Cash's Place in U.S. Economy Growing its Reliance on Paperless Payments

**SPEAKER_1** (0:00)
To discuss the future of physical currency, let's welcome in our next guest, John Deal, Managing Director of Capital Markets at Post Oak Group. Thank you so much for your time, John. Look, I was obviously reading into this. The penny is not being made anymore. The cost of manufacturing, that was 4 cents. The cost of making a nickel is 13 cents. This is according to the US Mint. A lot of copper is used in that. We know how high copper prices are right now. So how much economic sense does it make to have some of these coins in circulation if the cost of making them actually is more than they are actually worth themselves?

**John Deal** (0:40)
Well, Marlee, it's great to be here again. Nice to see you again.
That's a great question. I think the question though might be a little bit deceptive from an economic perspective. So there are a couple of ways to look at this. On the one hand, yes, there's the cost of production.
For these coins, for this money. But on the other hand, there's also the question of just who is using it? How much velocity does these coins have in the marketplace? So I think to think about this effectively, I've been researching how much are these coins used? You know, how much are cash transactions? How relevant are cash transactions in the marketplace today? Because while cash is, cash and coins are less relevant than they were years ago, and certainly when our current fiscal regime was designed, they are completely irrelevant. So at this point in time, about 14% of daily transactions, which translates to about 50 to 55 million dollars worth of transactions, are in cash in the United States. So while that's, you know, while that's certainly not the, that's far from the majority, it's still, it's statistically significant. You know, cash still has some place in the economy, I believe.

**Marlee** (2:07)
So John, as we've looked at the complete change in consumer behavior, where people are using credit cards and debit cards and online payment systems, as opposed to using physical cash as their predominant form of payment, you make a good point. We are still using cash. So if now that we've removed the penny, there's no penny, there's rounding. If we then go and remove the nickel and perhaps the dime, we've got more rounding here. How do we create a system where the rounding doesn't come at a disadvantage to the consumer? Because our inclination is to just round up, but eventually those cents add up if you're the one paying the bill.

**John Deal** (2:47)
It certainly does. That's a great point.
So it's interesting to think about how much rounding is particularly relevant when we're trying to calculate taxes on transactions, so friction on transactions. So to some degree, I noted earlier that about $50 to $55 million worth of transactions are being conducted on a daily basis in the United States in cash, cash and coin. So it certainly begs the question, how much of that represents lost revenue for the government when it comes to taxes on these transactions. But I think it's important to keep in mind that when we're looking at transactions within the marketplace, cash is only one component of monetary transactions. So a cash transaction at a business, you could round that to the nearest cent. But that transaction is part of a chain of relevant transactions that the business will conduct. So for example, while a business might receive cash, they'll aggregate it over time and then deposit it into a bank. They'll pay their taxes typically online using the banking system, their bank's wire and payment system or directly on the IRS and other tax bodies' websites. So transactions, they're relatively frictionless conducting the other end of that transaction. So I think it's important to keep in mind that this is a component of the monetary system, it's not necessarily an isolated silo, that doesn't relate to other aspects of that same monetary system.
Also, I'd hasten to add that just because we're not producing the penny anymore doesn't mean that the penny is going to start to disappear from circulation. I probably couldn't take a walk down Main Street in my town without finding a good handful of pennies on any given sidewalk. I imagine most communities are that way.

**Marlee** (4:58)
I think I may need to bring my daughter over to wherever you are, John, because she loves finding a penny. If she finds one that's tails up, she flips it over so somebody gets good luck when they find it next. Great to have you on. Really appreciate you taking the time to be with us this afternoon. John Deal, Managing Director of Capital Markets over at the Post Oak Group.