On a special episode (first released on May 14) of The Excerpt podcast: There’s something to cold hard cash. You can hold it; you can smell it; it feels a certain way in your pocket. Earlier this year, President Donald Trump directed the Treasury Department to stop minting pennies. What happens as the world of currency goes increasingly digital? Will traditional currencies soon become a thing of the past? And who stands to benefit, and who might this rapid shift be hurting? Neha Narula, Director of the Digital Currency Initiative at the MIT Media Lab, joins The Excerpt to take a closer look at this transition period for money and how it might evolve.
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Hit play on the player below to hear the podcast and follow along with the transcript beneath it. This transcript was automatically generated, and then edited for clarity in its current form. There may be some differences between the audio and the text.
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Taylor Wilson:
Hello. I’m Taylor Wilson. Today is Wednesday, May 14th, and this is a special episode of The Excerpt. There’s something to cold hard cash. You can feel it, you can smell it, and you know clearly how much of it you have. But what happens as the world goes digital, and will traditional currencies soon become a thing of the past? Who stands to benefit, and who might this rapid shift be hurting? Here to help us make sense of the changing face of money is Neha Narula, the director of the Digital Currency Initiative, a part of the MIT Media Lab focusing on cryptocurrencies and blockchain technology. Thank you so much for joining me, Neha.
Neha Narula:
Happy to be here.
Taylor Wilson:
So let’s get to some recent news that got me thinking about part of this. President Donald Trump said earlier this year that he ordered the US mint to stop making pennies. Now, this might seem insignificant to some, might be cheered by some, others though warn there could be unseen consequences. I’m just curious how this news landed with you and what it might tell us about the state of cash right now.
Neha Narula:
I guess what I took from this news and the reaction to this news is how nostalgic people feel about pennies actually. I think it really shows that money is not just this sort of cold, hard tool that we use. It’s something that we really take quite seriously as humans and we feel a real connection to. It means a lot in our lives, and that’s why you saw so much debate about retiring the penny. I think the bigger question is not about the penny, but what happens to physical cash as we move further and further into the digital future. So pennies right now, I think we could probably get rid of them and everything would mostly be fine. It’s interesting to see the way that people feel about the penny and how they think about it and what it means to them in their lives. But like I said, I think the bigger question is where are we going with cash as a whole?
While digital currency initiatives expand, we ask, what’s the future of cash?
The U.S. Treasury has recently stopped minting pennies. Is printed money’s fate the same?
Taylor Wilson:
Absolutely. And I know a principal focus of yours is cryptocurrency. We’ll get to a little bit more on that note here in a bit, but I’m just curious how you view crypto in relation to physical cash. Do you see these things as adversarial? Do they support one another?
Neha Narula:
Oh, I absolutely do not see them as adversarial, and that’s something I think a lot of people don’t understand. They think of digital currency and cryptocurrency as trying to replace cash. I think instead the way to look at it is that as our economy moves more and more digital, as more and more transactions move into the digital realm, physical cash becomes less useful. And so what we’re seeing is already a very natural move away from cash. No one wants to take cash away from people, or at least I definitely don’t. I think as long as cash is useful, as long as people appreciate it and want it, we should continue to provide them with cash.
I think that what we need is something that’s equivalent to cash in the digital world, and that’s really what we’re trying to achieve with cryptocurrency. So if you look at the very first paper that coined cryptocurrencies, so to speak, the Bitcoin white paper, which came out in 2008, in the very first few sentences of the paper, they talk about trying to create peer-to-peer electronic cash. And that’s really what we’re trying to do. And in order to understand what that means, you have to get into some of the properties of cash that are so important and why they’re challenging to create in the digital world.
Taylor Wilson:
So a society without cash, and we should say we’re not there yet, but who would that hurt or help? I’ve kind of had this hunch that the existence of cash helps the poor and maybe immigrants in particular. Is that fair to say, or is that maybe an overly-simplified view now?
Neha Narula:
I think that’s absolutely fair to say. So basically, cash helps anyone who can’t necessarily onboard very easily into the digital economy. So the thing you have to remember is that cash is a public good. It’s something that’s provided by the central bank in almost every country. It’s something that not the private sector. The public sector provides cash, and they make sure that it’s easily accessible and available to anyone who wants to use it. You don’t have to sign up for an account to use cash. You don’t have to show your ID to pay someone in cash or to receive cash. You don’t have to have a mobile phone or install an app. You don’t have to be very technically literate at all. And cash is kind of this great equalizer for humans. Anyone can transmit it. The problem is that it doesn’t move over digital rails. You actually need to be near someone to give them the cash, or you’ve got to physically get it across a distance if you wanted to give it to someone far away, which is challenging. And there are other downsides to cash too.
