Electronic banking: Myth vs. fact;

              ELECTRONIC BANKING: MYTH VS. FACT
by MICHAEL J. COIE, National Service Director for Banking, Seattle
Another tradition may be dying. Across the nation, banking
is being done in grocery stores, parking lots, and by
telephone. Machines, plastic cards, and secret numbers are
implementing an Electronic Funds Transfer System (EFTS)
that enables one to handle most financial transactions
without actually visiting a bank. Instantaneously, checks are
cashed, bill and loan payments made, and deposits or
withdrawals completed.
No longer are these transactions referred to as experi­ments
or tests. Does this mean we are finally entering the
cashless society? What is happening to the payment systems
of our country? Why are these changes occurring, and what
do they mean to the individual?
One recalls the old saying: "The more things change, the
more they remain the same/' In the beginning, man
operated in a cashless society, using barter to pay for goods.
Then he introduced a rudimentary payment system,
employing proxies. Under this system, one item of value
was exchanged for another. Originally, the relationship
between the proxy and the item of value was direct. Thus, a
note describing the quantity and quality of a commodity
was accepted by a purchaser in exchange for the goods.
However, this relationship soon was lost. Proxies were
exchanged in which the value of each had been negotiated.
Both the constitutionality and the expediency of the
law creating this bank [of the United States] are
well questioned by a large portion of our fellow
citizens, and it must be admitted by all that it has
failed in the great end of establishing a uniform
and sound currency.
—ANDREW JACKSON, 1829
For example, one unit of one commodity was worth two
units of another commodity. From these exchanges arose
the need for a new standard for expressing all other media.
Thus, "money" was born. And since it was a medium in
which the value of all goods and services could be
expressed, proxies were no longer necessary.
The fact is that "money" has no intrinsic value. It has
assumed a value because of its role in exchanging items of
value. Currency and coin have been called the only " t r u e"
money, but they are simply physical items made acceptable
in the exchange process by legislation and convention.
They have the same use as other forms of money—deposits
in banks, checks, negotiable instruments, and the like.
Their value is only within the exchange process.
The misconception about money's intrinsic value and
about currency and coin being the only " t r u e " forms of
money is probably what creates anxiety and confusion
when the question is asked: "Are we entering a cashless
society?" Actually, the question should be: "Are we
changing the medium used in our payment system?"
The answer is yes, but change has been occurring for a
long time.
The Paper Evolution
Hundreds of millions of payment transactions now take
place routinely each day. However, the effectiveness of this
transfer process has been achieved relatively recently. A
little over one hundred years ago, currency transactions
were anything but simple. Prior to the National Currency
Act of 1863, currency was issued by individual banks in their
own design and denomination, and its use outside of the
immediate area of the issuing bank was severely limited.
One reason was reflected in a book published in 1858,
Nicholas Bank Note Reporter, which provided 4,500
separate descriptions of fraudulent notes in circulation—at
a time when there were but 7,000 authentic notes in use.
Perhaps the most fundamental change in our payment
systems occurred after World War II. According to a recent
study by the National Science Foundation, approximately
27.5 billion checks were written by businesses and
individuals during 1974, making checks the second most
popular media in our payment system. Such volume
became possible in two stages. First, in 1945 the American
Bankers Association and the Federal Reserve System
developed a uniform numbering system to identify each
bank and the drafts (checks) of the United States Depart­ment
of the Treasury. In 1956, a system was developed to
print the numbers in magnetic ink on each check; this
provided a code that could be read by machines for
automatic sorting and handling. The code is the series of
22