What Tron teaches us about Cashless Society
And how this helps us understand the War on Cash and CBDC
In the groundbreaking film Tron (1982), the hero Kevin Flynn gets vaporized by a ray fired by a sentient supercomputer. It dematerializes his body and sucks him into the the digital world where he’s rebuilt as a computer game character. Here’s the classic scene where it happens.
Physical Flynn being reconstituted as digital Flynn provides a useful pop culture metaphor to illustrate some key elements of modern monetary politics. I’m going to use Flynn as a metaphor for state-issued money, and map out eight different scenarios he might find himself in.
Scene 1: Physical Flynn hanging out in the world with you
In our metaphor, physical Flynn is cash, the physical version of state-issued money. Cash is issued by central banks (and national treasuries), but roams the world among us like a gregarious everyman. Flynn is happy to hang out with your elderly grandparents, your anarchist mates, your pretentious coke-snorting fashionista friend, beggars, buskers and oligarchs. If you find cash in your wallet, you own it, because it’s a ‘bearer instrument’: Flynn pledges allegiance to whoever he hangs out with.
Scene 2: Physical Flynn captured by a bank
When you hand over cash to a bank, however, it’s like imprisoning Flynn. The bank is not looking after him for you. They take ownership of him, and put an end to his free-wheeling travels. Here’s an image of him captured by the UK bank Barclays.
Banks have various options for what to do with the physical cash they end up taking control of: they can lock it up at a branch, or stock it in ATMs, or return it to the central bank (we’ll get to that in the next section). These cash holdings end up on the asset side of their balance sheets. Here’s the 2022 balance sheet of the Barclays to demonstrate.
Notice though, that it’s recorded under a line item called ‘cash and balances at central banks’. To understand this, you must split that in two: There is [cash] and [balances at central bank], and the latter often get called ‘reserves’. But what are these reserve ‘balances at the central bank’? We’ll see in the next section.
Scene 3: Flynn transferred into digital captivity
Now that Flynn is their captive, the bank is at leisure to decide what form to keep him in. They can either keep him in physical form, or ‘dematerialize’ him into a digital form.
Here’s a quick thought-experiment to help you understand this transformation process: Imagine issuing a promise to someone by writing it down on a piece of paper (I owe you a massage). Now imagine that person asking you to just write the promise down on a computer instead, under their name. So, you tear up the paper promise and rewrite it on a spreadsheet that you control. It’s the same promise, just recorded in a new format.
This is basically what’s happening when physical cash is transformed into digital ‘reserves’. Barclays takes cash to the central bank, which withdraws it from circulation (‘tears it up’) and rewrites it in digital form as a balance in Barclays account at the central bank. This is how Flynn is ‘vaporized’ and reconstituted as a computer character that’s held captive, along with millions of others of his kind, in digital form.
So, cash is the physical version of state money, while reserves are the digital version recorded at the central bank, and this explains that line item on Barclay’s balance sheet that says ‘cash and balances at central bank’.
Cash and reserves may have a different form, but are interchangeable. Barclays can choose to transform cash into reserves, and vice versa, but each time this transformation is happening one form is getting destroyed and replaced by the other.
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Scene 4: The bank issues digital ‘Get Flynn out of jail free’ promises
Cast your mind back to Scene 2: many people think that when they deposit cash into a bank, the bank ‘stores’ it for them. They also often come to believe that the units that they see in their online bank account are like ‘Digital Flynns’. Both of these beliefs are wrong.
Commercial banks like Barclays do not ‘store’ anything for you, and you have no access to digital Flynn. He’s imprisoned at the central bank in a cell controlled by Barclays (or whatever other bank you use).
So what are you seeing in your account then? The digital units in your bank account are bank-issued ‘Get Flynn out of jail’ cards (I’m guessing most people know this cultural reference, but I’m basing this on the old Monopoly board game with its ‘Get out of jail free’ cards).
Let’s call these ‘Get Flynn out of jail’ cards by the acronym GFOOJC. They are bank-issued digital promises for state money, recorded into your bank account.
