The politics of keeping cash alive

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The most recent legislative push to mandate cash is bipartisan at the outset, but there are divisions over how to put this plan into effect.

As the 2020 election approaches, merchants and payment processors should expect political advocacy to ensure cash, even as e-commerce and mobile payments rapidly expand. There have already been local laws passed to ban cashless stores, a movement that’s starting to go national.

Sens. Bob Menendez, D-N.J. and Kevin Cramer, R-N.D. last week introduced the Payment Choice Act, a bill that would make it illegal for businesses to decline cash and/or to charge more for non-digital payments. It’s the latest of several political moves to push back against the growth of cashless stores. There’s a similar bill in the House with the same name, introduced by Rep. Donald Payne, D-N.J.

“We want to make sure folks aren’t being locked out of being able to go to stores, especially at these times,” said Menendez in an email provided by the senator's office.

Businesses that prohibit cash payments discriminate against the millions of Americans who do not have bank accounts while forcing customers to exclusively use a less secure form of payment, said Cramer in an email provided by the senator's office. “Our legislation protects people’s right to choose their preferred currency and ensures the money we print remains usable as legal tender for all debts, just as it says,” Cramer said.

These bills follow local cash protection measures, mostly in the Northeast and West. The politics of cash access doesn’t neatly fit existing left/right political orthodoxies, nor is it limited to the U.S. In the U.K., the Financial Conduct Authority has pressured financial institutions to ensure cash access, particularly during the ongoing health and economic crisis. There has been controversy in the U.K. over the decline of ATMs, and between the U.K.’s postal service and Barclays over the bank’s temporary discontinuation of support for cash withdrawals at the Post Office.

Sens. Kevin Cramer, R-N.D. (left) and Bob Menendez, D-N.J.
Sens. Kevin Cramer, R-N.D. (left) and Bob Menendez, D-N.J. introduced the bipartisan Payment Choice Act to preserve the use of cash. “We want to make sure folks aren’t being locked out of being able to go to stores, especially at these times,” Menendez said.

There’s also political pressure to reduce access to cash. India notoriously removed most of its cash from circulation in 2016, contending a digital economy provides more visibility into potential criminal activity and tax fraud. In the U.S., Harvard economist Kenneth Rogoff has made a similar argument that removing cash reduces fraud and money laundering.

The dilemma is cash is more expensive than digital transactions, but is also considered vital to financial inclusion. Many people consider cash to be a possible means of transmitting the coronavirus, adding another complication.

The bills to mandate cash access exist alongside other proposals to boost access to the banking system, such as public digital wallets that could create universal access to government stimulus payments, digital dollars, postal banking and a central bank digital currency.

“There’s generally more emphasis on finding ways to include more folks in the financial system,” a Senate democratic aide with knowledge of the Menendez bill said. “What we may see is not only more stimulus but more people being shut out of financial services. That could lead to a growing reliance on cash.”

While it’s not unusual for a House or Senate bill to have bipartisan co-sponsors, the liberals and conservatives have different motivations to preserve cash, so there’s no guarantee the bills will progress.

Liberals prefer the government take a more active role to promote financial inclusion by ensuring cash access and taking more direct action such as enabling central bank digital currencies, postal banking and digital dollars. Conservatives prefer a lighter regulatory approach of opening financial services to more competitors.

“Politicians on the left and right will oppose curbs on cash because they would make it more difficult for a segment of Americans to engage in basic commerce,” said Eric Grover, a principal at Intrepid Ventures. “And some on the right will resist restrictions on cash because of its anonymity.”

Many of the state and local bills mandating cash were a response to the introduction of checkout-free stores, particularly Amazon Go. Amazon Go added a cash option after this opposition but its goal, along with other autonomous retail ventures, is to make checkout a nearly invisible part of the shopping experience. That means not only cutting cash out of the equation, but also plastic payment cards.

“We’re not trying to say that stores can’t accept other forms of payment, but as the legal tender of the country they should accept cash,” Menendez added in the email.

The Biden campaign’s recent policy document, produced in cooperation with Sen. Bernie Sanders, I-Vt. and other Democrats, calls for postal banking and broadened access to the financial system — positions that would be consistent with a digital dollar and guaranteed cash access — but does not offer specific proposals. The Trump Administration has pursued deregulation, suggesting an approach to financial inclusion that’s not driven by government mandates. But it’s unlikely either party will push to mandate a reduction of cash access.

“It is easy to see how guaranteeing the continued right to use cash will enjoy bipartisan support,” said Robert Hockett, a law professor at Cornell, adding both parties are concerned about the underbanked population and serving small businesses that have a hard time affording fees for electronic payments.

“On the other hand, there is the matter of financial privacy, about which most Republicans and many Democrats are concerned too. The anonymity offered by cash remains attractive to them,” Hockett said.

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