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November 05, 2007
Cash Is No Longer King
American Council of the Blind v. Paulson is scheduled for argument before the D.C. Circuit Court of Appeals on November 19. You probably heard about the case when the district court issued its ruling almost a year ago; it orders the Treasury Department to design and issue paper currency that permits the blind to readily distinguish between different denominations. Plaintiffs invoked the Rehabilitation Act, which aims to ensure that the disabled fully participate in today's society. They successfully argued that such participation requires that the visually impaired be able to conveniently and confidentially exchange currency in ordinary daily purchases. The district court’s opinion was notable for its silence about the striking changes in the ways that Americans pay for goods and services, as well as its failure to address the staggering ancillary costs that accompany major currency change.
As my colleague Erik Lillquist and I have written about here, currency is just one component of payment systems in the United States, a system that has undergone massive transformation over the last several decades. Of course the American Council for the Blind is correct when it asserts that the blind need to be able to engage in everyday commerce. But this sort of participation rarely necessitates the use of currency, which is increasingly becoming a twentieth-century relic.
The United States has myriad alternatives to currency, many of which are supported by extensive federal legislation and regulation. On appeal, both parties’ briefs give a nod to credit cards, with the American Council of the Blind dismissing credit cards because not all individuals have them and because “using a credit card for all of one’s purchases [does not] represent a fiscally sound approach to dealing with one’s personal finances.” But credit cards are only one form of electronic payment. For example, the use of debit cards has exploded in the last 10 years. The popularity of stored value cards, where the consumer loads money on to a card and then uses the card itself to make purchases, has increased dramatically. (Think of the New York Transit System’s Metrocard or the coffee merchant's Starbucks Card.) Even Waffle House, long famous for refusing credit cards, has abandoned its "cash only" policy. Alternatives to currency are so widespread that NPR has reported that some retail merchants have stopped accepting cash altogether.
During a single day, keep track of how often you have to use currency. You may be surprised by how superfluous currency has become. When you encounter an instance where cash is required or the use of an alternative payment form seems impracticable, probably you will be engaging in a very small transaction, like picking up an item or two from the grocery store. But the United States has a one dollar coin, which is easily distinguishable from others because of its size, edge, and weight. If individuals were to carry, say, fifteen one-dollar coins and the sorts of payment options discussed above, currency would be mostly unnecessary. Of course, handing over a fistful of twenties is more tangible than swiping a card through a magnetic reader and some people may just prefer to use cash. The Rehabilitation Act, however, provides the disabled with meaningful access, not equal access.
The district court was particularly concerned about the risk that the blind would be defrauded by individuals who lied about either the amount of currency tendered, or the amount returned as change. Although alternative payment forms also present an opportunity for fraud, the risk is far less. Contrast the clerk who represents that a $5 bill is a $20 bill with the clerk who lies about the amount that had been charged to or deducted from an electronic card. The clerk handling the currency can easily pocket the $15 difference, but the clerk handling the card does not experience personal gain unless she also owns the business that receives payment from the card provider. Moreover, alternative payment forms leave paper and electronic trails, making it easier for the purchaser to challenge transactions.
The other ingredient missing from the district court's analysis was a fuller discussion of the financial costs imposed by its order. The court examined only the economic effect on the government itself and concluded that the costs of redesign and reissue were insignificant. Here, though, the costs to third parties are staggering enough to demand attention. The sort of currency change contemplated by the court would likely require the retooling of every single vending machine in the county, regardless of whether it sold soda or train tickets. (The National Automatic Merchandising Association, a national trade association for the vending industry, has filed an amicus brief in support of the Treasury Department.) If the government complied with the district court's order by varying the size of bills, an option advanced by the plaintiffs, every single cash register box would likely require replacing as well. Currency redesign affects every seller who accepts cash as a form of payment, not just the government that prints the new bills. A decision that imposes such massive economic expenditures makes little sense, given that twenty-first century payment options permit the blind to fully participate in daily commerce.
Posted by Sarah Waldeck at November 5, 2007 11:42 AM
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Comments
I agree with most of what's stated here. However, I think cash will remain very important to the American economy for at least two reasons.
First, people who cannot get bank accounts cannot get debit cards. It's a "twentieth-century relic" that's still "forced" on people who can't get social security numbers or otherwise can't meet a bank's documentation or other requirements to establish an account.
Second, consumers engage in many transactions that are cash-only. I'm thinking of both black-market activities (e.g., drug sales, off-book salaries, sex work) and perfectly legal transactions (buying a car or other merchandise from, say, a friend or relative). I think there must be a significant percentage of situations where the seller either can't legally get a credit-card merchant account or simply has no reason to.
I imagine that one of these days we could have a "Star Trek" system -- where everyone has "credits" and there are computer access points everywhere to update the system, whether for wages, or grocery shopping, or for transactions like buying my neighbor's Camaro. But until something like that is implemented, I don't see cash going the way of the dodo just yet.
Posted by: Margaret at November 5, 2007 03:33 PM
Cash is an essential element of a citizen's right to privacy.
My newly redesigned $20 bill still says "This note is legal tender for all debts public and private".
Posted by: Logical Extremes at November 5, 2007 04:49 PM
I think that the problem with this idea is that it necessitates that every avenue of commerce take credit cards. This would be a huge windfall, of course, for CC companies, but a huge burden on the small business.
Also, the government has already shown it's ability to makeover US currency with all sorts of features and sizes. I'm not sure what would be so cost prohibitive to include simple mechanisms to tactilely distinguish between denomination of bills.
Am I missing something? Is there some truly burdensome proposal by the ACB that isn't mentioned in the article?
Posted by: mmm at November 6, 2007 12:04 PM
A few comments in response to mmm and Logical Extremes:
1) Most (lawful) small businesses already accept electronic payment. They have chosen to do so either because a good portion of their customer base prefers it, or because currency has costs of its own, such as a greater risk of theft. In addition, the rare business that does not accept electronic payment is likely to accept checks. In other words, these days there are few (lawful) "cash-only" businesses.
2)The brief for the National Automatic Merchandising Association (NAMA) states that there are approximately 700 million food and beverage vending machines in the United States. If braille symbols are placed on currency, the currency acceptors will have to be adjusted, with costs ranging between $100 - $500 per machine; for a total of somewhere between $700 million and $3.5 billion. Note that the total number of vending machines in the United States is much higher than the NAMA estimates, because it is only counting machines that dispense food and beverages and not, say, train tickets.
3) I'm not sure that the legal tender language referred to by Logical Extremes is relevant here. That language means that currency is a valid form of payment when tendered to a creditor. But there is no federal statute that requires retailers to accept cash in exchange for goods and services. As a matter of fact, last week Apple announced that it is no longer accepting cash payments for iPhones, as part of an effort to prevent unauthorized resales.
Posted by: Sarah Waldeck at November 6, 2007 01:01 PM
Sarah, yes, unfortunately, legal tender doesn't seem to obligate a creditor to accept it (but IANAL). There are market factors at least that hopefully will keep cash in the mix, if nothing else (people who can't get or don't want plastic for every purpose). But regardless of the braille issues, it would be a significant blow to privacy if cash is phased out without a completely anonymous alternative. WWSS (What would Solove say)?
Posted by: Logical Extremes at November 6, 2007 05:55 PM
Thanks for sharing this post Sarah. Well, I guess it is true that Cash is somewhat no longer existing, yet it's still important. Lots of people might probably replaced cash with credit cards, since it's the easiest and convenient way of spending. But, there are still things or consequences that cash is still needed and still important for business transactions. Anyway, great post.
Posted by: credit cards for business at November 7, 2007 03:04 PM
