Friday, July 23, 2004


From the front page of today's WSJ: "As Cash Fades, America Becomes A Plastic Nation," by Jathon Sapsford.
[T]he nation passed a watershed last year. For the first time, Americans used cards -- credit, debit and others -- to buy retail goods and services more often than they used cash or check in 2003. [...]

By letting consumers buy things with unprecedented convenience and speed, cards have transformed the economy. They have helped keep consumer spending strong even through terror attacks and recessions. When people pay with plastic, they tend to spend more -- often more than they have in the bank. Thus, credit cards also have fueled an explosion in consumer debt. It is expected to hit $838 billion this year, an increase of 6.8% from 2003 and more than double what it was ten years ago. [...]

A currency can be anything that all members of a society agree it should be. The current boom in plastic is one of those rare moments in history when that agreement shifts and one payment form overtakes another as the preferred way to pay. The first such change came sometime between the 10th and 6th centuries B.C., when Greece and India each introduced metal coins, which surpassed barter or the shell currencies of earlier times.

Coins dominated trade for the next 2,000 years, until the introduction of checks by Italian merchants in the Middle Ages. In 1690, Massachusetts became the first of the colonies to introduce paper money. Cash took decades to gain broad acceptance, but eventually became the standard of payment for the next three centuries.

The first credit card was introduced as a service for the wealthy in New York in 1950 under the Diner's Club brand. Today, U.S. consumers use plastic to buy $2.2 trillion in goods and services each year -- roughly 20% of U.S. gross domestic product.

Last year, cash was used in 32% of retail transactions, down from 39% in 1999. Credit-card usage has remained stable, accounting for about 21% of purchases during that time. Meanwhile debit cards, which take money out of checking accounts immediately after each purchase, shot up to 31% of purchases last year, from 21% in 1999. [...]

Roughly 60% of credit-card holders roll balances over each month, paying interest of as much as 22%. Because these cardholders are the most lucrative customers of the banks, critics say they effectively subsidize the remaining 40% of cardholders.

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