The EconomistAugust 3rd 2019 Leaders 912
F
or the past 3,000 years, when people thought of money they
thought of cash. From buying food to settling bar tabs, day-to-
day dealings involved creased paper or clinking bits of metal.
Over the past decade, however, digital payments have taken off—
tapping your plastic on a terminal or swiping a smartphone has
become normal. Now this revolution is about to turn cash into
an endangered species in some rich economies. That will make
the economy more efficient—but it also poses new problems
that could hold the transition hostage.
Countries are eliminating cash at varying
speeds (see Graphic detail). But the direction of
travel is clear, and in some cases the journey is
nearly complete. In Sweden the number of retail
cash transactions per person has fallen by 80%
in the past ten years. Cash accounts for just 6%
of purchases by value in Norway. Britain is prob-
ably four or six years behind the Nordic coun-
tries. America is perhaps a decade behind. Outside the rich
world, cash is still king. But even there its dominance is being
eroded. In China digital payments rose from 4% of all payments
in 2012 to 34% in 2017.
Cash is dying out because of two forces. One is demand—
younger consumers want payment systems that plug seamlessly
into their digital lives. But equally important is that suppliers
such as banks and tech firms (in developed markets) and tele-
coms companies (in emerging ones) are developing fast, easy-to-use payment technologies from which they can pull data and
pocket fees. There is a high cost to running the infrastructure be-
hind the cash economy—atms, vans carrying notes, tellers who
accept coins. Most financial firms are keen to abandon it, or de-
ter old-fashioned customers with hefty fees.
In the main the prospect of a cashless economy is excellent
news. Cash is inefficient. In rich countries, minting, sorting,
storing and distributing it is estimated to cost about 0.5% of gdp.
But that does not begin to capture the gains.
When payments dematerialise, people and
shops are less vulnerable to theft. Governments
can keep closer tabs on fraud or tax evasion. Dig-
italisation vastly expands the playground of
small businesses and sole traders by enabling
them to sell beyond their borders. It also creates
a credit history, helping consumers borrow.
Yet set against these benefits are a bundle of
worries. Electronic payment systems may be vulnerable to tech-
nical failures, power blackouts and cyber-attacks—this week
Capital One, an American bank, became the latest firm to be
hacked. In a cashless economy the poor, the elderly and country
folk may be left behind. And eradicating cash, an anonymous
payment method, for a digital system could let governments
snoop on people’s shopping habits and private titans exploit
their personal data.
These problems have three remedies. First, governmentsThe dash from cash
Rich countries are racing to dematerialise payments. They need to do more to prepare for the side-effectsDigital paymentsCash transactions per personBritain USSweden171412100820064002000parts of the city alight, Baltimore has struggled to hold itself to-
gether (see United States section).
In 2019 the number of murders is likely to surpass 300 for the
fifth year in a row, in a city of 602,000 people. Baltimore has
more homicides than New York, which has 14 times more people.
Last year heroin and fentanyl killed nearly three times as many
people as murderers did; the overdose rate is the worst of any big
American city. No wonder the population fell last year, by 1.2%.
The causes of these problems are long-term and structural.
Deindustrialisation, baleful planning and white flight all hit
hard from the 1960s onwards. But the recent deterioration was
not inevitable, even after the riot. And though Mr Cummings
does not deserve Mr Trump’s barbs, the Democratic Party to
which he belongs, and which has controlled the city of Baltimore
since 1967, must take its share of responsibility. It has long strug-
gled to get a grip on the city’s problems. In May the city’s mayor,
Catherine Pugh, resigned after being investigated over a corrup-
tion scandal involving the purchase of thousands of copies of a
children’s book she had written. She is the second mayor to have
resigned over graft allegations in a decade. Baltimore has had
five police commissioners in as many years.
The city has many problems, from its dilapidated schools to
urban deprivation and decrepit infrastructure. The most urgent,
though, is the violence: people will not stay where they do not
feel safe. And that is the result of appalling policing.
Some on the left talk about cops as though they were an occu-
pying force who need to be defeated. In fact Baltimore is far fromoverpoliced. Since 2002 the number of police officers has been
cut by a quarter. Just over 2,500 cops cannot hope to solve over
300 murders a year. More money is needed. It should probably
come from the state of Maryland, which is run by Larry Hogan, a
Republican, and a Democratic legislature. Suburban voters may
bristle at giving money to their poorly run neighbour, but they
cannot pretend that they owe nothing to the city.
The quid pro quo for this funding must be reform. On the
right, people such as Mr Trump act as though police can stop
crime only if they are allowed to rough up suspects. That is why
his government has stopped issuing consent decrees (an
Obama-era policy where the federal government monitors po-
lice departments accused of brutality; Baltimore has had one
since 2017). But thuggery makes police departments less effec-
tive. When people do not trust cops, they will not volunteer in-
formation about crimes. And until victims are confident of jus-
tice, they will resort instead to revenge.
Baltimore has repeatedly failed to clean up its police. It has
had cops clearing street corners rather than investigating mur-
ders. Corruption and brutality have gone unpunished. Projects
such as Operation Ceasefire, which stopped tit-for-tat killings in
other cities, have been tried only half-heartedly.
Unless Baltimore can get crime under control, it will contin-
ue to lose businesses and better-heeled residents and the taxes
they pay. The risk is that one of America’s great metropolises en-
ters a death spiral, as Detroit had by the 1990s. If that happens, Mr
Trump’s tweets will be the least of its problems. 7