Practical Dad

Cashless America:  The Kids’ Perspective (Part 2)

Note: This is a follow-up to a previous article - Cashless America: The Set-Up - which recently ran on the site.  The two were originally meant to be one article focusing on the response of my two older kids, Eldest and Middle, but it made more sense to split it into two pieces, the first of which briefly laid out the gist of the arguments from proponents of moving to a digital, cashless currency.  Now I'll get on to the kids' perspectives.

After reading a spate of articles about the notion of abolishing physical currency, I thought that it would be interesting to see what Eldest and Middle thought of the concept.  Eldest is a rising college senior home from a semester abroad, intent on making bank for the coming year.  Middle is a high school senior who will leave for college in the Fall and is now finishing AP Economics (which, if you've ever read the supporting textbook, is a certifiable cure for insomnia and has absolutely no bearing on anything approaching reality for nascent adults).

Middle was first up as he was first down for breakfast and I prefaced my question with the caveat that I'd simply like a cogent response by the evening...just take a little time through the day to think about this and if I could have a response by evening, that would be great...  The question was this: what would you think if our nation moved to a simple digital currency with all transactions and accounts managed digitally?  There would no longer be any physical currency, bill or coin, for use.   To be fair, as much as it pains me, some of the proponents only want to do with large denominations above $50 or $100 bills...others however, want all currency removed.  His response was truly surprising in its immediacy: That would be terrible.  TERRIBLE if that happened.  His first reason was about safety.  Events have shown that anything - Dad, ANYTHING can be hacked - could be hacked with sufficient ingenuity and resources and it would be conceivable that everything could be simply gone in a nanosecond.  After that comment, he then covered his right eye with his right hand and making an 'O' with his left thumb and index finger, placed them over the left eye.  I looked at him blankly and he simply said Big Brother.  He didn't want everything to be available for viewing, nor did he want any and all of his transactions to be traceable. That kind of power shouldn't be available to the government nor to the corporations.

Eldest came down later before heading off to work and received the same preface about taking time and then the question, and her response was surprisingly immediate as well.  She likewise disliked the notion for the same reason about safety, noting again that anything digital can be hacked.  The kids are the products of the online digital age, with a far greater grasp of its benefits and faults that those of us who came of age in the analog era and her first thought went to how all a person's financial eggs shouldn't be kept in one digital basket.  As she stood there, her next response was something that I had simply never considered.  It would really make it hard for illegal immigrants here, though.  When I asked why, she responded None of them have bank accounts and their transactions are usually done in cash because they don't want to bring attention to themselves; then they send the money home via money orders...so it would have a massive impact on immigration.  It was then that I recalled that part of her classwork during the semester abroad pertained to studies of immigration, illegal and legal, and that she'd actually had conversations with both immigrants as well as members of the US Border Patrol.  The comment about the impact upon illegal immigration was something that I'd never even considered although I expect that the ability to more effectively control illegal immigration would certainly be an argument on behalf of a fully digital currency.

I did have a short conversation about Cyprus and the use of the "bail-in" to manage the bank recapitalization, explaining it briefly to Middle; he confirmed that he understood since he already understood the concept of the bail-out as practiced here in 2008.  He commented that it sounded like a socialist thing to do whereupon I asked where the original concept originated; when I told him that it first came about from a combined effort of the FDIC and the Bank of England, his response was concise and rude.  Please understand one key point about your status as a retail depositor in a bank:  after the financial crisis of 2008, legislation was passed that effectively shifted the status of the retail depositor - you and your kids' bank accounts - from that of a protected entity in the event of the institution's difficulties to that of an unsecured creditor.  There is a legal hierarchy in the business world of who has greater risk in the event of bankruptcy and thus stands first in line to lose their money should liquidation be required.  In the pre-2008 world, the retail depositor was protected at the rear of the line but the passed legislation now equated the retail depositor to that of an unsecured creditor - someone who simply loaned money to the bank without asking for collateral - and moved you to the head of the line.  So even if your bank is small and well-managed, another financial firestorm will put your deposits in the crosshairs should the government move to a bail-in approach.

Oh, and by the way...when the Dodd-Frank Bill was passed in 2010 as a response to financial crisis, it made another reclassification.  The banking system - predominantly the Too Big To Fail banks- have been heavily involved in highly profitable derivatives trading; that bill shifted the status of derivative counter-parties to that of supercreditor so that they are first in line to receive monies that are redistributed in the event of a bail-in.  In other words, we are at the head of the line for liquidation and they are at the head of the other line for reimbursement.  Lovely, isn't is?

And that is at the heart of the cashless proposal.  The thrust is to move as much money as possible back into the banking system so that in the event of another Lehman style event, there is sufficient capital available to reconstitute the financial system and make good the losses via bail-in before having to go to the government via the bail-out.  It is about expanding the number of unsecured creditors and controlling their funds by eliminating their ability to move their money out of the system to protect themselves.  The fact that the institutions are never fully protected from digital intrusion and theft is serious; both of the kids are right in that there's always a way to hack the system.  But the issue here is purely and simply control, control of assets and control of the redistribution of those assets should worse come to worse.  And as to the immigration aspect that Eldest raised:  it isn't a key aspect to the proposal but I expect that if this cashless currency proposal gains legs, it will certainly be trotted out as a beneficial side-effect to help control the illegal immigration problem.

The kids aren't stupid, they can see what could happen.  But it requires a conscious effort on your part as a parent to periodically pull them out of the Matrix and explain things to them.  Do it on car rides, do it at the dinner table, do it in the moments when you might be just sitting together.  Create small bits of knowledge as informational pebbles to add to their pile and do so purposefully through the years.  There will come a time when they're older that they can begin to take the pile and build structures of their own that might surprise you.  That also means that you have to pay attention as well. 

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