Now, the digital world of money is very different. In the digital world, money is mediated by private sector actors, and if you look at the way that digital money actually works, especially in places like the United States, it’s all built on top of layers that eventually settle in the banking system. Now, I don’t know if you’ve opened a bank account recently, but it’s not totally an easy, seamless process. You have to show a lot of identification. The bank might decide to hold your funds for a little while while they vet you and check you out. There are some people who can’t get bank accounts for various reasons that aren’t that unusual. And then there are a lot of people who just don’t really want to use banks because they don’t trust them.
Maybe they’ve heard a lot about things like fees, like really high transaction fees or overage fees or things like that. So there are a lot of reasons why people might want to use cash instead of electronic banking accounts. All of our digital payment systems right now ultimately are built on top of the banking system, and that can create some frictions and cause some issues that cash just doesn’t have. And we really don’t have an electronic equivalent of cash yet.
Taylor Wilson:
I want to talk a little bit about stigma and cash, and I think sometimes folks might view cash as something that you use for illicit activity, right? And even if you cross borders, you can only take X amount of bills with you, for example. How do you view the conversation around stigma when it comes to cash? And I know your focus, crypto, also has some stigmas around it. Just stigma and money, how do you view that conversation?
Neha Narula:
Well, there’s always going to be stigma around money. The thing is that there is no monetary system or payment system that isn’t also used for illicit activity. You’re never actually going to have a perfect clean payment system because we don’t have a perfect clean society. And so the question really is, how do you mediate that? How do we deal with that, and do we mediate that through the payment system? If someone’s using cash or cryptocurrency or the banking system to do something illegal or illicit, do you try to mediate that through the payment channel or do you try to mediate that through other ways, like the actual illegal activity that they’re engaging in? And I think we should probably be mediating that through the actual legal activity that they’re engaging in.
And the reason for that is when we try to mediate that through the payment system, we end up first of all making our financial institutions sort of weirdly part of law enforcement, but they’re not exactly treated the way law enforcement is. There aren’t the same checks and balances as you have in law enforcement, and it can be very expensive regulatorily to turn all of our financial institutions into, forcing them to figure out how to catch criminal actors. So I think it’s worth considering a different way of handling our financial transactions, and that starts with understanding that just like any tool can be used in both good ways and bad ways, the same is true of money.
Taylor Wilson:
Let’s talk about the US dollar now for a second. The dollar has long been seen as the standard currency really of the world in the sense that other currencies are compared against it. Will that continue to be so? And what does reliance on the dollar really functionally mean?
Neha Narula:
I think this is a really interesting time to be considering that question. So with all of the things that are going on coming out of Washington, with the global economy, considering things like global trade, there’s a real question of will the dollar continue to be the world’s reserve currency? Is that something that we want? The reasons why we as the United States might want that and reasons why we might not want it. I think overall, having the dollar in the position that it’s in has been hugely beneficial for most Americans. That said, we’re starting to question will it always be the case? And if you look at the history of currencies, there have been various different dominant currencies throughout history. At times it was the British pound or it was things like gold. Things change over time. So it’s unclear that the dollar will continue to be the world’s dominant currency, the world’s reserve currency. And it’s useful to think about what are the factors that might bring about the dollar’s decline and how do we know if that’s coming and what kind of effects will that have?
Taylor Wilson:
Well, one thing about cash is a dollar equals a dollar. And if you give that dollar to a friend, it often still equals a dollar at least for that day before the values change. But we now live in an era where it’s super common to just digitally transfer your friends or loved ones back and forth. And Neha, sometimes, depending on how you do this, there can be some added fees and charges on top of all that. I’m just curious, who stands to benefit when these kinds of digital exchanges become more and more common as they are, and who does this hurt, if anyone?
Neha Narula:
So as things become more digital, I think that there’s more opportunity to charge fees and there’s more opportunity to charge fees in lots of different ways. So when you’re moving cash around, there’s not an intermediary. There’s nobody sitting in the middle of that. There’s no one who can kind of carve a little piece off of your dollar or off of your $20 bill. That’s not how it works. But with digital payments, you know, could theoretically charge someone a fraction of a penny. And you might not be able to settle a fraction of a penny today, but you could charge them that and you could do that over and over again. So I think we’re going to see a lot of experimentation in fees. And traditionally what we’ve seen is that there are network effects. So what that means is that in digital payments, there’s usually an intermediary. There’s someone who’s mediating the digital payments, making sure that they go through effectively dealing with things like chargebacks and fraud. And those actors traditionally have been able to claim a lot of the fees by sitting in the middle.
