The End of Money

by David Wolman

  The 1,000-tenge note (worth about $6.80) is loaded up with at least a dozen anticounterfeiting features. One industry expert calls the bills, printed by Giesecke & Devrient—company slogan: “creating confidence”—a technological “tour de force.” Yet studies have shown that most people don’t recall more than a couple of the security features on their bills.48 True, some features are intended only for cash-handling machines and authorities. But without a rash of counterfeiting to fight, and banknote supply contracts and expenditures all hidden behind a curtain of secrecy, such a huge investment looks suspicious.

  What did the Kazakhs spend on this new beauty? “Unfortunately, information on the costs of the National Bank for the production of this bill is classified,” Gaziz Shegenov, director of the Bank’s Cash Handling Department, wrote me in an e-mail. Then again, Shegenov and company might have gotten a deal. If you have a new material or security feature ready for a circulation trial run, testing in a country that isn’t necessarily a big-ticket customer poses less risk than rolling it out for the first time in a wealthy country.

  Perhaps it’s no surprise that the reputation of this industry isn’t squeaky clean. In the past, banknote manufacturers have allegedly resorted to shady practices, such as spying on each other and even counterfeiting other countries’ banknotes to lure a potential customer away from a competitor.49 The year 2010 saw some particularly unflattering reports about these firms and their government partners.50 The delay in the release of the new U.S. $100 banknote was an expensive embarrassment for the nation and its suppliers. Ditto for the latest euro series, also delayed, and a new high-tech series of Swiss francs featuring a three-ply “paper-polymer-paper substrate” that goes by the name Durasafe. In Britain, the country’s Serious Fraud Office descended on De La Rue to investigate accounting irregularities and allegations of falsified documents.51

  Recent events in Australia are an order of magnitude more salacious. Two years ago, a whistleblower from the banknote materials firm Securency went to the press with a tale of the company bribing foreign officials. Actually, he first went to the authorities, but they either ignored or buried his complaint, so then he went to the press. Whereas the other moneymakers are companies that date back generations, Securency, launched in 1996, is the industry newcomer, and in many ways a revitalizing force, much in the way a young gun on the tennis circuit re-energizes the old guard. Australia was the first major country to have plastic banknotes, and the goal for Securency was to export this technology. No one had ever successfully challenged the hegemony of paper, and it was both an engineering achievement and a source of pride for Australians that a local firm, half-owned by the country’s central bank, was leading this advance.

  Plastic notes are more durable than paper ones, less susceptible to tearing and water damage especially. Over the past twenty years, Securency has nudged its way into markets once dominated by the paper giants. The dream was to bring polymer banknotes to the world. But to make it happen, company executives apparently bribed foreign officials to sign up Securency as their supplier. The whistleblower, and a subsequent investigation by reporters with The Age newspaper, alleged that Securency had bought official favor in Nigeria and Vietnam, probably in Malaysia, and possibly in other countries as well. To help seal the deals, company officials also furnished their potential business partners with prostitutes—paid for, one can only assume, with cash.

  In the fall of 2010, the Reserve Bank of Australia announced plans to sell its stake in the company, presumably to distance itself from the scandal. But the damage had been done. The whistleblower had already confirmed that the company’s link to the central bank had been key to scoring new contracts, right down to the RBA logo printed on the business cards of Securency reps dispatched overseas. Company officials have cried foul, claiming that multi-million-dollar “commissions” (read: payoffs) are simply how the business of moneymaking gets done. The scandal was still unfolding at press time, with nine former senior executives connected with the RBA facing charges, including Securency’s former deputy chairman.52 Just imagine for a moment if the Federal Reserve were embroiled in this kind of fiasco.

  If the bribes and other unscrupulous mischief really represent business as usual for those who make the authentic versions of paper money, you’ve got to ask: Who’s really being defrauded with this endless loop of corporate and government spending on still more banknotes saturated with still more security bells and whistles? It’s as if cash casts such a captivating spell over the human psyche that we don’t want to bother considering its price. As it turns out, that’s just one of many ways it messes with our heads.

