I can’t remember the last time I used cash. In fact, I actively avoid it. I don’t want crumpled grubby bits of paper in my pockets and heavy pocket wrecking pieces of metal weighing me down. When you have a pocket full of cash, you have a pocketful of inconvenience.
You have to keep track of how much you have, whether it is enough to pay for what you need and you have to periodically top up your supply from inconvenient locations at inconvenient times. I have no idea why people still use cash, I really don’t.Embed from Getty Images
We got a cheque the other day. Yes, a real cheque with words and numbers written on it. A piece of paper worth a not inconsiderable amount of money. So we tried to pay it into my wife’s bank account. Oh no, sorry, this cheque is made out to both of you. You can’t put it into the bank account belonging to a single person.
So, we fortunately had a joint account, albeit with a different bank, so we took the valuable piece of paper to the second bank. It is not my purpose here to protest, complain or whinge about customer service, so I will merely say that it wasn’t a fun experience. Firstly we had to travel to the location of the second bank, who had, for very good reasons which I find acceptable, just closed our local branch. Secondly we had to deal with a ‘real person’, and actually living and breathing human being.Embed from Getty Images
Now, I’ve got no problem with real persons. As long as they keep their distance, I will keep mine, and I grudgingly admit that sometimes you have to deal with a real person. But I shouldn’t have to deal with a real person just to deposit a cheque into a bank account, surely?
OK, most cheques can be deposited into your account via a hole in the wall ATM, I know, and this cheque was slightly different. It was a cheque from the UK being paid into a local account so currency conversion had to be done.Embed from Getty Images
I’ve paid local cheques into local accounts in the past, and the process was much the same. The only difference was that we had to sign a piece of paper, extruded from a machine on the real person’s desktop, to agree to refund the money, should the cheque not be honoured by the UK bank.
There are other ways of transferring funds between local banks and the UK, of course, which don’t involve pieces of paper travelling the world, of course. We maintain a bank account in the UK, and it is relatively simple to transfer money from that account to one of our local accounts electronically with having to once deal with a real person.Embed from Getty Images
We could, of course, get people to use electronic means to transfer money from their UK accounts to our UK accounts, but some people, for whatever reason, prefer to send pieces of paper. Probably they are either think that electronic transfers are complex and challenging, which of course they aren’t, or they prefer to send something at least a little tangible.
What kicked off this train of thoughts? It was one of a number of articles by finance industry players which were dismissive or antagonistic towards BitCoin. I bought $200 worth of BitCoin in November 2013, and if I still had it now it would be worth around $4200. Rumour has it that it will rise a lot more. Other rumours are that it is a bubble which will soon burst.Embed from Getty Images
One of the accusations levelled against BitCoin is that there is no single entity behind it and if the bubble burst, people will be hurt and no one will be held responsible. Well, is that any different from a fiat currency or a commodity currency? A fiat currency is one whose value depends on the support of a government diktat, while a commodity currency has a value that is related to the value of a commodity such as gold.
In the case of a fiat currency, it is effectively the government saying “You can buy things with the dollar things”. So you take along pieces of paper, or these days more likely a bit of plastic, and get back a tin of beans, plus some heavy metal circular things if you use the paper, and feel (relatively) happy.Embed from Getty Images
The government doesn’t do much more than guaranteeing “this is a dollar” and printing pieces of paper with that message, and similar for metal coins, but the number of coins and paper in circulation aren’t anywhere near to, say, the number of dollars in the government’s budget. The majority of dollars only exist as a number in an account somewhere, usually with a bank.
In the case of a commodity based currency, such as that based on gold, a government agrees to supply a given but variable amount of gold for a currency on demand. Of course no one ever demands gold for their dollars or whatever. Why gold? Because there were originally coins made out of gold and gold was relatively more valuable than silver or bronze.Embed from Getty Images
This has meant that the metal gold is these days worth much more than its relative abundance would imply. In spite of gold rushes gold is a fairly common metal that is fairly useless for anything except decorative candlesticks and similar.
BitCoin is often represented as being different from either of these two types of currency. It doesn’t have a central authority to say “this is a BitCoin”, and no one is going to give you a hunk of metal for it, unless they actually want to buy the metal to make candlesticks.Embed from Getty Images
But BitCoin is not really that different from the other two types of currency. Both of the above types of currency are just numbers in an account of some relatively reliable organisation like a bank or other organisation, just as the BitCoins in my wallet are just numbers in the bitchain.
The difference is that because no one owns the bitchain, that all sorts of dodgy dealings are possible and people like drug dealers and cartels and so on are adopting BitCoin and other so called cryptocurrencies.Embed from Getty Images
However it is no use trying to ban such currencies. That particular genie can’t be forced back into the bottle. Any attempt to regulate cryptocurrencies will simply lead to them going underground.Embed from Getty Images