There’s No Stopping the Rise of E-Money

...All this activity has people once again talking about a cashless society. Because let’s face it: Cash is expensive. In the United States, for instance, studies indicate that maintaining a cash system—including printing new bills, recycling old ones, moving them about in armored trucks, using them to replenish automatic cash machines—costs the country about 1 percent of GDP. Those studies also show that the marginal cost of a cash transaction is around double that of a debit-card transaction.

Cash’s indirect costs are huge, too. In a 2011 study [PDF], Edgar L. Feige of the University of Wisconsin, in Madison, and Richard Cebula of Jacksonville University, in Florida, found that in the United States 18 to 19 percent of total reportable income is hidden from federal tax men, a shortfall of about US $500 billion. The Justice Department estimated in 2008 that secret offshore bank accounts were responsible for about one-fifth of the tax gap, suggesting that the remaining 80 percent is attributable to unreported cash.  (...)

Thus the allure of the mobile phone as an alternative to cash. The enabling technology has finally arrived, and it’s taking root because the business drivers (that is, the high cost of cash) and the social drivers (cash’s disproportionate cost to the poor) were already there. And just as the plastic card and the Web made it easy for us to pay merchants, the mobile phone will soon make it easy for us to pay each other.

So let's assume that the mobile phone will take over and that in a few years’ time, you’ll be able to pay Walmart or your window cleaner or your niece with your mobile phone. In this world, switching among dollars and euros and frequent-flier miles and Facebook Credits and Google Bucks and any other form of money will be just a matter of choosing from a menu on the phone. The cost of introducing new currencies will collapse—anyone will be able to do it. The future of money, in other words, won’t be that single galactic currency of science fiction. (We already know that, because we can’t even make a single currency work between Germany and Greece, let alone Ganymede and Gamma Centauri.) Instead, we can look forward not merely to hundreds but thousands or even millions of currencies. And though regulators may oppose the trend, they can’t hold it back.

That must sound as crazy to you as the idea of paper money once did to your ancestors, but it really isn’t. Trying to imagine a wallet with a hundred currencies in it and a Coke machine with a hundred slots for them is, of course, nuts. But based on the available currencies in your mobile “wallet” and prevailing market conditions, your phone and the Coke machine will be able to negotiate an exchange rate in a fraction of a second.

Likewise, I don’t want to carry around a hundred different retailer credit and loyalty cards, but my phone can hold a zillion. So when I go to Starbucks, my phone will select my Starbucks app, load up my Starbucks account, and generally not bother me about the details. When I walk next door into Target, my phone will select my Target app, fire up my Target card, and get down to business.

Who will want to issue these new currencies? Corporations, for starters. When Edward de Bono wrote The IBM Dollar: A Proposal for the Wider Use of “Target” Currencies back in 1994, he looked forward to a time when “the successors to Bill Gates will have put the successors to Alan Greenspan out of business,” arguing that it would be more efficient for companies to issue money than equity. Even if all I’ve got is Microsoft Moola, and you want to get paid in Samsung Shekels, who cares? Our phones can sort it out for us.

by David G.W. Birch, IEEE Spectrum |  Read more: 
Illustration: Harry Campbell