Increasingly we hear about electronic money and are urged to make payments online, to pay by card, to do anything to do with money, without actually having to handle it, go to the bank or do anything remotely money oriented.
So does this mean that the dear old greenbacks in the US, or the famous British pound, or even the very new and suave euro will soon be heading to a rest home? Will we really see the end of money as we know it?
Or is it all just a bit of hype? Will we continue to use money to exchange for goods, just like we have in some ways for thousands of years?
What is electronic money?
Before we can look at this we need to be clear about what we are talking about. Electronic money is a term that is often bandied around, as if we are all familiar with this concept. But although we all here about electronic banking, electronic payments systems, electronic payment cards, electronic cash and so on it goes.
Are all these systems the same? Do we all mean the same thing when we discuss electronic money and is it the same as e-money and more to the point: does anybody care?
Well to some extent there are some basics that are the same. The concept of electronic money is quite simply it is quite simply electronic and as such is cashless: we do not have wads of cash that are transferred via a face to face transaction. So we can say that all electronic monetary systems use this same basic premise.
But are there differences in between the different sorts of systems? Well in effect there are, but these can be grouped together, so that they can be considered as different ways of enabling cash transactions.
Electronic banking
Electronic banking systems are systems whereby you can effectively use your PC to log into your bank account and move money around from one account to another and you can make payments, or carry out any other kind of transaction except you cannot pay in some forms of money electronically. Obviously, if we could, we could all just log on to our computers, state that $1 million dollars had been paid in and then spend like there was no tomorrow.
Payment of any checks must be made by taking the check to the bank, or just putting it in the post. However, this situation can be remedied by instead of having a check, the person who owes you money just pays money into the bank account, although this means that you have to give out your bank account details.
The benefits of electronic banking are obvious. You don’t have to get to the bank, you can simply go to your PC and sort out any banking issue. This is obviously much more straightforward than having to travel to town, queue at the bank and so on. You also don’t have to carry large amounts of money when you go to the bank or pay cash in. It can all be done from the comfort of your own home.
Yet there is a potential problem of hackers being able to access your bank account and details. Thus electronic banking has to be carried out in a secure environment. This is still the main reason that many people do not like to bank online, they simply fear that hackers will get into their account.
Banking electronically is reliant on you having the funds to pay for the transaction, so that you have to have either the money to pay for any transactions, or you need an overdraft facility.
But it is based on you actually having the cash and as such is a system based on the real money that you have.
Electronic payments systems
There are various economic payment systems on offer. First of all, debit cards can be used to pay for items. These are based on the banking system and come out of your bank accounts.
Then we have credit cards, these are not based on actual money, but rather how much credit you have. Since you spend on your credit card and then you pay, at least some of it back each month, it is in effect a loan. The money itself does not exist, you are simply drawing out money or paying for something, based on the credit that you have been afforded.
Credit creates a very relaxed attitude towards money, but has been partially blamed for the credit crunch that has taken hold in many developed countries.
Businesses often use electronic payment systems to transfer funds electronically.
Wire transfers, either business orientated or even just personal wire transfers are also electronic.
Paypal, the internet phenomenon that has effectively revolutionised how we shop, is also an electronic payment system. This can be used to transfer money electronically, to almost any other person on the planet, wherever they are, as long as they have a paypal account.
Paypal is a real success story and has enabled money to be safely transferred all around the world, without money ever being seen or handled. It can also be used to transfer money back from one currency to another. Yet it is a relatively recent invention: but already one that most people are familiar with. However, not many people are aware that it is based on an age old escrew system. This is one where money for a transaction is handed over to a third party until the transaction is completed. So if person, Person A, buys something on ebay, then they pay the money to paypal. Paypal then pays the money to person B, who is the person who has sold the item. Person A never meets person B, but there can be no dispute over whether money has changed hands, because the money was transferred to the independent 3rd party Paypal.
It is a stunningly safe system, but one that works remarkably well and has enabled millions of people to be able to shop safely online.
Electronic Payment Cards
Electronic payment cards are relatively new and are electronic in their nature, but also rely on you funding them and having the funds to pay. A classic example of an electronic payment card is the Hong Kong Octopus card. This is a system whereby you pay in a certain amount of money to ‘top up’ your card. So if you paid in HK$ 50, then you would have $50 (HK) to spend throughout the city, anywhere you see the Octopus logo displayed.
This can be used in shops, on public transport and operates in a similar way to a credit or debit card, but it means that you do not have to carry cash. You can simply charge things to the account. Similar type cards are currently being trialed in other parts of the world and it is likely that this system of payment will become increasingly popular.
The main bonus of the card is that it is only designed to pay for small amounts and has a maximum amount (usually) that can be paid into it, it usually has a shorter PIN and is a quicker system than using a debit or credit card. This means that it is not worth the same amount of ‘real money’ because it cannot be used as extensively and if someone is stealing to fund a drugs habit, they won’t be able to pay using an electronic payment card, so it isn’t as lucrative to thieves.