  CHAPTER 4

  The Loyalists

  All that it is and it has, money surrenders fully to the human will, becoming totally absorbed within it.

  —GEORG SIMMEL, PHILOSOPHY OF MONEY

  A few years ago, Fox radio and television personality Dave Ramsey coined the term plasectomy. It loosely means to part with one’s credit cards, preferably in dramatic fashion. “Plastic surgery,” quips Ramsey, although there is nothing cosmetic about this procedure. Why it isn’t plastectomy remains a mystery.

  As one of the country’s most popular personal finance coaches, Ramsey preaches common-sense advice about living within your means. At live appearances he lectures to thousands of people who pay as much as $220 a ticket to watch him pace on stage and tell them what they’ve already read in his books, and probably learned from their parents ages ago: avoid debt.1 Ramsey will introduce credit cards to a pair of sharp scissors, and the congregants will applaud. There is no baptism or convulsing at Total Money Makeover, but there is more than a whiff of the Pentecostal.

  And it’s no wonder, considering the uncomfortable relationship between religion and money, especially lending. Lending at unreasonably high interest rates—usury—has been a no-no to the devout for millennia, and a no-no to the common-sense ethicist for just as long. The evolution of bank lending and financial institutions is in many ways a story about finding theologically palatable strategies to bend the rules so that lenders could profit from interest without infuriating God.

  Doing business with outcasts already beyond salvation was one of the more convenient solutions. Today, because banknotes are representations of IOUs, depending on your reading of the Koran or Bible the only way to avoid trading with these sinful pieces of paper is to transact in gold. A twenty-first-century take on this restriction is the gold-dispensing ATM.2

  The brainchild of a German entrepreneur, the Gold to Go ATM accepts your paper money or credit card and delivers small gold bars or coins. A prototype was unveiled in 2010 in the lobby of a fancy hotel in the United Arab Emirates, and a second one has landed at a mall in Boca Raton, Florida. The roughly 1,000-pound machine can stock up to ten different products and comes with optional molybdenum steel armor. Maybe next we’ll have ATMs dispensing jugs of crude oil.3 Better yet, why not just fess up to your lost confidence in the international monetary system and stock the machine with blankets and bullets?

  The other reason a splash of religion melds with Ramsey’s shtick is that we’re epically on the hook. Americans own 610 million cards—about two per person, including kids—and owe on them $850 billion, give or take.4 Then there’s the federal deficit, but let’s not go there. Ramsey’s idea of the plasectomy has injected a little levity into the demoralizing topic of debt enslavement.

  People who’ve dealt with the difficulties of debt have taken plasectomy to the next level in terms of aggression, and the violent fruits of their labors can be observed on YouTube. If you’re ever feeling blue about debt, personal or national, watch a few of these home videos of plastic haters chopping up credit cards in kitchen blenders, blowing them up with fireworks, piercing them with a bow and arrow, and attacking them from behind a shower curtain to the screechy soundtrack from Psycho.i

  My favorite YouTube selection is a mock hunting show called Huntin’ Plastic with Everett Sonstegaard.5 In an exaggerated Appalachian d
rawl, Sonstegaard explains the subject of today’s expedition: a silver-colored MasterCard taped to a watermelon. “Now, this specimen was harvested last year,” he says, loading ammunition into a shotgun. “I’d say it’s a two-or three-year-old one with 19 percent interest. They can get much bigger than that, even twice that size . . . meaner and nastier specimens.”

  The scene cuts. Sonstegaard is now wearing noise-canceling earphones, creeping through the woods. “I think we can spot one right over there.” A moment later, he takes aim. The camera holds on the Master-Carded watermelon resting on a brush pile. BOOM!—the melon explodes in a shower of wet red guts, replayed again in slow motion. “Well, as you can see, this was a clean and humane kill.... Next week, we are going to teach you how to clean and dress your kill.”

