Q&A of the Day – US Central Bank Digital Currency & The Legality of a Cashless Society
Each day I feature a listener question sent by one of these methods.
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Today’s Entry: @briandmuddradio Q&A of the Day – Is It Legal for Florida’s Companies Not to Accept Cash? Orangebrook golf course (green fees), Broward performing arts center (concessions) to name two. I find this insulting and possibly illegal? “This note is legal tender for all debts public and private”.
Bottom Line: Today’s note seeks to revisit my Q&A from October 3rd of last year. The concept of a cashless society has long been a concern for many, but has been exacerbated by concerns the US Dollar will lose its status as the world’s reserve currency in addition to the prospect of our federal government creating its own digitized currency replacing the US Dollar with it. Since March the Biden Administration has been involved in R&D for a US Central Bank Digital Currency. There are a number of concerns that come along with the prospect of a Central Bank Digital Currency. At the top of the list is the implementation of a Communist Chinese-styled social credit score which could dictate buying power, the ability to borrow money, and the potential for essentially banning the purchase of certain items with the US Digital Currency. The Federal Reserve published a white paper on the process in January that’s become the basis of whatever the Biden Administration has been working on throughout the year. These developments paint the question in a slightly different light than what we were talking about just under a year ago. As for the question itself, about the legality of a cashless society...
No doubt cash is on the decline in our society. The most recent study conducted on payment methods showed the use of cash is at an all-time low. While 88% of Americans use cash at least occasionally, only 10% of Americans always use cash for their purchases. Cash has become an 80/20 proposition. 80% of transactions are now cashless compared to just 20% that include cash. And it's clear where and when cash is most used. The average transaction when cash is involved is only $22. The average non-cash transaction is $112. Before talking about what’s legal and what isn’t it’s worth talking a bit about what the motivation might be for companies which are pushing digital transactions over cash. First and foremost is minimizing mistakes and theft.
The average cost of a business accepting cash is 9%. That means for every dollar received by a business, the net benefit amount received is only 91 cents. The added time it takes to process cash transactions, the errors made by clerks in collecting and handling cash, the additional time it takes to count and deposit those funds along with theft amounts to a huge toll for the average business. That compares to an average cost for digital collection of only 3.6%. Much of that cost is wrapped up in processing fees to providers. Plus, as already noted, customers are far more likely to spend more money when cash isn’t involved. So, the bottom line is that it’s a no-brainer for businesses to want to steer customers in the direction of digital payments generally. And for that matter, it’s actually in our interests from a consumer cost perspective for them to do so. Reducing the cost of transactions by greater than 5% no doubt helps with lower prices in a competitive environment as well – especially in a high inflation environment like we’re in. So, with all of that out of the way... Is it legal for businesses to deny cash payments?
From a point of federal law – yes. A frequent misunderstanding is that federal law mandates the acceptance of the US Dollar. That’s false. The federal law pertaining to currency states:
- United States coins and currency (including Federal reserve notes and circulating notes of Federal reserve banks and national banks) are legal tender for all debts, public charges, taxes, and dues. Foreign gold or silver coins are not legal tender for debts.
Note it states what is and isn’t legal tender. It doesn’t mandate what form it comes in. All digital transactions in the United States transact in US Dollars, as is afforded under law. That’s all that’s required under federal law. Now states and even municipalities do have the ability to create their own policy. Three states have. Massachusetts, New Jersey and Rhode Island have passed laws mandating businesses within their states accept cash. There isn’t a law mandating cash in Florida. An effort was made last year’s legislative session to attempt to bring one about, however both versions, in the state House and Senate died in Committee.
If you’d like to see this happen in Florida, there’s a likelihood it could be attempted again in January’s upcoming state legislative session. You may advocate for the policy to your state representative and senator. You’ll occasionally hear me say that I tend to be libertarian in my policy positions this side of legalize everything. That applies to this issue. While I understand the inconvenience and frustration of those preferring to use cash, being denied an opportunity to do so, I fully understand the business case for not doing so. And that's where consumer choice comes into play. You have a right to not patronize businesses that don’t allow you to pay your preferred way and prioritize those which do.