If you get together with friends to play a friendly game of cash poker, chances are very good that everyone will put their money on the table.
And yet, even though land-based casinos only “play for real money,” players are not allowed to make wagers directly with money. Instead they must buy tokens, commonly referred to as “chips,” and use those to make their wagers instead.
Players must then “cash out their chips” to get their money back. If this seems like an unnecessarily complicated operation to you, that’s because it is. But there’s a real reason as to why casinos operate this way, and it may not be the most obvious.
What Are Casino Chips?
The technical name for these round coin-like things is actually tokens, not chips. The word “chip” has been around the English language for a thousand years or longer. It evolved from older words having to do with wood, especially wood shavings and chopped pieces of wood.
The earliest use of the word “chip” in gambling is from the year 1840. Wooden chips were used as counters in games of chance. Casinos use three types of tokens.
Colored, unmarked tokens (normally referred to as “chips”) are used on tables where players decide their own nominations. You might buy a stack of red tokens for $100 and declare each one to be worth $25 apiece. The croupier makes a note of that.
Tokens stamped with a monetary valuation are used in card games. They are usually called “checks.” You can ask the dealer for $100 worth of $5 chips (or checks) and you’ll receive 20 tokens.
In high roller games, rectangular tokens (sometimes made of metal rather than wood) stamped with serial numbers and large denominations are used. These tokens are properly called “plaques,” but many people still call them “chips.”
Casinos brand their tokens, so they’re technically only usable in their own games. There was a time, however, when casino tokens were used like money outside the casinos.
They could still be used that way but not for legal business. The Internal Revenue Service eventually forbade this practice, but people can still barter with them.
Casinos First Used Tokens to Establish Player Credit
Casino tokens work much like credit cards or other types of credit. They take the place of money with the understanding that the player will redeem them (or pay for them) in cash in the future.
By introducing tokens to their gaming tables, casinos made it possible for any of their guests to gamble regardless of how much cash they had on them.
The idea was to let people have their fun then settle accounts later. For this reason, casino tokens were also called markers, borrowing from the practice developed by bookmarkers.
Like casinos, bookmakers extended credit to their customers to ensure they continued making bets. The bettors signed promissory notes called “markers” to cover their bets.
Credit Tokens Are Used Outside the Gambling Industry
People often compare playing the stock market to gambling. It shouldn’t surprise anyone that there are ways to borrow stocks just as gamblers borrow tokens from the casino or markers from bookmakers.
People who “invest on margin” borrow shares of stock from their brokers and sell them. Short-sellers are most likely to do this, where they “sell high and buy low.” The brokers issue “margin calls” to cover their expenses. The investors must buy back the shares of borrowed stock they sold earlier, hopefully at a lower price than for which they sold the shares.
Like the brokers, casinos don’t really care how much credit you take out as long as you cover your losses and they don’t have to pay you too much when you win.
Other types of credit tokens include promotional vouchers used for discounts or free goods or services. Retailers, restaurants, and some government agencies issue vouchers to help people pay for things they want.
The difference between vouchers and credit tokens is that the vouchers represent “free credit.” You don’t have to pay anything back for the vouchers. Casinos offer player rewards, including signup and deposit bonuses, that work like vouchers.
Early Modern Casinos Had to Invent Their Own Money
Although gaming houses were probably popular throughout Europe for the past 2,000 years, early modern casinos first appeared in the late 1500s and early 1600s in Northern Italy, Southern France, and Switzerland.
Although Europe had emerged from the Renaissance, most people still didn’t have much actual money. Even aristocrats and wealthy merchants were accustomed to carrying their wealth in the form of expensive jewels and letters of credit. These things were easier to carry on long journeys and bankers in larger cities paid them in cash for these assets.
Many players were cheated, either by unscrupulous casinos or by gangs who arranged card games. They tricked wealthy gamblers into losing money and insisted they pay their gambling debts. The poor fools had no idea they had been cheated, and many of them lost their estates and fortunes paying off fraudulent debts.
Some Jurisdictions Pass Laws Forbidding the Use of Money
Although legalized gambling may exist nearly everywhere, many countries and communities still have laws on the books that forbid gambling with legal currency.
This forces casinos to issue tokens to players, who are then figuratively not playing for money even though they are risking real value in their games of chance.
Casino Tokens May Be Regulated
While criminals may rob people of their cash and credit cards, rarely do they demand casino tokens. In communities where tokens were used as cash, and this would have been true in many towns throughout the Old West, robbers might be just as satisfied with the tokens as with cash.
The casinos established rules to contain the circulation of their tokens. After all the only good token was the token a casino won back from its indebted player. Anyone who won more tokens than they borrowed had the right to cash in their chips and walk away with real money.
Some modern jurisdictions have laws requiring casinos to only game with tokens. The idea behind these laws is that players are less likely to flash their wealth if they have to play with tokens. Some casinos require players to cash out their tokens at the tables where they are purchased.
Casinos Act Like Informal Banks
Not only do casino tokens represent debts, they can represent deposits. If players can exchange large sums of cash for a few high-value tokens and sell the tokens back to the casinos later, they are in effect depositing their money with the casinos.
It was once common for people to borrow and deposit money with casinos in Las Vegas, as well as use their tokens as media of exchange (money) outside the casinos. The federal government had to intervene to prevent the casinos from upstaging the US dollar with their own currencies.
Still, by extending credit and holding players’ money on deposit, even if only for a few hours, casinos work very much like banks.
Some Believe There Is a Psychological Reason
A widely held belief, even circulated among casino employees, is that people are less likely to think of their tokens as money when they lose. This dovetails with the usual saying that “gambling is a form of entertainment.” If the player is paying for an evening of entertainment, then they are not really losing money but gaining a valued experience in return for their payment.
Casinos and players alike favor the use of chips and other tokens. Slot machines now manage the money electronically. Players may slip real bills into the machines when they begin playing but most, if not all, slot machines now “pay” the players in receipts that must be redeemed at the cashier’s window.
When slot machines were still using metal tokens, the experience felt more like handling real money. And, of course, the original penny slot machines really did accept and pay players in pennies. Nickel and quarter slot machines also paid in real coins.
Since it was less expensive for casinos to manage low budget slot machine games in legal tender, the reasons for using tokens in higher stakes games have less to do with psychology and more to do with economics. When all is said and done, the casinos will do whatever costs them the least and, if necessary, they’ll lobby for laws that allow them to do what makes the most economic sense for them.