Does the End of Cash Mean the End of Privacy?

As cash disappears from the modern economy, privacy disappears with it. You can’t spend money with a credit card, debit card or check without creating a record of your transaction.

Central banks around the world are experimenting with issuing digital replacements for cash in the form of central bank digital currencies, but those are, by and large, not anonymous. In a January white paper, the Federal Reserve made clear that any digital currency it issued “would differ materially from cash, which enables anonymous transactions.”

To some people, the loss of privacy is no big deal, especially if the death of cash makes life harder on criminals, who often do business using stacks of $100 bills to avoid detection by the authorities. Representative Stephen Lynch, Democrat of Massachusetts, a former ironworker who represents part of Boston and its southern suburbs, isn’t soft on crime, but he doesn’t like the idea of banks and the government being able to track every transaction a person makes.

“We’re trying to preserve some element of anonymity and not have full-spectrum surveillance of every aspect of people’s lives,” he told me last week.

On Monday, Lynch introduced a bill directing the Department of the Treasury, rather than the Federal Reserve, to develop and experiment with issuing digital dollar technologies “that replicate the privacy-respecting features of physical cash.” The bill is called the Electronic Currency and Secure Hardware Act, or Ecash.

Lynch’s idea is for the Treasury to issue cards that have funds stored on them, as with the electronic benefits transfer cards the government issues for the Supplemental Nutrition Assistance Program and other benefits. The difference is that transactions on those benefit cards are processed through the banking system. Transactions on the proposed new Treasury cards would be strictly peer to peer, like cash. Funds could also be uploaded onto phones or other hardware.

There’s no cryptocurrency blockchain or distributed ledger technology involved in the proposed Ecash system. Also, no internet is required. Presumably, chips on the cards or phones would communicate with chips on other cards or phones or on point-of-sale devices to deliver or receive funds between them. The cards or phones could receive money from one another or be reloaded from bank accounts or with cash.

Both political parties have members who care a lot about privacy, although “sometimes the Republicans carry it too far with the deep state analogy,” Lynch said. His co-sponsors on the bill are Democrats: Representatives Alma Adams of North Carolina, Jesús “Chuy” García of Illinois, Ayanna Pressley of Massachusetts and Rashida Tlaib of Michigan.

To curb crime, there would be a low limit on the value that could be stored on any one card, Lynch said, and cards would be subject to the same anti-money-laundering rules that apply to paper bills. Still, that’s not as much transparency as the Federal Reserve and crime fighters want.

As a Treasury-issued currency, Ecash would not be a central bank digital currency of the kind being tested around the world. On March 9, President Biden ordered the government to report back within 180 days on “the future of money and payment systems,” including “the potential implications” of a U.S. central bank digital currency.

There’s interest in Lynch’s approach outside Congress. “I think it’s an interesting idea and a good step forward in the process of digitized money,” Scott Talbott, the senior vice president of the Electronic Transactions Association, a trade group of payment processors, told me, without endorsing the approach. Mehrsa Baradaran, a law professor at the University of California, Irvine, who studies how financial products and services can be made more equally available, said that having the Treasury Department be the issuer of digital dollars makes sense to her.

Lynch’s bill also appeals to believers in modern monetary theory, or M.M.T., which contends that government spending is constrained only by the threat of inflation, because the bill would provide for the Treasury Department to issue money directly. The department would do so under an authority similar to the one that allows it to mint coins, subject to congressional approval, said Rohan Grey, an assistant professor at Willamette University College of Law in Salem, Ore.

“It’s re-establishing Treasury, the fiscal authority, as the starting point,” Grey told me. “At first, it’s a very small scale, but it’s a window into how you might design similar stuff in the future. That’s very M.M.T.”

Elsewhere

Having multiple generations of families under one roof seems like something out of America’s hardscrabble past — the tenements of New York’s Lower East Side or the primitive sod houses of the Great Plains frontier. In reality, “multigenerational living has grown sharply in the U.S. over the past five decades and shows no sign of peaking,” the Pew Research Center wrote in a March 24 report.

The share of Americans living in multigenerational households more than doubled, to 18 percent in 2021 from around 7 percent half a century earlier, Pew researchers said in the report, which was based partly on Census Bureau data. (“Multigenerational households” are defined as those with at least two generations of adults 25 and over, or those with grandparents and their grandchildren younger than 25.) Nearly 40 percent of men age 25 to 29 now live with older relatives, Pew said.

It’s not all about familial affection. In the Pew survey, 40 percent of adults living in multigenerational households cited financial issues as a major reason for doing so, followed by 33 percent citing caregiving and 28 percent saying it was the arrangement they had always had. While more than half said it was convenient and rewarding, nearly a quarter said it was stressful all or most of the time.

Quote of the day

“For it is not two doctors that associate for exchange, but a doctor and a farmer, or in general people who are different and unequal; but these must be equated. This is why all things that are exchanged must be somehow comparable. It is for this end that money has been introduced, and it becomes in a sense an intermediate; for it measures all things, and therefore the excess and the defect — how many shoes are equal to a house or to a given amount of food.”

— Aristotle, “Nicomachean Ethics,” Book V, Chapter 5, translated from the Greek by W.D. Ross.

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