Economies can't work without thieves or corrupt politicians. Even if something emerge to fill the gap, like gold, drugs, diamonds, name it, the neighbor country with real cash would get the benefits. At the bottom, cash on your pocket grants some privacy... and security.

Sounds great...

[Beelzebud]

...Until the power goes out.

Re:Might I suggest an alternative currency

[guyminuslife]

You clearly have not read The Hitchhiker's Guide to the Galaxy series. (I believe it was Restaurant.) If you had, you would know that the early Earth colonists' solution to this particular inflationary dilemma was to burn down all the trees. Problem solved.

I suggest you bow your head and accept that you have been judged on your geekdom, and found lacking. You may recover some lost face by immediately purchasing or borrowing a copy of The Ultimate Hitchhiker's Guide.

Re:Abandon all your cash

[Gerzel]

Oh sure. Like most any man on the street he happens to have the time, income to support himself, money to start the project, PHDs in encryption, economics, programming and good expieriance at international diplomacy to implement this himself and not be a lazy ass.

Better yet: stop using debt as money

[Anonymous Coward]

Few people realize that we use debt as money in our monetary system. All those dollar bills and Euro notes? Those are actually IOUs that have to be repaid with interest to central banks. All those dollars in your bank account? They too are just debt markers that have to be repaid with interest. The problem is that in order to repay the interest, new money has to be created; but the only source of new money is new debt, with more interest, that requires more money with more interest ad infinitum.

The net result is that: 1) if all debts in society were repaid there would be no money and commerce would sieze up; 2) all debts can never be repaid because the principle + interest always exceeds the money supply; 3) the amount of debt is always increasing until there is a crash.

Everyone (except bankers) would be better off if we used debt-free money issued by your government, rather than debt issued from privately controlled central banks.
http://www.youtube.com/watch?v=vVkFb26u9g8

Re:Better yet: stop using debt as money

[orlanz]

Wait, what? Why was this marked interesting? That's not how money actually works. Ideally, you borrow from the future (debt) so that your value growth is increased today. Eventually the additional growth increase produces enough value to offset the amount of value you took into the past. A very simple example: A farmer in a poor country spends a day walking to a market to sell his goods. The trip ruins 40% of his goods (say milk). Now he takes a small loan, buys a cart, reduces his trip, and thus only loses 10% of his goods to waste. Say he makes 20% more profit due to demand. That cart increased his effciency enough to pay for itself and then some.

Always increasing debt is when you borrow w/o enough of a increased value growth. You keep hoping that your continued borrowing will provide enough additional growth today to offset the already there debt and this one too. Crashes only happen when there is no one left to believe in your investment. Also, unlike European and American economies, some cultures such as middle eastern, Indian, and the Japanese do belive in over saving. The opposite problem... little investment is like lending to the future, but results in little growth that means more and more inefficiency... stagnation.

Re:Might I suggest an alternative currency

[JesseMcDonald]

The important point that you're missing is that currency behaves just like any other good. The shopkeeper's revenues must compete with all the other dollars in existence for the goods and services the shopkeeper requires (personal and business), just as those goods and services must in turn compete with all other goods and services for the higher-order goods (like raw resources and labor) required to produce them.

If the shopkeeper were to decide not to raise his prices despite the existence of more dollars in circulation, then he would receive the same revenues per candy bar sold and thus be limited to bidding for new ones at the same prices as he used to pay. However, other shopkeepers who did raise their prices can now outbid him, which means he won't be able to get enough new candy bars to replace his old stock; the same amount of dollars won't buy as many as it used to. If all the candy-bar retailers banded together and chose not to raise any of their prices then the same problem would still exist regarding the higher-order goods required to produce the candy bars in the first place. Some of these goods, such as labor, are common to all production, which means that all products compete with one another to some extent—and that injecting money anywhere will affect all prices eventually.

Essentially, in order to prevent a general rise in prices you would have to convince every single holder of dollars, including those who hold the newly-created ones, to act as though the supply hadn't changed. Good luck with that. :)

Re:Abandon all your cash

[bondsbw]

Your getting close to the real problem of abandoning cash...due to the transaction fee's charged by the banks.

But this is a logical fallacy, right? Your assumption is that electronic transactions cost a minimum amount of money, but cash transactions are free.

But cash transactions do involve work! The bank teller takes money and gives money, all day long. That person gets paid, and all they might do during the day is handle cash. If a teller makes $100/day, and processes 200 transactions a day, each transaction cost the bank $.50.

That entire time, the teller is using computers that interface with backend servers. Each of those machines, and the network routers/switches in between are sucking down electricity. And there are people behind the scenes, making loan deals with the Federal Reserve (in the US). And people who do various paperwork, and people who run collections, people who do technical/customer support, etc., who all work for real money, and whose job is to directly or indirectly support such cash transactions.

In the cash world, the bank "eats" these costs. Obviously, they don't really eat them, they just put them into interest rates. The electronic transaction world really doesn't seem to have any more costs, but banks are requiring transactions fees. In other words, they are trying to recoup their costs up front, something that is impossible to do in the cash world due to tradition.

Moral of the story: There is no such thing as a free lunch. Cash is no better answer than electronic transactions.