South-Western College Publishing - Economics  

Will Cash Become Scarce?
Subject Money
Topic Money and the Financial System
Key Words Money, Electronic Cash Cards
News Story Is cash on the way out? This question has been raised many times before – with the introduction of credit cards, followed by the introduction of debit cards. But now comes the latest challenge – the electronic cash card. These cards, unlike a credit or debit card, store cash balances. These balances can be depleted at retail outlets or augmented at automatic teller machine. In theory, wages that are already deposited directly into banks, could be transferred to the cash card, used in a variety of retail establishments, and thereby returned to the banking system. If stores, the post office, vending machines, and even parking meters would accept these cards, there would be little need for cash. The cash card was introduced at last year’s Olympic games with mixed success. A large-scale experiment has recently been undertaken to see if people prefer cash or cash cards. About 50,000 cards were mailed to bank customers in Manhattan’s Upper West Side. Participating banks believe that the convenience of the cash card will lead these New Yorkers to establish it as the preferred means of payment.

The cash card may be the next step in the evolution of money. The first monies were commodity monies. Paper money replaced commodity money when people recognized that it was the function of money and not its form or substance that was important. Electronic cash cards may be the money of the future. (Updated January 15, 1998)

Questions
  1. What are the functions of money?
  2. What is a commodity money? Why do you think it was replaced by paper money?
  3. Compare the functions of money with the electronic cash card. Would it be acceptable today? If not, what would have to happen to make it acceptable?
Source James Buchan, "Money Becomes Electric," The New York Time, October 13,1997

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