Nothing is more ordinary than a Monday morning at a Swedish bank. ... People go about their business quietly, with Scandinavian efficiency. The weather outside is, more likely than not, cold and gray. But on April 22, 2013, the scene at Stockholm’s Östermalmstorg branch of Skandinaviska Enskilda Banken got a jolt of color. At 10:30 am, a man in a black cap burst into the building. “This is a robbery!” he announced, using one arm to point a gun at the bankers and the other to hold out a cloth bag. “I want cash!” ... If the staff was alarmed, no one much showed it. Instead, the employees calmly informed the stranger that his demands could not be met. The bank, they explained, had no cash on the premises. None in the vaults, none at the tellers’ windows, none at all. When the robber looked confused, he was directed to a poster on the wall that proclaimed this a “cash-free” location. “It’s true,” the manager told him. “Sorry.” Crestfallen, the would-be thief lowered his gun and prepared to leave. Just before he stepped out, he turned to one of the tellers. “Where else can I go?” he asked. ... His options, in fact, were fairly limited. What this man had somehow failed to notice was that his country is at the forefront of a global economic shift.
Cash is the squirmy ferret of societal wealth—tricky to secure physically and, once liberated in the wild, almost impossible to get back—and money, as technology, has changed a lot in half a century. A day’s errands once called for bulging pockets. Now it’s possible to shop for groceries, pay rent, buy lunch, summon a taxi, and repay your sister for a movie without handling a checkbook, let alone fumbling with bills and coins. Most people think of card and electronic payments as conveniences, stand-ins for exchanging cold, hard cash. Yet a growing group of theorists, led in the United States by Kenneth S. Rogoff, a former chief economist at the International Monetary Fund, are embracing the idea that physical currency should be the exception rather than the rule. ... Phasing out big bills would make it harder for domestic currency to support corruption abroad. ... Hobbling the underground market should also temper tax evasion, a costlier problem than many people realize. The most recent I.R.S. estimates indicate a tax-payment shortfall of four hundred and sixty billion dollars a year—a disparity that’s transferred to those who pay. ... Most important for many economists, low-cash life allows for negative interest rates, in which the lender pays the borrower interest. ... In 2013, Sweden eliminated its largest-denomination bill, and demand for its second-largest bill, the five-hundred-krona note (about sixty dollars), surprisingly fell off soon afterward. By 2014, only a fifth of Swedish retail transactions were being conducted in cash. (In the U.S., it’s slightly less than half.)
With greater oil reserves than Saudi Arabia, Venezuela should be at least moderately prosperous. Instead, it has the world’s fastest contracting economy, the second highest murder rate, inflation heading towards 1,000% and shortages of food and medicine that have pushed the poorest members of its 30 million population to the edge of a humanitarian abyss. ... It takes just five minutes to cross from the porous border at Pacaraima. Locals say the government in Caracas lifted food import tariffs from Brazil two months ago in a sign both of its desperation to ease shortages and its weakening control over the economy. There is now a steady stream of traders buying sacks of rice, sugar, wheat and spaghetti for resale in Venezuela. ... Life could be made easier if the authorities printed notes with higher denominations than 100 Bolivars, which is worth less than 8p, or 10 cents. But the central bank appears reluctant to make a move that would confirm a level of hyperinflation not seen in Latin America since the crises in Brazil and Argentina in the 1980s and 1990s. As a result, locals have to pay for everything in the equivalent of dimes. Even when made of paper, that can be cumbersome and heavy. ... The government’s tendency to subsidise many products below the cost of production is a major reason why the economy is in such a mess. ... Even in the midst of crisis, the government still hands out free or massively discounted homes, cars, DVD players and microwave ovens.
Americans are bad at saving. In an annual survey by the Fed, almost half said they couldn’t come up with $400 in an emergency. The savings rate of the bottom 90 percent of American households hovers just above 1 percent. ... There are many theories for why Americans don’t save, from poverty to debt to conspicuous consumption. But the most enticing comes from behavioral economics: It’s easier not to. Inertia is strong, and putting money away requires overcoming what economists call present bias. ... The good news, according to behavioral economists, is that we can just as easily be tricked into overcoming that psychology with “nudges” that reframe incentives. Just post calorie counts next to unhealthy food, and people won’t order cheeseburgers. Or, make 401(k) plans opt-out, and more people will save money for retirement. Suddenly, with one oh-so-simple tweak, making bad decisions becomes the harder option. ... At every step of the way, the study ran into a web of competing incentives and pesky human flaws that hurt its goal of getting poor people to save money. ... The problem goes beyond a sheer lack of funds. The psychology of poverty is hard to overcome with a dainty nudge. ... the study’s preliminary results were muddy. They suggested that the nudge method did get some people to save more: Deposits increased when people got some kind of reminder. But they didn’t show whether one type of nudge worked better than any other (possibly because of teller error), and they provided no evidence that the savings accounts helped people build up money over time.
It’s gunning for the $93 billion U.S. market for credit card issuing, an industry that’s dominated by giants such as American Express and Capital One, with PayPal and ambitious startups in close pursuit. Like PayPal, Klarna is an online-payments platform with an emphasis on “buy-now-pay-later” financing. … His dream is that enough merchants embrace Klarna as a free-floating credit issuer so that millions of shoppers will no longer see credit cards as a first choice for financed payments. ... Siemiatkowski has spent the past 11 years quietly turning Klarna into his home country’s biggest digital-payments platform. Klarna processes 40% of all Swedish online payments. Klarna’s big selling point is ease and simplicity. It lets you skip paying for an item up front–no more squinting at a credit card, typing in numbers and remembering a password. You simply enter your e-mail and delivery addresses. That information, plus your activity on an e-commerce site time of day, the product you’re buying and any Web cookies that can be picked up from your visit? is enough for Klarna to decide whether you’re a creditworthy human. Siemiatkowski calls this a “one click” experience. ... Remarkably, Klarna’s bold bet on people’s honesty and solvency has worked. Its default rates are under 1%. Credit card default rates in the U.S. have averaged 2.2% for 2016. ... Siemiatkowski would rather trust his customers than see them walk away at a checkout: 69% of online shoppers in the U.S. abandon their shopping carts, often because they’re asked to create an account or the process takes too long. That’s around $260 billion in lost orders.
This first mode of money is public. We might call it ‘state money’. Indeed, we experience cash like a public utility that is ‘just there’. Like other public utilities, it might feel grungy and unsexy – with inefficiencies and avenues for corruption – but it is in principle open-access. It can be passed directly by the richest of society to the poorest of society, or vice versa. ... Alongside this, we have a separate system of digital fiat money, in which our money tokens take the form of ‘data objects’ recorded on a database by an authority – a bank – granted power to ‘keep score’ of them for us. ... This second mode of money is essentially private, running off an infrastructure collectively controlled by profit-seeking commercial banks and a host of private payment intermediaries – like Visa and Mastercard – that work with them. The data inscriptions in your bank account are not state money. Rather, your bank account records private promises issued to you by your bank, promising you access to state money should you wish. ... The cashless society – which more accurately should be called the bank-payments society – is often presented as an inevitability, an outcome of ‘natural progress’. This claim is either naïve or disingenuous. Any future cashless bank-payments society will be the outcome of a deliberate war on cash waged by an alliance of three elite groups with deep interests in seeing it emerge.
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