There’s a scene in It’s a Wonderful Life you might remember. The citizens of Bedford Falls descend on the Savings and Loan, demanding cash in hand. A beleaguered George Bailey explains that the money’s not actually in the bank; it’s tied up in various investments. Eventually, he talks most of them down. In the 21st century, though, and in Greece this week in particular, there is no George Bailey. In fact, in Greece this week there are no open banks. There are just ATMs.
The economic drama in Greece continues to evolve. The country just missed a debt payment to the International Monetary Fund, adding to the cascading crisis. Empty cash machines are far from the only pressing problem. But they're perhaps the most concrete symbol of how a financial meltdown exposes the fragility of our modern systems for buying and selling.
As economies crumble, so does the viability of the digital infrastructure that so much of the world has come to take for granted as the way money moves. The harder an economy is hit, the more valuable cash becomes. But as Greek citizens coming away from ATMs empty-handed can attest, it turns out that money and currency aren't the same thing.
First, here's the TL;DR version of Greece's financial breakdown: The country owes more than it can pay, both to other European countries and the IMF, and will vote this coming weekend on whether it will accept a bailout in exchange for taking on more austerity measures. A "yes" vote means at least a temporary stay of collapse; a no vote means the country will likely face abandonment of the euro (welcome back, drachma!) and tremendous uncertainty about the future.
Better yet, make it tremendous and continued. “We are actually going to see at least a week of uncertainty, which could even be prolonged depending on the outcome of the referendum and the political developments in Greece,” says a recent ING Financial Markets Research note.
All of that existential doubt has had very real consequences. “Basically the economy returns to cash trading,” explains Bernardo Batiz-Lazo, professor of Business History and Bank Management at Bangor University in Wales, “as merchants refuse to accept payment with plastic as they have to take the receipts to be cleared at a bank.” The less faith you have in the bank’s ability to clear those receipts, the more likely you are to lean on cash.
That’s why, last Saturday, Greece’s citizens started leaning. So much so, in fact, that they managed to wipe out more than a third of the entire country’s ATM network, according to a Reuters report; 600 million euros converted from “on paper” to actual paper in a single day. The banks simply couldn’t restock them fast enough. Eventually, they shut the machines down altogether.
When the ATMs reopened Tuesday, withdrawals for Greek bank cards were limited to 60 euros per person per day, about $67. (Tourists could continue taking out normal sums, as long as ATMs could supply them, which continues to be no guarantee). That should help stop the hemorrhaging. But it’s still little comfort to millions of people forced to the realization that they have far more money in theory than they can get in hand.
That Greece doesn’t have nearly as much physical currency as it does money should come as no surprise; that’s just how economies work. But the size of the gap, even here in the United States, might be well more than you thought.
The amount of U.S. currency in circulation fluctuates, but totals around 36 billion pieces worth a combined $1.3 trillion. That sounds like a lot, until you put it against the total US money stock (M2) of $11.9 trillion. The difference seems even more dramatic when you consider that between half and two-thirds of the total value of US currency is held outside of our borders.
That more than $10 trillion of our money supply doesn’t physically exist shouldn’t be cause for concern. The Federal Reserve Board keeps careful track of inventory levels, weighing currency paid out to commercial banks against receipts to anticipate how much money is needed at any given time. It tells the Treasury Department’s Bureau of Engraving and Printing to create that money, then apportions it among the twelve Federal Reserve banks, which in turn keep commercial banks awash with Benjamins.
On the off chance the Fed drastically underestimates demand—which thankfully hasn’t yet happened, even during the global economic crisis of the aughts—the solution is, crudely put, simply to print more money. It’s an easy process to manage, because it’s so streamlined; essentially you’ve got one customer (the Fed) placing orders with one supplier (the Treasury).
This is, at least in part, where Greece ran into trouble. While there is a European Central Bank (ECB), it works in tandem with the European Union’s 28 national central banks to determine how many euro banknotes to produce each year. Rather than place printing responsibility in the hands of a sole provider, the ECB relies on 16 different printing works. That decentralized process has its advantages, but it also adds layers of communication, coordination, and complication that can slow response times in the unlikely---but currently very real---case of an emergency.
Greece isn’t the first country to run into an ATM shortage. Batiz-Lazo points out that Cyprus also experienced a cash-crunching crisis as recently as 2013. Chile, meanwhile, has experienced a cash shortage of its own, as banks choose to decommission ATMs rather than pay for mandatory security upgrades.
But Greece is uniquely ill-equipped to deal with the implications of a world with limited cash. According to ECB numbers reported by news agency ANA-MPA, Greece ranked last among EU member states in electronic payments in 2013, managing a scant 18 transactions per person. By contrast, Finland notched 452, a full 25 times as many. This isn’t a world with a Square reader on every corner and Venmo downloaded on every phones. This is a world where cash was already most things, even before it became everything.
Even more digitally dependent cultures should mark Greece’s banknote blitz, though, if only as a reminder that cash remains king. It doesn’t disappear if your phones’s battery dies; it doesn’t require an Internet connection. It’s always usable, and more important, it’s often still the most convenient option. No matter how many stores install Apple Pay-friendly NFC readers, cash will always be home base.
“There are different forms of money and in terms of payments, many co-exist for long time,” says Batiz-Lazo. “Think of personal checks coming to form in the 19th century and still going on in the US (but to be fair, nowhere else). Then think that 99 percent of retail payments work well as they are: cash, plastic and in the US, checks. mobiles payments are more likely to replace plastic/point of sale terminal combo than paper money. As a rule of thumb, people want to use the payment solution that best fits the situation.”
When that situation is potential economic collapse? It’s hard to stuff 1s and 0s under a mattress. And when the ATMs dry up, so does the last sure thing.