We have an immensely confusing vocabulary for talking about these units: they often get called ‘deposits’, which sounds like the thing you put in to a bank, but in reality deposits are the thing issued out to you by the bank. This is why ‘deposits’ appear on the liability side of a bank balance sheet: they’re not things that the bank owns. They are promises that the bank has issued to people (and institutions) in the outside world:
Those of you who are observant might notice that the combined ‘cash and balances at the central bank’ recorded on the asset side of this balance sheet are smaller than the ‘deposits’ issued out by the bank on the liability side. This is due to so-called ‘fractional reserve banking’ (it’s an archaic phrase), or credit creation of money, in which commercial banks issue out far more GFOOJC than there actually are Flynns in (physical or digital) jail. If you’d like a deep dive into that, see my Emotional Guide to ‘Fractional Reserve Banking’.
Scene 5: Digital GFOOJC transferred around
If all those units in our bank accounts are GFOOJC, it also means that the entire ‘cashless’ (or ‘Flynnless’) digital payment system is constructed out of them. Every time you tap your contactless card, or pay using Apple-Pay, you’re transferring around these bank-issued digital-promises-for-state-money. As we pay for things using GFOOJC, Flynn himself lingers in his cell in captivity, while guarantees of his release are transferred between people in the outside world.
Scene 6: Banks trade digital Flynns in the background
There is, however, some nuances to this. Barclays isn’t the only bank to control a cell at the central bank. All the banks have accounts at the central bank, and these banks pay each other by moving their digital reserves around. This is the interbank clearing and settlements system: as we make payments using GFOOJC across different banks, the banks have to sometimes arrange for Flynn to be moved from one bank’s digital cell to another bank’s digital cell.
I’m at risk of pushing the Tron metaphor too far, but you might even imagine the banks having a private arena where they trade their digitally imprisoned Flynn’s, or make them race against each other.
Scene 7: Flynn returned to physical imprisonment
Banks have one major irritation though. Many of us have a pesky habit of demanding the release of Flynn. After all, the GFOOJC in our bank accounts can be used to free him. That’s what happens when you go to an ATM: you’ll see your bank balance go down - the GFOOJC being destroyed - and the cash in your hand go up: Flynn is released.
Before this can happen though, the banks must transform digital Flynn into physical Flynn, and they must do this before you actually demand Flynn’s release. If you ever hang around central banking and cash nerds, this is part of what’s called the ‘cash cycle’: banks like Barclays must predict people’s demand for cash, and stock up their ATMs and branches in anticipation. This means they might have do the reverse of what we saw in Scene 3: they can get the central bank to eliminate digital reserves from their account, and ‘materialize’ it by rewriting it as physical cash that the bank can then take ownership of. Flynn will literally leave the central bank in an armoured vehicle, to be transported back to one of the many physical cells controlled by Barclays. Let’s say in this case it’s an ATM.
Scene 8: Physical Flynn released from ATM captivity
This may be the point where you arrive at the ATM, slide in your debit card, type in your PIN, and demand the release of physical Flynn. In the process you’ll destroy GFOOJC that was previously in your account, but you’ll see Flynn’s smiling face come sliding out of the ATM slot. Freedom at last!
We’re now back to where we started. Physical Flynn hopping around the country from person to person, charming shopkeepers, bartenders, kids getting pocket money, street dealers, church leaders asking for tithes, and thousands of others. His world is one of countless micro-adventures in both the formal and informal economy, among rich and poor alike.
A world of imprisoned Flynns: Cashless society
Not everyone likes free Flynn, and there’s been a distinct rise in bigotry towards his more casual and genial physical life. Since the rise of Silicon Valley and smartphones, many people have been slowly incalculated into the values of extreme automation and digital corporate expansion, letting it sink into their consciousness and bodies under the innocuous guise of ‘convenience’. The capitalist system wants to expand and accelerate, and actually the physical version of Flynn irritates the hell out of many corporate executives. You think Jeff Bezos likes cash? Of course not: how will his ‘Go Cashierless’ automated stores deal with physical units of money? Corporate elites don’t like things that cannot be easily automated, because anything that cannot be easily automated preserves all manner of non-commercial values (often castigated as ‘friction’). Human beings in general quite like non-commercial values, but for inhuman scale corporations, those simply stand in the way of the profit-motive.
