In my wallet right now there is a little war going on. Representatives of various armies are fighting it out. Let me introduce them.
I have two kinds of Government currencies.
There is a nice 10 thousand yen note in there left over from a trip to Japan I took almost a year ago. I was forced to use Japanese currency when in Japan. They don’t use credit cards or checks much – in fact you could always tell that a restaurant was going to be amazingly expensive if they displayed the ‘flag’ of visa/master-card on their threshold.
There is some US legal tender – “This note is legal tender for all debts, public
and private”. It says “In God we trust” while Japanese note has a picture of the emperor on it and I’ve no idea what it says.
I have some private currency.
There’s a gift certificate from a huge bookstore in a distant part of town. It’s worth $10.33 cents.
I have a gift card that came via a rebate from the purchase of a cell phone.
I have quite a few forms of plastic based currency.
There is a credit card provided by my company that I’m coerced into using when I travel. That let’s them capture a number of benefits. They get the discount points on the transactions. The card allows them to prevent me from shopping in certain venues. It lowers their book keeping costs.
There is a credit card from from a small bank in the Midwest. I’m convinced to use this card because I’m bribed with a 1% cash back program. It’s very complex. I have to accumulate points, and then once over a certain threshold I get 1% back. If I remember to request it. Of course I run the risk they will change the terms or go out of business before I get my money back. They already changed the terms once, I used to get 2% back.
There is a credit card co-marketed by a major credit card processing bank and Beans. I was convinced to get that because it came with 2% cash back. They changed that to half a percent after six months. I’d get rid of it but the news paper subscription is tied to it.
There is a bank card. I had to ask them to send me one that didn’t have a debit card tied to the bank card. I sometimes use this card to buy groceries. They let me have cash back.
Then I have a bunch of cards that let me do transactions at semi-private clubs. All the places I can say one way or another “put it on my account”.
I have my health insurance ‘club’ card.
I have the health insurance ‘club’ card of my previous employer, since showing it gets me certain discounts.
I have my library ‘club’ card. It’s interesting because it gets me into two library networks and a few hundred individual libraries. They have linked all those accounts together.
I have the card that denotes my membership in the car driving club, aka my driver’s license. I need that to be allowed to take cars onto the highways. These days it’s the only card that let’s me fly on commercial airplanes. The phone company also demanded it when I got a cell phone.
I have three cards for gaining access to my job. One gets me onto the landlord’s premises. One let’s me get into various properties around the country my employer does business in. One let’s me get into the garage at work.
I have a card that let’s me enter the building were my son goes on Saturday mornings.
Then there are my charity club memberships, but I don’t carry those; except my ACLU membership card.
My absolutely favorite club card is the one that let’s me enter the Library of Congress.
All these things are there to let me do transactions. All of these are forms of currency, currency substitutes, or representatives of account relationships.
Currency has lots of network effects. Transactions are simpler if the parties have a currency they both agree to accept. Transactions are simpler if each party doesn’t have to include a phase in where they negotiate the means of payment. For example merchants are required by the credit card companies not to offer a discount for cash, but most will if you can deal with somebody in authority. Transactions are cheaper if we all don’t have to run different balance sheets for each kind of currency and then try to reconcile them once a month.
All these are competing forms of money are all trying to balance out transaction costs, bookkeeping costs, relationship stability, loyalties, trust, etc. etc.
Some are just trying to get a share of that market so they can take a bit of each transaction.
I was fascinated to learn recently that the reason that checks are used in the US more than many other nations is because the cost of check clearing is (or at least was) paid for by the Federal Reserve.
For example when you buy something on a credit card the card companies charge the merchants a fee. 1.5 to 6%. The print out from my taxes reports that my Federal tax rate was 17% this year (which doesn’t include the social security), presumably part of that goes to overhead to run the currency, banking, and check-clearing operations.
Maybe someday the Fed will be able to deploy a plastic currency that competes with current plastic currency. That certainly would disrupt a lot of people’s apple carts. It certainly could create some very substantial efficiencies in the economy.
On the other hand, right now my wallet is getting pretty crowded. The Fed might create single card that enables hundreds or thousands of virtual cards to be packed into my wallet. That could enable all kinds of confusion!