Will Cash Completely Vanish?

By JOSHUA COOPER RAMO

Anyone who has ever traveled to Britain knows the re-assuring jangle of a 1[pound] coin. It's weighty stuff, nearly twice the heft of an American quarter, and six times as valuable. It's got a gilt-colored exterior and a serene-looking Queen Elizabeth II on the face. It's a thick coin, about three stacked quarters high, and the British Royal Mint has dressed up the edge with fancy-looking Latin inscriptions ("Spend me wisely," they seem to say). The pound feels like real money. It feels great.

Americans are about to get their own version of this metallic frisson. A smooth-edged, golden-hued $1 coin is working its way into circulation. By year's end the U.S. Mint hopes to have about 1 billion of the dollar coins bouncing in our pockets. And unlike the Susan B. Anthony dollar of the 1980s--a wimpy, woefully misshapen quarter--the new Sacagawea dollar has the gravity and import of the pound. It looks and feels like something you might see in an Old West saloon, perfect for a nation that worships its frontier past. (It's no accident that an Indian princess and scout decorates the face.)

But if the new coins feel so good--and fill such a giant need in our world of $1 vending machines--why has the Treasury spent $45 million advertising them? Why is the U.S. Mint distributing 5,000 of them in cereal boxes as a marketing gimmick? Because even in money, there is no such thing as a sure thing. How we feel about what we carry in our pockets says an awful lot about what we carry in our hearts and our minds. Last year a coalition of 11 European countries rolled out a brand-new currency called the euro. And though euro coins won't be available until January 2002, the currency has proved a loser on foreign-exchange markets, where it is traded electronically. Continental bankers hoped the euro would compete with the dollar as an international currency of choice. Instead, the euro has fallen more than 20% against the dollar, a poorer showing than even the most pessimistic predictions. Betting on what kind of money people want to use is a dangerous way to invest.

The most common conceit about our future, of course, is that the kind of cash we will most want to use will be digital. But the paperless wallet has proved as practical as the paperless office. In late 1997, two New York City banks tried an experiment on the Upper West Side of Manhattan. They spent millions installing special digital-cash-card machines in all kinds of retail sites--hairdressers, retail stores, even taxicabs. Then they distributed--for free--smart digital cards. Surely, if digital cash was this easy to use, people would stop using the green stuff. Wrong. It was just too hard to change people's habits. When it comes to cash, people don't want gimmicks. They want something that is universally accepted, convenient and easy. Bank researchers figured out the real problem was that wiring even 30% of the "spend points" in the area wasn't enough. They would need blanket coverage to make e-cards into everyday currency.

The power of electronic cash, however, isn't simply as a digital replacement of an already refined analog technology. E-cash will eventually take off because of what we can do with it. We have so much choice about where and what we are buying, that it's inevitable we will soon have plenty of leeway in choosing how we buy. If I want to purchase a case of Alpo from Pets.com using my American Airlines frequent-flyer miles, why shouldn't I be able to do so? If Amazon.com wants to issue special "Amazon dollars" that are worth $1.20 apiece at selected merchants, why wouldn't I start changing my U.S. dollars for Amazon dollars at a furious pace?

For a new generation of e-bankers, this is exactly the future they have in mind, a place where money isn't universal but personal. My employers at TIME could pay me, if they wished, in specialized T-dollars that fluctuate based on reaction to my articles. If they get lots of positive e-mails and letters about my work (start writing, Mom!), the dollars get more valuable. I can spend them anytime, so there's room for me to do a little speculating: Should I hold on to the cash in the hope that this story ignites a flurry of flattering notes, or should I spend quickly in case it bombs?

A version of this kind of alternative-currency universe is up and running on the Internet. At beenz.com users earn digital beenz for performing e-work--like telling advertisers about their buying habits. Beenz can be cashed in at about a hundred retail sites and wherever MasterCard is accepted online (at about 200 beenz to $1). And while the roughly $6 million worth of beenz in circulation today is no threat to the greenback, this hints at a future of nearly unlimited choice in currency. And because of the Net, you'll be able to exchange these e-currencies more easily than you can now change yen for dollars.

Bankers say they always get the same three questions about this emerging e-cash world: Are we still going to have pennies? Doesn't using e-cash mean giving up privacy? Won't this put Federal Reserve Chairman Alan Greenspan out of work? The answers, in short, are: Pennies will keep turning up for the next decade at least. Some e-cash will be traceable, but much of it will be as anonymous as a wrinkled ten-spot. And with jillions of alternative currencies out there, it's possible that Greenspan--who controls the economy by controlling dollars--may find his power tools are losing their torque. But as countries such as Argentina ponder dumping their own currencies in favor of the dollar, it seems likely that Uncle Alan's power will last at least until the end of his next term, in 2004. So go ahead--stock up on your Sacagaweas.

--By Joshua Cooper Ramo