Despite many usurpers, cash is still king | Hacker News Reader

Despite many usurpers, cash is still king

economist.com

43 pointsgasull51 comments

In the age of corporate and government surveillance, cash has many advantages:

* It can be accepted without the help of technology

* It can be stowed away in a secure place (in contrast to money on bank accounts, which can "evaporate" in case of a bank failure)

* It is very hard to trace and provides a good level of anonymity

* It can be sent through the mail or transported physically form one place to another

And on the less serious side:

* It can be piled up into a giant mountain and burned

* It can be rolled into nice wads and used as props in ganster movies (ever seen a gangster wave around his black Amex in a film?)

You're missing the most significant advantage to most merchants (in the US, at least): It can be exchanged without incurring any transaction fees. While large businesses see cash management as a not-insignificant expense, small businesses—especially sole proprietors—often don't see the additional effort and risk of handling cash as worse than the 3% they'd lose to transaction fees.

Very good point, how could I have missed that!

Yeah I used to never carry cash, until I started eating at a couple local restaurants that only accept cash

I agree with your other points, but:

> It can be stowed away in a secure place (in contrast to money on bank accounts, which can "evaporate" in case of a bank failure)

Only the amount above €100000 (EU) or $250000 (USA) per bank. Personally, I'd rather trust the combined resources of a bank, their insurers, an insolvency practitioner, and the government with that kind of money, than any safe I could install in my house, or even any safety deposit box provider. I'd also rather not pay the premiums on home contents insurance that would cover a loss of that scale.

That's because you trust the institutions in your country (or USA and the EU).

In both Argentina and my home country Uruguay, money HAS evaporated from ALL banks due to a systemic failure, see:

https://en.wikipedia.org/wiki/Corralito

So far I've had more money stolen from banks (with aid of the government), than from myself or my house (and I've been robbed several times), but I've never had much money to start with.

If you have more than 250.000 in liquid assets, I hope you have many orders of magnitude more invested, I wouldn't store it in cash or in a bank, I'd try to have other assets - I do understand that any kind of assets have risks, in my country housing is very popular because government can't will it away, even if the housing bubble crashes you don't lose everything.

And ask the residents of Cyprus how they feel about that or the UK pensioners who lost money in the Icelandic bank crash.

IIRC, The UK FSCS covered individuals in the case of the Icelandic bank crash. Only people who didn't claim it would have lost money (up to the guarantee, which was lower back then). Not only that, but back then, interest rates on current accounts being at least 3% (and savings accounts being around 4-6%). Nowadays, the difference in interest between stuffing cash in your mattress and putting it in a bank account is negligible.

I don't know what happened to individuals' money in Cyprus. I know there have been problems accessing money held in bank accounts, and the economy is broken after the collapse, but are you sure that money has actually evaporated?

FSCS only covers UK Banks the Uk and Dutch Government steped in to cover the shortfall when Iceland defaulted on their own protection scheme.

So the pensioners didn't lose money in the Icelandic bank collapse, because the combined provisions I mentioned above protected them.

http://www.fscs.org.uk/industry/determinations/icesave/

Looks like FSCS paid out. In fact, they may even have paid out without being asked (8.1)

And here in Brazil, the money people had in the most popular kind of investment (carteira de poupança) was frozen for some time (https://en.wikipedia.org/wiki/Plano_Collor). If you were counting on it to pay some debt (for instance, montly payments for your house or car), you now had a problem in your hands.

It is also hard to verify cash sales at tax time.

It can be rolled into nice wads and used as props in ganster movie

Apparently Escobar kept most of his money in cash. He had warehouses of cash (!!!!) and was spending a few thousand dollars on rubber bands a week to wrap the cash. Plus he was writing off 10% a year because "rats ate them".

Criminals lead very interesting lives :p

https://en.wikipedia.org/wiki/Pablo_Escobar#Criminal_career

My wife and I moved to cash for just about all in person transactions about a year ago. We use a credit card for gas and online shopping. It's amazingly convenient.

Right now, I'm on vacation. You know what's great? When I return I'll have zero bills coming in.

