The Sciences

The 2,500 year experiment with solid currency

Gene ExpressionBy Razib KhanJul 6, 2011 1:30 PM

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This article in The New York Times focuses on cash in terms of paper currency, but the lessons are generalizable to coinage as well, which pre-dates paper currency by 1,500 years. Some fascinating numbers:

...In 1970, at the dawn of plastic payment, the value of United States currency in domestic circulation equaled about 5 percent of the nation’s economic activity. Last year, the value of currency in domestic circulation equaled about 2.5 percent of economic activity. ...Indeed, cash remains so pervasive, and the pace of change so slow, that Ron Shevlin, an analyst with the Boston research firm Aite Group, recently calculated that Americans would still be using paper currency in 200 years.... ... Thanks to technological advances, the average dollar bill now circulates for 40 months, up from 18 months two decades ago, according to Federal Reserve estimates.... .... In 1989, the Fed replaced 46 percent of returned dollar bills. Last year it replaced 21 percent....

We don't know if the United States of America will be around 200 years from now, so the question about the persistence of cash is rather moot in my opinion. But in any case, the marginalization of (relatively) untraceable cash for abstract monetary units of value is going to entail some changes. Not only are financial institutions going to track and analyze your purchasing habits in fine-grained detail, but governments will able to get their hands on that information if they have a will to do so. Additionally, that information and the meta-data will be stored somewhere, so there are going to be solutions which emerge to resolve the problem of information getting stolen by pirates. Finally,

at some point within the next generation or two I suspect that utilization of paper currency might suggest that something is off in your circumstance or intent.

That is, people may wonder why exactly you are using an antiquated currency medium whose primary benefit is that it renders your transactions invisible. It will be an order of magnitude worse than the cases we encounter now with people who write checks in retail lines. They are sources of hapless inconvenience, not targets of suspicion.

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