The Union was broke.
Now, 150 years later, in admittedly less dire
circumstances, Congress is preparing itself for the next big thing when
it comes to money — a future in which payments are made with a wand like
wave of a phone rather than the exchange of wrinkled pieces of paper.
"We are, I think, on a precipice of some fundamental
change in the way money is exchanged between consumers and businesses,"
Rep. Shelley Moore Capito, R-W.Va., said as she opened the first of a
string of hearings in March.
Federally backed paper money allowed the Union to
keep fighting the war after the government had burned through its coin
reserves and a massive loan from banks, and had been reduced to writing
IOUs to pay soldiers.
The greenback
government notes, initially conceived as an emergency measure, quickly
gained acceptance, with soldiers seeing it as their patriotic duty to
spend them. But paper money is a 19th-century technology that has barely
changed in 15 decades. Since the mid-1990s, cash has been in decline,
according to a Federal Reserve estimate.
It now faces stiff competition not only from credit
cards but also from smartphones that promise businesses a way to
advertise to customers before they pay or to offer them coupons, sort of
like printing a little ad next to George Washington's face or bumping
up the value of a dollar bill to a dollar and 15 cents.
"The mobile device becomes a new marketing channel
for merchants to use," said Randy Vanderhoof, executive director of the
industry group the Smart Card Alliance.
The Federal Reserve found in March that 12 percent
of cellphone users had already made a payment through their phones. The
same month, almost two-thirds of technology experts surveyed by the Pew
Center on Internet and American Life said they expected mobile payments
to eclipse cash and credit cards by 2020.
Last year, Google started Wallet, one of the most
promising demonstrations of mobile money. It works by linking a phone to
a credit card or a prepaid debit card. To pay in a store, a customer
passes his phone over a reader at the checkout, sending the information
using a technology called near field communication, or NFC.
Google partnered with Sprint, and AT&T, T-Mobile
and Verizon teamed up and planned to start their own NFC-based system
called Isis this summer. Apple and PayPal are expected to offer ways to
pay by phone too.
Although the attention of the country's biggest tech
and wireless companies signals a watershed moment for mobile payments,
members of Congress and regulators grappled at the hearings with how to
make sure the competing systems played nicely together.
Richard Oliver, a retired executive at the Federal
Reserve Bank of Atlanta, advocated an "open mobile wallet" that could be
stuffed with just as many credit cards, receipts and store cards as a
real wallet.
Serious questions about security and privacy need to
be answered. There are concerns that hackers could siphon off money
without customers noticing.
"The bottom line is that as the mobile payment
system evolves it is important . . . to provide proper oversight so
that these payments can be secure and convenient," Sen. Tim Johnson,
D-S.D., said in March.
Wendell Wolka, a historian and collector of money, points out that a "cashless society" has been predicted for decades.
Despite its limitations, cash offers privacy and is likely to be accepted by anyone, even in the middle of a blackout.
There may also be ways for cash to live side by side with mobile money.
Frustrated by what he considered to be the dull
appearance of U.S. paper money, Richard Smith, a creative director at
the marketing firm Sullivan, set up the Dollar ReDe$ign Project and
received beautiful new designs.
But, he said, "The most interesting ideas I got were those that went beyond traditional currency."
For example, one submission proposed an elegant
balance between paper and electronic money. It involved bills printed at
home that could also be scanned into a digital account using a phone.
Yasmina Haryono, a Berlin interaction designer on
the team behind the idea, said she wanted to give people complete
control over their money.