There's no advantage to having cash in the bank. It's pretty easy to secure cash, and even my "high yield" savings account yields 0.75%. I've saved 2x that by not spending as much.

If you used a debit card, you wouldn't have any bills coming in either, though...

I'm not comfortable with a debit card. With a credit card, if the account is compromised, AMEX has a problem. If my debit card is compromised, my mortgage/utilities/taxes/etc will bounce until I discover and report the fraud.

Maybe they have gotten better since I stopped using debit cards, but I'd always end up with multiple charges, usually a pre-authorization charge and then the real charge. As a broke college-kid who never had much money in the bank, the debit card putting a $100 charge in on my checking account when I bought $40 of gas, and not cleared up for several days, fucked me over a few times. Then you pay a $25 over-draft fee to the bank, and whatever charge the entity you were trying to pay charges for late or bounced checks.

Or you can use a credit card, float the money until the next payment, and get cash-back/miles/amazon points while still not paying any interest (because you pay it in full each month).

Wait so you brought a bunch of cash on vacation? Or were you able to withdraw cash as you needed it from a bank?

Yes and yes. We already carry iPhones, iPad, laptop, jewelry, etc, so no big deal. Most nice hotels have safe deposit boxes intended for the purpose if necessary.

I also have a Charles Schwab checking account that I use for travel, which reimburses atm fees.

interesting approach, but if you do a bit of fun travel into far off exotic places, hotel deposit box becomes a joke and putting a small heap of cash in it is a russian roulette with local personnel that they won't simply run away with it (since it can easily be their 10 year+ income).

all the hassle simply because of a lack of a bit of discipline with spending...

I travel quite a bit in far off exotic places. Usually the simplest is to draw a wad of cash from the local cash point, put it in your wallet and pay the bills with cash. You only have one provider, your bank, to hit you with imaginative charges and don't have to worry about the local restaurant charging say made up jewellery purchases to your card which can happen in some places.

If you lose all of your cash while on vacation, will the bank give you replacement cash? I can get a replacement Amex card anywhere in the world, that seems a bit less risky to me.

Sure, some cash is needed, but not much. I'd never _only_ use cash.

Cash has no overhead, no transaction fees. I use cash for local businesses because that 3-5% matters. I don't think Visa and Co need that money as much as my local businesses do. When buying from huge businesses, I'll use plastic because it's more convenient and they can take the hit.

Cash is also largely untraceable and does not leave transaction records with my name on it. Sometimes I buy things that I don't want people to know that I've bought.

These, especially the latter, are two things I'm not really willing to compromise on. Some people dream of a cashless economy, but I would not like it.

Cash can actually be fairly expensive for businesses to handle. It needs to be insured, transported and often banks will charge fees for depositing cash into a business bank account. Depending on the specific circumstances, it can actually be as, if not more, expensive to process than cards.

Plus the additional exposure to risk of robbery or theft by employees. Unless the objective to hide income, businesses not taking cards is typically penny wise and pound foolish.

And yet, my local liquor store gives a 1% discount if you use cash (no, this doesn't violate the CC merchant agreement), a local diner doesn't even accept credit/debit cards, and the owner of another restaurant immediately went for cash when I asked if they cared. I don't buy it.

I'd venture a guess that that the liquor store and the restaurant do this for "accounting purposes" and the diner is living in the 80s. As I say though, I'm sure it varies based on specific situations, my experience is based on working with small business owners based in the UK.

I live in a lower-income area (rustbelt USA) with a lot of small shops, and very few of them take a debit card. Those that do have a small ATM on-site.

Buying gasoline? 4 cents discount for paying cash. Chinese takeout? Sorry no check no credit card. Party store? Better be paying in cash. Heck the shady automotive shop I had my truck worked on last month only took cash. Crazy.

Not so crazy when you factor in the ~3% transaction fee that the merchant has to pay to the payment processor. That's $3 out of every $100 out of pocket. When you're a small company on the edge of profitability, that 3% matters a whole lot.

3% for a debit transaction? that's insane, in the UK it's 0.2%+1p per transaction capped at 50p....

