Cashless society 2020: how the coronavirus swung the public toward touch-free money, digital ID and a digital dollar
People who would never have voted for a cashless society will accept one to avoid touching a stranger's money. That was the lesson of the spring.
Cash became dirty in March 2020. Shops that stayed open through the lockdowns put up signs asking for cards only; some turned away customers who had nothing else; “touch-free” became a synonym for safe. It was the fastest change in the public’s relationship with money in living memory, and it happened without a vote, a law or an argument. This page records what moved that spring, in three steps, and the argument made here about where the steps led.
The safety trade
Benjamin Franklin’s line about those who would give up essential liberty for a little temporary safety is quoted so often it has stopped meaning anything, so put it concretely. After 2001 the National Security Agency was allowed to build the capacity to store the telephone and internet traffic of the country, in the name of security, and almost nobody objected until Edward Snowden showed what the capacity was being used for in 2013, at which point almost nobody objected either. The safeguard, a warrant from a secret court, was later found not to have protected even a presidential campaign from misuse. The argument made here in 2020 was simple: a population that accepted that will accept a great deal more to be safe from a plague, and by May it had. Neighbours were reporting neighbours’ gatherings to the police. Assemblies to protest the lockdown were prohibited by the lockdown. Content that disagreed with public-health agencies was being removed from the large platforms at the government’s request, which the platforms could grant because they were private and the government could not have made directly. The lesson for money was that the public would trade privacy for hygiene without being asked twice.
Helicopter money arrives
The second step was fiscal. The federal government began sending 1,200 dollars to most adults, with talk of making it monthly, to people it had ordered to stop working. The money was borrowed, and the Federal Reserve was buying the debt as fast as the Treasury issued it. That is, in everything but name, what Modern Monetary Theory proposes: the state spends what it decides to spend, and the central bank funds it. It had been a fringe doctrine in January. By April it was operating policy, adopted without discussion, because nobody refuses a cheque. The Speaker of the House said the crisis made it worth asking whether a guaranteed minimum income should become permanent. The observation here was that once the state pays people directly, at scale, it needs a rail to pay them on, and cash is not it.
The digital dollar in draft
The third step was the rail. A draft of the House stimulus bill in March contained a “digital dollar”: accounts at the Federal Reserve, accessible through commercial banks, into which relief payments would be made. It was removed before passage, but a senator’s proposal for FedAccounts followed within days, and the Financial Times and Forbes reported the idea as live. China’s central bank was in the same weeks trialling its own digital currency in four cities. Payment companies reported the fastest fall in cash use on record; Bloomberg’s explainer was titled “why going cashless has added value in a pandemic age”. The shift the public had been making for convenience was being finished by fear.
The argument
Put the three together and the shape was this. A health emergency taught people to avoid cash. A fiscal emergency taught the state to pay people directly. A digital dollar would make the second permanent and the first complete, and would give the payer a view of every transaction and the power to condition it. The same institutions that had built the NSA’s archive would build the ledger, and the same kind of safeguard would be offered. The previous page in this section records what one of them said about such safeguards in 2022, and the one before that records the pilot that followed.
Later note. Cash use in the United States fell from about 26 per cent of payments in 2019 to 18 per cent in 2022 and did not recover. The digital-dollar provisions did not return to legislation. The stimulus payments were made three times, by cheque, direct deposit and prepaid card, on the old rails, which is one reason the argument for a new one lost urgency once the emergency ended.