  LET ME BE CLEAR: this exposition about cash versus electronic money is no valentine to plastic. I use credit cards because they’re relatively convenient, Bank of England gift shop notwithstanding. I’m also addicted to the perks, and, of course, there is cash’s filth factor. I’m all too aware, however, that plastic is a marvelously efficient catalyst for personal debt, and all the hardship that spills from it. As consumer protection watchdog Elizabeth Warren succinctly puts it, these companies “pick the pockets of the most vulnerable—young, old, and working people with spotty credit records.”6 Credit cards also beloved by criminals who steal identities, money, or both.

  In the public eye, credit cards have become the de facto antipode of cash, even though they’re not; they’re just one of many different payment tools, and a rather outmoded one at that. But it’s hard to imagine society willingly pulling the plug on cash before untangling our feelings about these two different forms of money.

  In 2003 the CEO of Barclays, one of the most powerful banks in the world and a big-time issuer of credit cards, made an odd public confession. “I do not borrow on credit cards; it is too expensive.”7 For practitioners of plasectomy, compulsive debtors, and pretty much anyone who has ever been in financial trouble or merely attempted some belt-tightening, step No. 1 is to cut up the damn cards. Then, set a budget and use cash so that you can stick to it. Perhaps you’ll even employ what members of Debtors Anonymous call “the envelope method.” For each of your monthly expenses—rent, utilities, gas, groceries, etc.—withdraw the necessary amount of cash from your savings account, and then put each in an appropriately labeled envelope. Get clarity about where your money is, what your expenses are, and how much you have.

  When you pay with cash, proponents argue, even though that paper no longer has intrinsic value, the physicality of the exchange is akin to transactions of yesteryear that involved money of weighable worth—of trading something for something. This salience is an advantage for cash as far as keeping spending in check. The expenditure, the loss of funds, the relinquishing—whatever you want to call it—is just that much more in your face. The numbers printed on the paper tether banknotes to the idea of value better than plastic or other electronic payment methods do, or at least we’ve been conditioned to think so. Using a credit card, in contrast, creates the feeling of getting something for free. It also doesn’t provide fixed denominations: walk into a casino armed with three C-notes and you know you could lose, at most, $300. Walk into a casino with a credit card, and you could lose your house. Cash is clear.8

  For most of my year shunning banknotes and coins, I didn’t miss this clarity. Perhaps on a dozen occasions, when I met friends for dinner or drinks, we would run into the hassle (for them) of me not having cash with which to pay someone back. But that is only because someone else beat me to the punch, snapping down a credit card before I could, for they too usually lacked any cash. Two friends in particular were especially generous during such episodes, shrugging it off with a “you get the next one.” They know who they are.

  Just as often, though (or so I’d like to think), I was the one treating. I too have that basic impulse to grab the restaurant check (or so I’d like to think), or at least the wish not to be a mooch. And I too want the extra airline miles. The Federal Reserve estimates that the average American consumer is armed with $79 in cash at any given time, a figure I find to be an astounding overestimation, no matter how bulletproof the wonks’ methodology may be. True, nobody’s circle of friends is a representative sample of the American public, but more often than not the people I know don’t have paper money with which to reimburse the person who happens to step up and pay with plastic. Not that I could have accepted it. Most of the time, my friends and I just split the charge on two or three cards, or, more recently, use our phones to send each other money. But more about phones replacing wallets a bit later.9

  I’ve long since been hooked on the convenience of plastic. In the world of self-employment, the record of transactions is key during tax season. And I like the benefits. I know they’re a savvy marketing invention that helps banks and other businesses keep pawns like me loyal, but as someone who travels a lot, I don’t care. I get some “free” trips out of it, so there is some value in there, even if it’s not as much as I’m led to believe.