This could be one of the main advantages to this type of card. It also means that you don’t have to get your wallet out for smaller purchases, again thereby enforcing security.
Electronic Cash/Money
Electronic money or e-money, e-cash as it is sometimes called is still not in widespread use, but in the blink of an eye it could be with us. E-money as a concept was first mooted in 1994, but it has not developed rapidly, although some spin offs, such as the electronic payments card (Octopus card) have taken e-cash to another level.
It is basically considered to be digital money and that money is separate from hard cash, although it has to come from somewhere i.e. there has to be some form of money available to provide the basis for the cash. However, to acquire e-cash, you could have a credit card, not necessarily a debit card. So you can get e-money using credit.
So, will e-money take over?
There are various geeks located all over the world, whose main purpose in life seems to be to reduce everything to being Societies where we don’t actually have to talk to anyone, see anyone or enter into any kind of human transaction. Of course, they would love to see electronic money become the norm. That way, you don’t have to worry about having cash and you can just exist in a bubble based on what is in your bank account or your credit limit.
Yet this is to ignore the fact that although much of the world’s financial transactions are carried out electronically, there are still vast numbers of cash transactions also carried out.
In some countries, money is very much the order of the day and if you go to the Middle East and go into one of the souks (markets), you would find that they only deal in cash, they simply don’t like cards.
Moreover, culturally some countries will object to e-money unless it is based on actually having the money to pay. Muslims do not enter into credit agreements because it is forbidden in terms of their faith. So, even if parts of the world were to head off to a cashless state, others would remain devoted to their cash. As a result, there would be inconsistencies between countries, as some became cashless and others remained cash based. For trade this could be crippling. So for the system to work effectively, we need to have a completely cashless world and yet how would this impact on the third world, who simply don’t have the financial infrastructure in place to have a cashless society? Would they simply be left even worse off and with further to go before they can be a developed country?
There is also something comforting about having money. Most people will carry round credit/debit cards and some cash, even some loose change in their purse or pocket. Yet what if you only have cards and no access to cash…ever? That would feel just a teeny bit scary, almost as if Big Brother had arrived. And of course, Big Brother may just have arrived, since all your transactions would be recorded.
Whilst they would be ‘confidential’ how long would it be before the official agencies could check up on your records? Did you buy too many bottles of beer or wine last month? What did you spend at Walmart that cost $50 and so on. The implications are clear, checks could be made as to who bought what and whilst it is fine to have that kind of system in place when you are a) law abiding and b) the government is fair, what happens if your government is just a little dictatorial? Could people be stoned to death for buying alcohol in countries where it is forbidden?
Consideration also has to be afforded to the question of security. Could all the details of your purchases fall into the wrong hands? Whilst we already live in a world that is not too cash oriented on the whole, if every detail of your spending is itemised electronically, that could tell somebody a great deal about your movements where you may be at certain times and what you have been doing.
There is also the problem of appreciating what cash actually is. It is bad enough living with plastic credit and debit cards. Sometimes, you just can’t quite afford that new suit or dress. But you want it anyway, so you pay for it on your card. It almost doesn’t feel like any money has been spent, since no money has been handed over.
And if your computer crashes, what would happen to the e-money on it: would it all be lost?
However, sometimes (and to some of us only sometimes) you pay for something by cash, you suddenly appreciate how much it cost. If you swipe a coffee and cake through electronically, you probably don’t even think about the cost. If you have to hand over a $10 note then you have an appreciation of just how much that cake and coffee actually set you back. So you appreciate the value of money and that is very important.
If we were to enter a world that did not have cash, then how would we be able to appreciate its value? How would we be able to teach our children the value of money? If we lose a sense of its value, then we lose any sense of financial planning and being prudent where money is concerned.
Generally there is a feeling that many people living in developed countries have little concept of the true worth of money and there is, to a very large extent, a culture that if you want something, then you should get it, even if you can’t quite afford it. Since we still have cash in widespread circulation, a cashless world is likely to make this an awful lot worse. So we would simply have no concept of not being able to afford things.
The existence of a cashless society would also make the problem of identity theft even worse. It is bad enough currently, but someone who steals your identity only has access to some of your money, not all of it. If they had access to everything, they could literally take every last cent from you.
In 2007 the Chief Exec of Visa stated that he thought that most developed countries would be living in a cashless Society by the year 2012. Yet this looks as if it were a prediction that was based on somewhat tenuous evidence.
Most people like to have cash around, so that they can know that if their card is swallowed at the ATM, or if they just want something that costs 50¢, they can just use cash.
Perhaps the comfort we gain from actually seeing cash, is just a reassurance that we actually have some and that it really is there. If we can’t see it, does it exist at all? If the world abandons money, thereby taking away that reassurance, then to some extent it abandons the concept of money itself. Money is by no means a right, it is something that has to be earned and that is pretty fundamental to every Society on earth.
So, it looks like those who work producing and minting money don’t have a lot to worry about. Money will be with us for some time to come and it really doesn’t look like the world will be abandoning its love affair with money…just yet.