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November 30, 2000

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Don't Show Me the Money Please!
The cashless society is on the way, and currencies - including the dollar - may disappear

By Alejandro Reyes

RECENTLY, I WAS IN a Hong Kong taxicab, careening around the corner from my office building. As is my habit, several blocks back, I had already taken a bill out of my wallet and was ready to pass it on to the driver. Then came the sneeze. Mr. Chan first used his right hand to brush his nose clean. Then with his left index finger, he tweaked his moist upper lip. God bless you, I muttered. My thoughts, however, were hardly for divine intervention, but for what was happening right here on earth. I'm no paranoid hypochondriac, but all I could think about was how I could suavely take my change without appearing flustered. The car glided to a stop. I paid - and then offered my cupped right hand over the front seat to receive the coins in return. Quickly, I stashed them into a suit pocket. Upstairs, before I even switched on my computer, I washed my hands.

Unless bank notes are crisp and clean and coins are mint-fresh gleaming, I don't much like handling money. To have, but not to hold, I say. Hygiene aside, carrying a wad of crumpled bills and a pouchful of jangling metal can be cumbersome. Wallets are bulky affairs - and coin purses are inconvenient, quaint and definitely not cool. Don't show me the money! The sooner the cashless society arrives the better.

It is coming, thank heavens. These days, like many other people across Asia, I use a credit card to pay many expenses including meals, travel, hotel accommodations, and even movie tickets. Checks too are going out of style. I can pay practically all my bills - including my apartment building's management fees, government property charges and personal income taxes - by telephone. I can execute many banking transactions including foreign-currency exchange and fund transfers by phone (or online, if only my bank offered such a service). And in my billfold, I carry a slim stored-value, machine-scanable card to pay bus and subway-train fares.

But when it comes to picking up the daily paper from a news agent or a bag of eggplants from the vegetable vendor at the neighborhood market, cash is still king. Try getting through a week without handling any real money. It isn't easy. Yet, within the next decade or two, we will probably all be using smart cards for even the smallest purchases. Even the granny selling magazines at the street corner will have a hand-held device to read a bank debit card or a stored-value cash card.

The proliferation of smart cards is raising urgent questions about privacy. Ideally, a purchase made with a smart card should be as anonymous as a cash transaction. But it may not be. The digital record of what you bought could reveal to both the retailer and your bank - and who knows who else - a lot of information about your spending habits. There are other considerations. For consumers to fully embrace digital cash, online and smart-card transactions must be secure, buyers and sellers must be able to determine the authenticity of the electronic currency used, and the virtual payment system must be applicable to even the smallest, everyday purchases. Two recent attempts at setting up an e-cash system, in which online users paid money into an account or "e-wallet," have failed to take off.

Allowing completely anonymous digital transactions poses other problems. "Money laundering and tax evasion could become much easier using electronic cash systems," lawyer Liz McRobb wrote in a 1997 article published by her British law firm Shepherd & Wedderburn. "The key turning point [in the acceptance of smart cards and online commerce] is likely to be where consumers are persuaded that privacy has to be surrendered when transparency is needed to detect or prevent crime."

But even if we all switch to smart cards, cold, hard cash will still be around for a while. Will we ever see traditional money become obsolete? It could happen. In recent decades, regions have been moving toward monetary union. The much-awaited launch of the single European currency, the euro, at the beginning of 1999 was hailed as the biggest innovation in the international financial system since the end of the gold standard. The euro-venture will eventually lead to the demise of a slew of currencies, as countries in Europe swallow national pride and accept the new legal tender. By 2002, gone will be the franc, the deutschemark and the lira, among others. The transition period - during which no Euro coins or bills are actually circulating - shows that a viable currency can exist without scrips or metal to physically represent its value.

Already, Asian nations are talking about a currency unit of their own. But "it will take a long time to reach that stage," warns Hubert Neiss, the International Monetary Fund's point man for the Asia-Pacific region. "Policies have to be harmonized to a great degree." Nobody expects Asian monetary union for at least 30 or 40 years.

Others talk of another possibility: global dollarization. The U.S. dollar is far and away the most widely recognized legal tender on earth. To the cyclo driver in Hanoi or a hotelier in Moscow, the greenback means stability and rock-solid value. Panama uses the U.S. dollar as its currency. Amid the recent global financial turmoil, dollarization has been proposed in Hong Kong (whose currency is currently pegged to the greenback) and Argentina. According to a U.S. Federal Reserve Bank study, between 50% and 70% of all American dollars are held abroad, with about 80% of the demand growth for the currency since 1980 coming from outside America.

Thirty years from now, there may only be three currencies in circulation - the dollar, the Euro and an Asian currency unit. Twenty years from then, maybe only a single world dollar will survive. But with the proliferation of smart cards and the growth of e-commerce and cashless transactions, perhaps money as we know it will disappear altogether. Instead, the world could adopt an unbacked virtual global currency that exists only in digital bytes and bits in computer records.

Then again, we may just see another scenario play out. As the role of national governments shrinks and e-commerce and regional and global economic integration render national borders meaningless, the issuance of currencies for commerce may become a local matter. Already, privately issued currencies exist. Airline frequent flyer miles are an example, with passengers able to exchange miles earned for free flights, discounts or upgrades. Barter clubs have recently started appearing in Asia and Australia. In the American state of New York, Ithaca has a town-wide paper currency called the "Ithaca hour." Each hour is valued at $10, the average hourly value of wages and salaries in the community, and is earned by providing a good or service. About 400 businesses have agreed to accept them. More than a dozen towns in the U.S. have adopted similar programs. In Miami and elsewhere, there are also so-called time-dollar systems, in which providing community service earns a person "time dollars," which can be used to buy essential care for oneself or for friends and relatives.

Such schemes could be expanded. Employers could pay staff in time dollars, with each unit pegged to a particular U.S. dollar amount or to the value of a set of basic necessities, say, the quantity of food needed to provide nutrition for a day. Sellers that recognize the system would price their goods or services in these units. A loaf of bread, for example, might cost three quarters of a time dollar. In time, several communities could join together and work out exchange rates among themselves. Computers and smart cards would handle all transactions. No grubby bills or filthy coins to handle.

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