Posted by Lending Club :: November 25, 2008 @ 7:38 am

When you read about urban survivalists stockpiling “beans, bullets, and band-aids” in these tough economic times, it’s only natural to consider what you would do in a worst-case scenario. One item that is often overlooked is our current dependence on electronic monetary transactions. As I discussed in Cashless Society, cash has a declining role in most of our lives. When I say cash, I don’t mean liquid investments or cash equivalents, but rather actual currency within your reach.

At any given time, I probably have an average of less than $10 in cash. I suppose that if I really looked hard, I could probably scrounge together about $50 from my coin jar, State Quarter collection, and my daughter’s piggy bank. This lack of cash in my life begs the question of what would happen if our electronic banking system were somehow disrupted, through a major computer glitch or deliberate attack.

Imagine that ATMs, electronic transfers, and credit/debit purchases no longer worked. I suppose stores could process cards using a manual machine, as they used to do, but few even have the old technology available. Checks might still be accepted, though they too often rely on electronic verification. There would likely be long lines at the banks and it’s reasonable to assume that even they could be affected by such an outage. The same technology that allows you to withdraw money from every branch of your bank likely means that an individual branch doesn’t have your account balances but instead relies on a computer connection to some central location. Such a scenario would basically mean that you would have no access to cash.

Such a catastrophic failure of the banking system probably wouldn’t affect you in some ways that you might expect. I doubt that utility companies would shut off service for non-payment if none of their customers had a method to pay for it. If the outage lasted more than a few days, you’d probably have bigger problems to worry about than the lack of access to cash. An extended outage that affected everyone would probably also lead to government intervention to help citizens through it. An outage of a few days is much more plausible. If you can’t imagine such a scenario lasting more than a few minutes, remember that all commercial flights in the US were grounded for a few days after the September 11th terrorist attacks, which previously would also have been seen as impossible. Even a few days without access to alternative forms of money could expose the weakness of not having any cash on hand.

At a minimum, you may want to be sure to have some cash when you gather other survival supplies ahead of a big storm. To be safe from unexpected events as well, it makes sense to always have access to a small stockpile of cash. The amount that you choose should be aligned with your expectations of the duration of the outage. I wouldn’t recommend having too much cash on hand because it doesn’t earn interest and is at risk of theft. Nonetheless, having enough to survive a short period without access to other forms of money may be in your best interest.

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