Cash, we don’t need any stinking cash. . .

April 8, 2013 at 7:30 am 14 comments

Here’s a banking paradox for you.  If your credit union is like the Federal Reserve, you need to make sure that you have more currency on hand than ever before.  Despite the explosion of debit cards and electronic banking, there is now more, not less, hard cash in circulation than there was 7 years ago.  According to a thoughtful and readable essay ny the Federal Reserve Bank of San Francisco (I swear you won’t have to get a second cup of coffee and translate economist-speak to get through it), the continued predominance of cash shows that its demise has been greatly exaggerated.

Oh really?  Recently, the Meier family, replete with two children and our hyperactive German Shorthaired Pointer puppy and the family truckster, took a road trip from Albany, NY to Gettysburg, PA to Southern Pines, North Carolina and only needed to use cash twice.  An explanation as to why shows that our good friends at the San Francisco Fed are whistling past the graveyard when it comes to the need for cash.  We needed cash in order to tip our extremely informative guide who drove our family in said truckster all around the battlefields and provided expert analysis of the conflict.  I don’t want to give away the ending. . .but the South lost.  At the end of our two-hour journey, I tipped our guide and he wasn’t in a rush to give me a receipt for his services.

The second place we needed cash was for dinner at the Pik n Pig, which in addition to providing the best smoked pork I’ve ever had, is the type of place that North Carolinians take their Northern brethren to remind them that they are, in fact, in the South.  As I sat down for my meal, I couldn’t help but think that I was late for the ZZ Top impersonation contest and by the end of the meal, my four year old was announcing that she wanted us to pass the kat-che-up and that she needed a ba-ath.  This is a place that doesn’t accept plastic and when I looked at how reasonable the prices were, it’s going to take a long time to convince them that it is worth paying transaction fees in the hope of attracting new customers they don’t need.

My point in all this is that there will always be aspects of the economy for which the difficulty of tracing cash offers conveniences that can’t be beat and that, not withstanding what our friends in the merchant economy would have us believe, there are still businesses out there that make the conscious decision that providing the option to pay with credit cards isn’t worth it for their business.

In its essay, the Federal Reserve Bank points out that in times of economic shocks, there is always a fairly large number of people who feel safer putting their money under the mattress.  In fact, one of the most interesting statistics is the explosion in demand for currency in the amount of $50 or more, which took place after the Lehman Brothers collapse.  In addition, foreigners still view the American currency as the safest one around and presumably will for the foreseeable future.  But does this mean that cash is here to stay?  Not necessarily.  For one thing, the economy will get better and people will want to put their money back in relatively safe institutions where it can actually earn some income.  And the Chinese have made no secret of their desire to challenge the preeminence of the dollar as the world’s default currency.  Also, even though the amount of currency floating around out there is larger than ever, it is no longer keeping pace with the gross domestic product.  In other words, more and more people aren’t reaching into their wallets when making their Griswoldian trip across America.  The statistic I would love to see is how many credit unions still need as much cash on hand today as they did ten years ago.  My guess is that the largest banks are the ones that people are turning to when they want to stick their money under the mattress.  So cash may not be dead yet, but it is, at best, getting a stay of execution.

Entry filed under: Economy, General. Tags: , , , .

Did NCUA Do Its Due Diligence? Me and the Iron Lady

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Authored By:

Henry Meier, Esq., General Counsel, New York Credit Union Association.

The views Henry expresses are Henry’s alone and do not necessarily reflect the views of the Association.

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