A Cashless Society?

Continuing down a fork in the road from The Real Threat of Inflation?

A Naybob of numbers asked: How does a physical dollar bill come into existence? Simple answer, the Treasury prints it. But what is the process of "creation" and the chain of custody?  

I knew where my mathematical friend was going. After a few minutes of interrogatory, we discover as suspected, Captain Numerica is really asking about money creation.

Not so simple answer, as this is where many get lost and cannot see the forest for the trees, forget the physical coin and specie concept.  In order to do so, follow the evolution, in general practice most merchants would accept...

1930 BC, goats on hand or merchant specific chit (beads, you get the idea)
1830, chit (tokens), cash on hand viz. the coin (specie) and bills in your pocket 
1930, cash on hand and the rare case where the merchant would accept a check 
1970, cash, personal and travelers check, credit card, the 1st ATM's appear
1990, cash, check, credit or debit card
2020, cash, credit, debit, smart card, smart phone and digital wallets

In 2005, there were 1 million ATMs around the world, with a new one added every 5 minutes. A 2013 report indicated that China alone issued a million new ATM cards every single day. Yet, as of 2018, ATM usage is declining in the US and Europe.  

Checks along with cash are becoming cumbersome physical things? Let's look at the volume and value share of US transactions by payment instrument. 

[In 2012] at 40%, cash makes up the single largest share of consumer transaction activity, followed by debit cards at 25%, and credit cards at 17%. 

Electronic methods (online banking bill pay and bank account number payments) account for 7%, while checks make up 7%; electronic 7% and all others less than 5%.

By value, cash accounts for a relatively small share of total consumer transaction activity at 14%, while electronic methods make up 27% and checks 19%.  - Fed Study 2014

By 2016 the above had changed with cash falling to 31%; while debit and credit made up 27 and 18% respectively; checks holding at 7%; with electronic methods and others, picking up to 11% and 6% respectively - Fed Study 2017

2016 Volume and Value Percent, by Payment Instrument

Interesting above, the value share of cash at only 8%, credit and debit combining for 27%; electronic leading at 32%; with check and other at 24 and 9% respectively. Meaning excluding cash and check, electronic means have a 68% value share of all transactions.

More interesting as seen above, is the volume by purchase amount with cash dominating up to the $25 level, and falling to only 8% at the $100 or greater threshold. Credit, debit and electronic are now combining for 72% of those larger transaction volumes.

At any rate, pun intended, despite cash still being King in smaller denomination transactions, with digital means and on line banking, we have evolved into a credit based lending and payment system.  

So, for our purposes, again let go of the physical, and what is money (convertible) or moneyness (liquidity of various asset classes), all Natterings for another day, just think in credit terms.  

More to come in Credit Prestidigitation: A Vicious Circle? Stay tuned, no flippin.

Recommended reading: Smithsonian: ATM Dead? and The History of Credit Cards - contains a great graphical timeline.