[Dave Birch] Way back in 1995 the then director of the US Mint, Phillip Diel, told a Congressional subcomittee hearing that expected to be issuing legal tender stored-value card before he issued a one dollar coin. To date, they’ve done neither. And to be honest, the dollar coin looks to be a long way off. But was there something in the Mint’s thinking? We don’t need to agree that the US Mint — which makes five cent coins at a cost of 7.7 cents each — is a model business with a track record of accurate futurism. In fact, as I am constantly whining on about, what they do overall is to waste everyone’s money, on quite a large scale.
Central banks agree, putting the cost of printing, issuing and recalling old-fashioned folding notes and coins at between 0.4 per cent and 0.6 per cent of gross domestic product.
So how wrong was the director of the mint? Well, one the one hand I don’t think there will ever be a dollar coin, so he was perhaps right to mark stored-value cards as being more likely to occur in a finite timescale. But “legal tender” stored-value cards issued by the government? No, I don’t think so.
Back in 1995, I was wrong about the imminent arrival of stored-value smart cards in the mass market. I was just as wrong as the director of the US Mint, but for a completely different reason. I had simply made a calculation that told me that the cheapest way to move money around was over a ubiquitous and inexpensive digital network was using tamper-resistant chips at each end of the transaction to secure the system. (I was thinking about Mondex cards and the Internet at the time but, as it has turned out, the actual mass market will be built on SIMs and GSM networks.) Yet the demise of cash accelerated minutely, if at all. It just wasn’t possible to get enough people using their stored-value cards in enough places to make a dent in M0. But something has changed in the last decade, and as futuristic as talk about the demise of cash might have seemed back in the day, it really is on the agenda again now.
But the government believes the mobile phone is the key to the future – a payment system that could finally lead to the long-heralded demise of notes and coins.
Indeed. But why? It’s not, as many people might think, just because you can make a phone into a payment card. It’s because you can make a phone into a payment terminal. As we learned back in 1995, it’s easy to give everyone a card but really hard to give every merchant a terminal. And if you want to replace cash, then everyone (not just merchants) has to a have a terminal. Well, everyone does.
The arrival of the NFC phone is the crucial piece of the jigsaw: when you can use your phone to pay Burger King, that’s great, but when you can use your phone to pay your brother, then cash has a realistic competitor.
So why were we both wrong, ultimately? Because no-one is going to have to issue notes, coins or cards at all in the future because we will simply be using our defkams (devices-formerly-known-as-mobile-phones) instead.
These opinions are my own (I think) and presented solely in my capacity as an interested member of the general public [posted with ecto]