Fletcher in the News

IBGC's Cost of Cash Study Highlighted in Quartz

Cost of Cash, The Fletcher School, IGBC

Physical Money Costs Americans More Than $200 Billion Each Year, So Why Bother?

...Physical money is its own platform wherever anyone acknowledges its value (a dollar is a dollar anywhere in the world) but digital currencies require a collective conscious adoption of a new platform—special software to log into the network, for example. 

But new research from Tufts University aims to highlight the pain points of cash, where digital currency can break in. The use of physical bills costs US consumers, businesses and the government at least $200 billion each year—about $1,739 per household. Here are the main reasons why:

  1. Consumers. They mostly lose time—about 5.6 hours a year—fetching cash, but Americans do spend $8 billion a year on ATM fees, and they lose $500 million to theft. The bigger problem, though, is that cash exacerbates inequality, with poor Americans and the unbanked—some 8.2% of US households—more reliant on cash and more likely to pay higher fees to get it.
  2. Businesses. Bad news for Square: Small businesses don’t lose much money by operating cash-only. But larger businesses spend a significant amount of money dealing with cash—collecting it, sorting it and getting it to the bank without it being stolen. US businesses lose $40 billion a year to cash theft and loss, about 1% of total revenues.
  3. Government. The government loses out on $100-$500 billion in tax revenues each year, depending on exactly how big the US grey market is—higher-end estimates suggest $2 trillion in activity goes unreported. That’s on top of the $1.5 billion the US spends to make and distribute notes and coins, many of which end up overseas. Other countries have tried to put the kibosh on cash transactions to avoid this problem; in Spain and Italy, transactions above €1000 and €2,500, respectively, are banned; Mexico taxes currency deposits over 15,000 pesos a month—but the US hasn’t yet tried something similar.

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