This is why corporate capitalism in general would far rather have Flynn permanently imprisoned in digital form under the control of banks, and have us all use GFOOJC, a form of money that’s much easier to jell with automated systems. This is what’s referred to as ‘cashless society’: a world in which all the free roaming Flynn’s have been hunted down and incarcerated as digital reserves in the central bank, out of our reach, and where we’re basically forced to use bank-issued digital money instead. In places like the UK, the banking sector is deeply complicit in this, and is in the process of shutting down all the ATMs and branch infrastructure, in essence setting up for a situation in which Flynn will become ‘unrelease-able’. For those who are interested, I published a whole book on this.
So, Flynn is experiencing increased bigotry on the streets, with ‘cashless’ shops refusing to let him enter, but this cultural shift is not organic: it’s been in the works for a long time, with many top-down players collaborating with (or exploiting) compliant parts of the bottom-up public to slowly nudge all of us in that direction. Incidentally, if you want a guide on how to resist this, see my Luddite’s Guide to Defending Cash.
Democratizing access to Digital Flynn? CBDC
In the ‘cashless society’ scenario, all physical Flynns are imprisoned as digital Flynns that we have no access to, while we all use bank-issued GFOOJC. This scenario has some pretty bad implications for surveillance, censorship, exclusion and corporate centralisation of power, but also for the resilience of the monetary system and financial stability. After all, what is a ‘Get Flynn out of jail card’ supposed to mean if Flynn is de facto unreleasable?
Central bankers know this. They’ve allowed big finance, big tech and big retail players to push the ‘cashless’ wave, but in the process they’ve created a problem for future monetary stability (this is what Marxists would call a ‘contradiction of capitalism’: private sector players have collectively shot themselves in the foot whilst persuing their individual private interests).
This is one reason why we’ve seen a sudden rocketing interest in the concept of ‘CBDC’: central bank digital currency. What is CBDC? It’s Digital Flynn. The current CBDC debate isn’t about a ‘new’ form of money. It’s about whether us ordinary people should also be allowed to access and control digital reserves at the central bank. Put differently, should all of us have the right to control a cell at the central bank?
From one angle this could be seen as a democratisation of access to digital Flynn. From another angle it would involve us having to contact the central bank to ask to transfer him around, a process that would involve us having to identify ourselves. This is why libertarians imagine this scenario as leading to a giant state-controlled digital money system that will enslave us.
If you’re more nuanced about it you’ll see that the banking sector - which currently controls digital Flynn - isn’t happy about the scenario in which that control gets passed to ordinary people. If you’ve been following CBDC news, you’ll know that the central banks are trying to placate the banking sector by telling them that they’ll have a key role in running any future CBDC infrastructure: put simply, they want to keep the banks as gatekeepers to digital Flynn. If you want an introduction to the politics of CBDC, check out my Zen and Art of CBDC Analysis.
Harmonizing Metaphors: Flynn & the Casino Chip Society
If you’ve been following my earlier pieces, you’ll know that I get very frustrated by the OTOMI - the one-type-of-money illusion - in which people fail to understand that the money system is made up of multiple different issuers issuing money in multiple layers in multiple forms. People suffering from the OTOMI often imagine that bank-issued digital money is just some kind of ‘upgrade’ to state-issued physical money, and one of the key metaphors that I use to combat this belief is to talk about bank-issued money as being digital casino chips. This metaphor set was originally laid out in my piece the Casino Chip Society, and it’s the dominant metaphor set that I use for this issue, because it’s easy to understand while being pretty accurate and versatile.
That said, I’m always fascinated by developing new metaphors that offer new angles on the issue. Any metaphor set has strengths and weakenesses, and I’ve enjoyed playing with this Tron metaphor. It’s a bit more clunky that my casino-chip set, but it’s also more fun and has can be used to humanise monetary politics to some extent. I would never use these two sets of metaphors directly with each other, but I’d love to hear your opinion on which works for you. Please do leave comments and suggestions!