And as the network grows, those actors become ever more powerful because a fragmented payment system isn’t as useful as a unified payment system. It’s not as helpful if you’re on one payment platform and I’m on another payment platform. It makes it hard for us to pay each other. It’s better if we’re both on the same payment platform and if that’s the case with everyone around us. But the more that happens, the more the intermediary sitting at the middle of that payment platform has things like pricing power, has control, and can set fees as they see fit. And so that’s why we see right now, for example, a lot of questions around how credit card networks are setting their fees and whether they’re doing that fairly. So we’re going to continue to see these types of conversations happen, and I think we’re probably going to see a lot of innovation in where fees are charged and how fees are charged, including things like fractional penny payments.
Taylor Wilson:
Well, our systems of money are really all built on trust. Can you talk through that a bit, Neha, and is there the same kind of trust, I guess, baked into digital currencies as there is with cash?
Neha Narula:
So I think trust is really at the core of it, and that expresses itself in different ways. So one way that we can think about trust is how do I know that I’ve really been paid? How can I tell? How do I know I’ve got the payment, someone’s paid me, it’s okay to release the goods, I’m going to be able to spend this money further, etc. And when you look at that aspect of trust, cash is kind of amazing because you know you’ve been paid when you’re holding the cash in your hand. You know you’ve got it, you know they can’t take it back, you know that you’re going to be able to spend it tomorrow or the next day or the week later. Unfortunately, there’s a lot of different other types of trusts that are really important with payments.
For example, how do I know that I’m really paying who I think I’m paying? How do I know that they’re going to send me whatever I’m buying from them? How do I make sure that I actually get that? How do I make sure that someone else can’t steal my money and use it to buy things that I don’t want to buy? And that’s really where payment systems get much more complicated. A lot of these issues are exacerbated in the digital realm because we used digital credentials to sign into our bank, to sign in to our payment platform apps. We go on the internet in order to make digital payments, and that gets challenging because there’s a lot of people out there who could steal those credentials or can even convince people to make payments that they might not want to make.
Something that’s been happening a lot right now is the rise of scams. So we’re seeing a lot of dedicated effort put towards scamming people, sometimes some maybe more technically disadvantaged folks, convincing them that a loved one really needs money or even these long-running scams where someone thinks that they formed a friendship and they’re helping someone in need. And so that’s another sort of aspect of where trust comes into payments. And so it’s not even just, is this money going to be worth something tomorrow? Do I have the money that I think I actually have? It’s also how do I deal with this digital world, especially as things are getting even more complicated with artificial intelligence to make sure that my money’s not getting stolen or that it’s not being accessed in a fraudulent manner.
Taylor Wilson:
Just in terms of what’s next, it feels like we really are in this kind of swinging door moment right now when it comes to the future of money. What are you really focused on for the coming years?
Neha Narula:
So we’ve had a lot of promise, we’ve had a lot of really exciting ideas, but now it’s time to sort of really buckle down and build products that help users and help make their lives better, so that aren’t just based on speculation and this idea that someday some network might be very valuable and might provide a lot of value, but really are like, okay, how are we providing that value? Is it by providing more efficient, more seamless payments? Is that domestically? Is that cross-border? Is it about providing new means for people to invest and to move their money in a productive way? Is it new lending products? Is it something maybe outside the financial world that’s more about new applications that rely on this technology? I think we’ve had several years now to try to figure it out, but maybe people have been a little bit more focused on the speculative side and now it’s really time to focus on the provide actual value to users side.
Taylor Wilson:
I could pick your brain on this all day, Neha. I really appreciate the insight here. Neha Narula, thank you so much for joining me today.
Neha Narula:
It’s great to be here, Taylor. Thank you.
Taylor Wilson:
Thanks to our senior producers, Shannon Rae Green and Kaely Monahan for their production assistance. Our executive producer is Laura Beatty. Let us know what you think of this episode by sending a note to [email protected]. Thanks for listening. I’m Taylor Wilson, and I’ll be back tomorrow morning with another episode of The Excerpt.
