The changing face of banking, lending, and money itself

I’m both interested and cynically amused at the latest gee-whiz pronouncements over the way we handle money, or the electronic equivalent thereof.  You see, I’m unabashedly old-school.  If we print money until paper notes lose their value, gold and silver will rise to match the debased currency’s shrinkage.  Historically, they’ve always done so.  If you’re paying in gold, you can buy a smart men’s suit today with an ounce of it – just as you could two, or three, or four, or five hundred years ago.  The value of goods expressed in gold has remained constant, even as paper and fiat currencies have been debased.  That’s why part of my financial reserves are in gold and silver coins.  Furthermore, when the power goes out, all the electronic payment systems in the world won’t help you buy anything because none of them will work.  That’s why I keep two months worth of routine expenditure on hand, in cash, in a safe place.  When cash is king, I plan to try for the local status of at least quasi-royalty.

At any rate, the prognostications are interesting.  First, Apple CEO Tim Cook has become the latest tech guru to predict the death of cash.

Tim Cook … forecast the death of cash by the time current university students have a family.

Cash is still used for more than half of payments by consumers, according to Payments UK, the industry body, but its popularity is falling as people switch to cards and smartphone apps such as Apple Pay and Google Wallet.

Answering questions from students at Trinity College Dublin, Mr Cook said: “Your kids will not know what money is.”

. . .

His views on the future of money represent one of the boldest predictions on the decline of traditional coins and notes.

. . .

People can now use the “tap and go” technology for any transaction under £30, making it more likely to be used in restaurants and shops as well as cafes and newsagents.

Banks and companies such as Apple have an incentive to promote such messages because they earn money when people use a credit card or alternative payment system to pay.

There’s more at the link.

Next, the Wall Street Journal predicts ‘The Uberization of Money‘.

Imagine that you want to buy a home … Imagine … a simple online interface that could generate a tailored credit score for you, taking into account your future earning potential based on your education and location. It would connect you to lenders ranging from banks and credit unions to pools of individuals who want to lend privately at a negotiated rate for whatever duration you agree on. You could shop around, combine different types of financing and arrange a mortgage package that best suits you, all within a few hours.

We aren’t quite there yet, but we may be soon. Over the next decade, the familiar 20th-century modes of banking and investing will give way to something very different. We are on the verge of the Uberization of finance, which will bring multiple new opportunities but also a range of new risks.

. . .

The most immediate change will be an explosion in peer-to-peer lending. Just as Uber returns us to a world where anyone with a car could offer a ride to anyone with a thumb, peer-to-peer lending is both new and old. Before there was a robust retail and commercial banking system, there were people with money to lend and people who wanted to borrow it. But the current wave of peer-to-peer services takes this much further, into a hypercharged virtual realm where pools of small lenders can combine online to disperse pools of small loans. And they can do it without the friction, cost or heavy regulatory hurdles of traditional banking.

. . .

The downside is that peer-to-peer interest rates are higher than at mainstream banks, sometimes well into the teens. The upside is that people who need modest sums (one site caps them at $35,000) can easily obtain funds from small individual lenders looking for a high return. What makes it attractive for lenders is that they can spread their capital over far more loans than any one peer could make to another peer, which reduces their risk.

Again, there’s much more at the link.  Interesting, even fascinating, reading.  Recommended.

These are certainly interesting times, but they all depend on currency maintaining at least a semblance of its value, and on the electronic systems over which money is traded remaining reliable, available and trustworthy.  One major extended power failure, one major hacking incident rendering trading networks unreliable, and the whole house of cards will come crashing down.  If cash is no longer available, how will anyone be able to buy what they need?  You can hardly barter a used pair of shoes for fuel at the local gas station.

Until there’s more certainty about the new electronic money world, I’ll keep a fair wad of cash and stash of precious metal coins in a secure deposit facility, thank you very much.



  1. If I were CEO of a tech giant I too may wish to start a run. And I would have just the gizmo (or alternate application) to calm the fears of people. Ironic that a tech CEO is singing about the dangers of electronic banking. It's the old Follow The Money trick.

    WSJ has hopped on the bandwagon because, while they do report the news and forecast predictions, they also have influence over them who have influence on the markets. Shaking the movers, as it were.

    These stories gain traction when the common people begin to report what so and so said. Just watch market trends to see how common this is. It is scandalous how easily swayed the moneychangers. I remain disheartened how abject rumor can topple an empire.

    Therefore, the soothsaying becomes the harbinger akin to a self-fulfilling prophecy. Act accordingly.

  2. Ah yes another step in the inflation cycle eliminate the cost of printing and moving cash more profit to those who inflate. Value in hand that cannot be debased will always be used. In the inevitable crack-up after the inflation boom gold, silver,really any commodity on hand becomes real wealth.

  3. One point you missed is that, unlike all electronic payment systems, cash is unidentifiable and untraceable.
    Just as eBook purchases are noted and recorded (Do you REALLY think the FBI/NSA aren't monitoring them?), it's not difficult for the government to watch what you buy – and come arrest you when they disapprove.

  4. Cash is also the only form of payment that doesn't require someone to pay a transaction fee. Every time someone wants to pay me with a card I know that I'm not getting full value for my services. That alone means I'll always prefer cash.

  5. I think you're conflating two separate things here. I don't think Cook is right, that cash will totally disappear, but if you look at the overall trends, it is on an overall decline, both in terms of how many transactions use cash, and how much those transactions are for. I doubt that trend will change moving forward, and in fact, if inflation does pick up, it may accelerate the trend. Why cart around a wheelbarrow of mostly worthless paper, when you can make the same payment with a card?

    For the peer-to-peer lending, I would think that would be gaining popularity precisely with the crowd that distrusts traditional banks. Why go begging for a loan from a Chase or Wells Fargo when you can put together a group of 20 individuals to lend you the money instead? From an individual investment standpoint, if you have the ability to choose who receives your investment money, it might even be a safer investment than entrusting your money to a bank or broker.

  6. Perhaps I'm too cynical, but how can you trust this secure deposit facility? Safe deposit boxes are far from secure from the government or the bank that maintains them. FDR had the safe deposit boxes sealed (from their owners) so any gold could be confiscated, IIRC, and what happened once can certainly happen again.

  7. Peer to peer lending has been with us for a long time. It's called banking and money-lending. We typically deposit money with the bank and subcontract to them the job of lending it out to give us a return on our capital. If you want to keep track of all your individual loans, you just become a money-lender yourself.

  8. I've heard ads on Glenn Beck's show about a gold credit card, made of real gold, notched to break pieces off in different denominations, the idea being a stash of value in case of crisis situations to let you get home if shit collapses while traveling. I agree on not trusting "safety" deposit boxes in banks, for reasons stated.

  9. cashless transactions have been sought by bankers for a long time. Beyond them, the deep state elite want it as it requires you to go through them, and they get to skim a bit off every transaction. The state wants it so they can watch you.

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