  Unfortunately, while the need to borrow is the true cause of debt—to cover payments that are absolutely necessary or otherwise—debt is often exacerbated by credit cards. Why? A generation of behavioral economics research has demonstrated that standard predictions of how we treat and handle our money have woefully misread Homo sapiens. We aren’t perfectly self-interested. We don’t hold consistent preferences. A tax incorporated into a price tag on supermarket shelves makes us more frugal, whereas an equivalent tax added at checkout is virtually ignored. We spend the same money differently depending on whether it’s labeled credit, rebate, or bonus, and willingness to pay is heavily influenced by the payment method. When it comes to moola, the technical term for us is “cuckoo.”

  As early as the 1970s, scientists were trying to decode plastic’s hypnotic power.10 Even among wealthy people, 15 percent of participants in one pioneering study failed to pay their monthly balance to zero. Three-quarters of respondents from another survey “said that credit cards made it too easy to buy things that they may not really want or can’t really afford.” Despite awareness of this hazard, the card’s Manchurian power was too potent to resist. Those same subjects reported that the primo benefit of the card is that it enabled them to “buy without having the money and pay the bank back over time.”11

  Talk about a linguistic pirouette: buy without having the money. How is it that a language as marvelously expansive as English still doesn’t have a simple verb describing the act of acquiring something on credit?12 It’s not buying, no matter what the salesperson would like you to think. I hereby nominate curchase. As in, I recently curchased a new car.

  Even when credit cards only exist at the periphery of our experience, they can boost our willingness to fork over funds or borrow. In another landmark experiment, subjects entering the classroom where the research took place happened to see an American Express logo on a desk. The experimenter feigned that this was irrelevant, removed the paper with the logo, and then proceeded to ask subjects how much they would be willing to pay for an array of items listed in a catalog.13

  The subjects had been “primed,” exposed to something without thinking about it directly. Merely by “decorating the experimental setting” with this visual equivalent of a subconscious whisper—credit caaard—willingness to pay jumped 50–200 percent compared to the control group.14 The credit card effect, as it’s known, has been demonstrated time and again, and is perhaps best encapsulated by the cheeky research paper title “Always Leave Home Without It.”15

  Scientists have also found that when using a credit card, people don’t recall their expenses as well as they do when using cash. Sticking to a budget is that much harder if the experience of spending, of relinquishing those funds, doesn’t register as powerfully in your head.16 All money is fiction, but apparently this form of it is that much more ethereal. That is, until you get your statement and think, Holy shit. I did w
hat? Cash and electronic money may both be liquid, but they differ in their degree of slipperiness, and the fact that we’re more spendthrift when using plastic reinforces the opinion that cash is less complicated, safer, and somehow more upstanding.

  It might make us more honest, too. Dan Ariely, a professor of psychology and behavioral economics at Duke and the author of the bestseller Predictably Irrational, ran a set of experiments showing that people are apparently more ethical when dealing with paper money as compared with other objects that have the same dollar value. In one experiment, he covertly placed six-packs of Coca-Cola in refrigerators located in the common area of college dorms. He wanted to see how fast they would vanish; that is, how fast students would steal them. In other refrigerators, he placed six $1 bills. After seventy-two hours, all the Cokes were gone, but not a single greenback had been lifted.

  Ariely is careful to point out that these results are not a part of his goal to prove the immorality of students at a certain college, or, for that matter, his fellow man. Rather, they reveal hidden biases that we all possess to some degree. Many people, for instance, have no problem helping themselves to pens or notepads from the office, or to using the office copier for personal use, yet they would never help themselves to the contents of the petty cash drawer. In another study, Ariely’s research team found that business travelers from New York were more likely to expense a gift for their kids that they picked up at the airport in San Francisco, compared with a gift bought back in the Big Apple. We can’t even cheat consistently.

  In another study, Ariely and colleagues showed that people are dishonest when offered a monetary reward for correct answers. Not much of a revelation there. But they also discovered that the cheating was more than twice as likely if the form of the monetary reward is something other than cash. Even when the researchers explicitly told subjects that the tokens earned could immediately be traded for real cash with the person just across the room, cheating was still much more prevalent. Cash may be the currency of crime, but somehow banknotes and coins make us behave a little less crooked.