We're working on it in the states.

Here in NYC it's similar, actually. A lot of restaurants (not most but a good amount) that aren't really "cheap" take cash only.

Isn't there a restaurant in NYC that specifically advertises that they only take credit cards and no cash?

I can't find any sources on the internet in English to corroborate this, but a Swedish friend told me a few years ago that they passed a law requiring all merchants to accept debit/credit cards for any transaction. Anecdotally, when I visited last month I found that to be the case everywhere I went, even in smaller shops and with small purchases. If that is the case, it could explain in part why their trend line for cash reserves looks so different than everyone else's on the graph.

Here's a bit more information on payment types in Sweden: http://www.bloomberg.com/news/articles/2013-10-27/stockholm-...

I've seen a lot of proposals from governments wanting to eliminate cash (to enable negative interest rates which I think are an awful idea, to negate tax evasion, to avoid money laundering, etc.).

Either they don't realize that something else (or several somethings) would inmediately take over as cash equivalents, or they don't care as long as it's illegal.

An interesting article talked about the use of Tide detergent as currency:

http://nymag.com/news/features/tide-detergent-drugs-2013-1/

I think Sweden and Norway have suggested that to stimulate the economy they implement negative interest rates ie take money from savers

That already happens with inflation. Additionally, "stimulating the economy" is one of the main reason for it that people will accept.

So, putting a negative interest rate would simply add to the rate of inflation.

Yes but having it spelled out on your bank statement as a direct charge is quite diferent

> Either they don't realize that something else (or several somethings) would inmediately take over as cash equivalents, or they don't care as long as it's illegal.

Correct, there are numerous stores of wealth that can be used as a medium of exchange. Really the only criteria is that it must be useful in some form, so that it is easily convertible.

Informal economies are fascinating, it's amazing to see how fundamental the concept of currency is to people.

Here's a good example of cash equivalents: Families in Appalachia who convert their entire TANF deposit to soda pop and use that as cash.

http://www.nationalreview.com/article/367903/white-ghetto-ke...

"It works like this: Once a month, the debit-card accounts of those receiving what we still call food stamps are credited with a few hundred dollars — about $500 for a family of four, on average — which are immediately converted into a unit of exchange, in this case cases of soda. On the day when accounts are credited, local establishments accepting EBT cards — and all across the Big White Ghetto, “We Accept Food Stamps” is the new E pluribus unum – are swamped with locals using their public benefits to buy cases and cases — reports put the number at 30 to 40 cases for some buyers — of soda. Those cases of soda then either go on to another retailer, who buys them at 50 cents on the dollar, in effect laundering those $500 in monthly benefits into $250 in cash — a considerably worse rate than your typical organized-crime money launderer offers — or else they go into the local black-market economy..."

Using cash is throwing away money. I get up to 6% back on some transactions. Not to mention the ability to chargeback if necessary.

I guess if you look at it at a glance, it's throwing away "up to 6%". But at the end of the day, you're paying for it somehow, whether it's via higher prices charged by the merchant to cover their swipe/interchange fees, by exposing your payment history, or by late fees & interest if you don't pay it off immediately.

Yes, but that's independent of your actions. Anywhere credit cards are accepted, you're paying a hidden credit card tax on anything you buy, because merchants will raise prices to cover the fees. But if you don't use your card, you're paying the tax still, but getting nothing back.

You have to have a large number of individuals cooperate (agree not to use credit cards) in order to gain a group benefit (lower prices because the merchant isn't paying transaction fees). Any one person can defect (use a credit card) to get their cash back, for personal benefit to the detriment of the group.

If I was a merchant, I'd solve the problem by passing on the credit card fee to consumers who use the card (or equivalently, offer cash discount, if my marketing department tells me consumers hate surcharges but love bargains).

Where do you think that 6% comes from?

As with the lottery, people that are bad at math?

More likely, people with bad credit.

Well, you get the bad credit by being bad at math.

Which CC gives 6% cash back?

No idea the highest I've seen is 1.25% for Amex Cashback Platinum...

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