The view from out there
Philip Diehl was director of the U.S. Mint in Washington, D.C., until March, when he became president of E-commerce jewelry company Zale.com. We asked him whether technology has put us on the verge of seeing coins and bills replaced by digital files.
There is a key obstacle to the sweeping use of electronic money in the new economy: people’s keen desire for privacy. Privacy is one of the crucial unwritten rights in the Constitution. We have a natural concern about either big government or big business knowing too much about us as individuals. That concern is underappreciated as a constraint on the evolution of smart cards, E-cash on the Internet, and similar technologies. Cash is anonymous. And people have a great deal of confidence in its anonymity. That’s a big hurdle for electronic forms of money to get over.
There already have been a number of experiments with electronic forms of cash in the United States, and they have not been well received. But entering the economy every year is a cadre of young people who are being trained to use smart cards. At many colleges and universities, the first day students walk onto campus, they are handed one, and they use them for four years. When they come out, they’re primed. At some point that cadre of cohorts will hit critical mass, and someone will develop a product that penetrates that market.
The ultimate question is, When does that happen? The answer depends on whether a common standard can be agreed upon. It’s sort of the Betamax-versus-VHS thing all over again. Since there is so much equipment that has to go into the U.S. economy to support such technologies, if there were multiple competing technologies and standards, it would be that much harder for the system to hit critical mass.
I don’t expect coins and paper currency to disappear anytime soon. Coins have been around for 3,000 years. I don’t know that they’ll be around 3,000 years from now, but I’m pretty certain they’ll be here 30 years from now or 100 years from now. How long have we been talking about the paperless office? Thirty years? And today I have every bit as much paper as, if not more than, I’ve ever had before.
We’ve been talking about a cashless society for a long time, too. We’ve had this proliferation of different forms of payment, from checks to credit cards to E-cash on the Internet. And through it all, the demand for coinage has gone up. We set a record last year by putting more than 20 billion coins into the U.S. economy. This year we’ll top that record by almost 50%, with 29 billion. The popularity of the 50 state quarters program and the new golden dollar raises questions about the so-called death of coinage.
That being said, E-commerce could change how people view physical money. It used to be there had to be precious metals — gold and silver, typically — in the coins for us to have confidence in them, but increasingly we’ve gotten away from that.
In reality, money has value based on a cultural consensus. That consensus might be in the form of a common view of the value of gold or silver, or it could be in the form of the full faith and credit of a government. Or in the form of electrons.
Looking ahead, I don’t expect the U.S. Mint to jump into the business of supplying electronic money anytime soon. The private sector is very active in this market. And there’s a very broad consensus — I think it’s an appropriate consensus — that when the private sector basically owns a sector of the economy and it’s working, you let it work.
My read of the culture is that we all believe anybody can be wealthy. I think that has the potential of being very healthy. The problem comes when we don’t want to work for it. We think that either we’re entitled to it or we can get it on the cheap.
The media do a great job of elevating people who get it on the cheap: those who win the lottery; those who strike oil; or those who morph their dot-com companies into gold mines. In 1849 it was the gold rush. And now it’s the dot-com rush. — From an interview with Roger Fillion
For more insight on the current state of small business, see The View From Out There.
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