Friday, November 26, 2021
Future of Cash
Friday, November 26, 2021
David Sax, a journalist, has written a book ‘Revenge of the Analog: Real things and why they matter’. He makes an interesting case for analogue products such as banknotes. The digital world has been with us for over 20 years, and it has brought significant benefits, usually related to convenience, choice and cost.
Despite that there are many examples of physical products that are recovering lost ground and increasing sales, for example books, vinyl records, board games, even cameras with actual film in them. And many of these are being bought by young people who have grown up in the fully digital world.
We would add to that list cash, which stubbornly remains a large-scale product widely used and held. His book helps explain why cash is needed.
His argument is that the continued use of analogue products is not a rejection of the digital world. It is because they bring extra dimensions, you could perhaps describe them as a human dimension, which the digital fails to deliver. Analog complements the digital enriching lives and adding value. We might list privacy, inclusion and resilience as functions of cash that digital money struggles to deliver, but his focus is broader.
Sax makes the case that physical products bring purpose and productivity to people and businesses. Writing in a notebook creates a different result from recording ideas on a screen. That is why Google send its designers and engineers on courses to teach them how to draw things on paper and insists that the first stage of product design is on paper. Google does this because they have found people have better ideas on paper because they are less constrained.
When it comes to cash, there has been a lot written recently about financial literacy. As Dr Pitter’s presentation to the Bundesbank points out, up until the age of 12 abstract principles such as money are hard for children to grasp. Coins and banknotes help them to make sense of it and understand concepts such as value and exchange. In a sense the budgeting benefits so frequently associated with cash are based on its tangible nature. When the purse is empty, the budget is spent.
The second strength of physical products is they are good for the ‘heart’. ‘The psychological rewards are much higher, and we are willing to pay for that.’ It is easy to relate, and easier to value, the tangible.
Part of this is the importance of stimulating your senses, touch being relevant for physical objects. A screen uses pixels to show an image, but it lacks the variation of texture. The haptic sense is unstimulated. Watch any child and you see that they experience the world through touch. That carries through life and touch triggers deep emotional reactions. The weight of a book in the hand, or the touch of a banknote or coin, makes the experience real.
Ask any papermaker or intaglio printer and they, of course, will talk joyfully about the tonality and tactility of their creations. Ask any designer of coins and banknotes, or their issuers, and they will explain how hard they have worked to deliver secure art which will represent the country creating pride and presence through their work. A CBDC is going to struggle to do this just as a plastic card does.
The physical also plays a part in living in the moment and the reality of experience. Virtual reality is not, ultimately, satisfying. A live concert may take effort and cost money to produce and attend, but the anticipatory crowds, the reverberation of the music and the immediate shared enjoyment of the moment with others provides greater reward. As Sax puts it, real social experience compared with #socialexperience. The fact that people use their phones at the event is them satisfying their human instinct to share. Again, a banknote given or received as a present is a different experience from pinging money from account to account. Handing over cash to buy that second-hand car is somehow much harder to do than transferring money to an account.
Although online gaming is hugely popular, it is different from person-to-person socialising. But just as with a book club, playing a board game or even going to work, the online game is an opportunity, an excuse even, to socialise in a community sharing an experience. Sax makes the point that going to a conference is only partly about the presentations, in reality it is about the coffee, the chat, the jokes, the friendships and contacts you can make. We rather agreed with this point!
A final thought for banks or for anybody suggesting business interactions can be virtual. Apple was the first computer company to open its own stores. Face to face interactions matter for consumers but also for brands and businesses. We have written in Cash & Payment News about the implications of closing bank branches and the risks this brings for banks. They might like to consider why Apple went physical.
In the commercial world analogue products exist when they add value and deliver something the digital world misses. Central banks need to consider carefully the balance of physical and digital.