Photo by Burst - Edward W Hackett
Photo by Burst Edward W Hackett

Photo by Burst

What is it now, and what will it be in the future?

What constitutes money?

Economists generally define money as any financial instrument that is accepted as payment for goods and services. Additionally, it is approved for the repayment of a debt. This definition includes any instrument that has a valid record like a credit card or a bitcoin.

Cashless money will be explored later in this post.

Governments make money acceptable by allowing it to be used as payment for debts, like taxes due to the government.

The economist, Hyman Minsky said, “Anyone can create money; the problem lies in getting it accepted.”

Currency means banknotes, coins, and reserves issued by the government. These reserves usually come from a central bank or treasury department. Reserves are private bank deposits held by a central bank.

The money supply is considered to be the total amount of money available to an economy at any one time. It is made up of all the currency in circulation and the total of all demand deposits at banks. Demand deposits are readily available funds, like checking accounts, savings accounts, and other bank accounts, which usually consist only as electronic records.

Fiat money is like a check or a note in that a physical commodity does not back it. It gets its value when the issuing government declares that it is legal tender and can be used to pay debts like taxes and fines that owed to the government.

How is the money used?

Regardless of the form that money takes, it performs four functions.

  • As a medium of exchange — it can be used as a token in the payment for goods and services. It has replaced the barter system, which modern economies usually find to be very cumbersome. It also allows for the easy comparison of different things — corn versus peanuts, one carmaker to another, or the cost of dining out as opposed to cooking at home.
  • As a unit of account — the value of goods and services are quoted in terms of money so they can be compared against one another. It tells us the market value of a good or service and has permitted the creation of an efficient accounting system.
  • As a store of value — this is a function of money that allows it to be saved and later used to purchase goods and services. The value of money must be maintained, and in many cases, inflation decreases the value of money.
  • As a standard of deferred payment — the method of valuing a debt. It will allow for the purchase of goods and services today and payment to be made at a later time.

Many times this last use of money, the standard of deferred payment, is blended into the other applications.

How is money created?

Legal tender is the cash form of money that is issued by a Central Bank in the form of coins and banknotes. It is often referred to as “narrow money.”

Private banks create bank money by the process of recording loans as deposits. At this time, all bank money is created electronically. It is often referred to as “broad money.”

In most modern economies, commercial banks make most of the money by lending out money left as deposits.

What is the future of cash?

Paper money was created approximately 1,000 years ago and has proven to be a useful invention up to today. Coins are even older than paper money, but they become unwieldy in more significant amounts due to their weight and size.

For the first time, since the invention of paper money, we are looking at the possibility of a future where cash is no longer king.

Credit card payments are growing every year, and there is a growing number of other types of digital payment platforms being made available. The trends are speeding up the movement away from cash. Many people are asking, “Are we looking at a cashless future?”

The movement away from cash (and checks) started after the 2nd World War with the development and widespread use of credit and debit cards. The newer forms of payment options like mobile wallets, mobile payment applications, and cryptocurrencies have greatly expanded the number of transactions that can be accomplished without the use of cash.

This is a developing situation, and it is not growing linearly. For example, ATM withdrawals are continuing to be popular, and central banks seem to be printing more real money than ever before. However, digital payments are rising even more quickly than the printing of money and cash withdrawals.

What are the two big problems digital payments must overcome?

The first concern is whether or not this movement to a cashless society is elitist. By forcing people to give up cash, are we marginalizing a portion of our population? A large number of small business owners feel this way, and they do not want to alienate a significant part of their customer base.

Many cities have passed laws banning the creation of cashless stores. Amazon, among others, did not expect this resistance to their concept of the cashless store. However, at the same time, fintech (financial technology) is being touted as a potential solution to reaching the unbanked segment of the population. Traditional banks are too expensive to be used by many people who live paycheck to paycheck.

The underground economy and the desire of many people to have transactions that cannot be easily tracked by government agencies are two other obstacles to the adoption of a cashless economy. Not all of these situations are nefarious. In many countries, there is a justifiable fear of the authorities, and people want to maintain as small a presence as possible.

What is the answer?

At present, it looks like we are going to have two systems of payment working side by side. There appears to be a significant scale resistance to the adoption of an all cashless economy. As much as the government would like everything to be traceable, there doesn’t appear to be the political will to force this change in our economy.

At this time, some Scandinavian countries seem to be the farthest along in adopting the cashless economy. If it spreads to the EU, we may see it come here, but its arrival doesn’t appear to be very soon.

If you have additional thoughts or questions, you may leave them below or email me at

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