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14 December 2017


In the old days, when a war was raging across the world, information came from ghost like voices scratching out of the wireless, a weekly newspaper or the Pathe Newsreels that ran at cinemas before the main show. Today, it's not the lack of information, but the overwhelming quantity of it that is the problem. Kids no longer need to be taught to mine for information; they need to learn how to filter it.

To follow the progress of the 'War on Cash' the internet will lead you to thousands of articles, blogs, analysis, opinions, predictions, each author juggling balls of whirling statistics, what direction those statistics are spinning depends on the slant of the article. The forces against cash are easy to find: governments, central banks, e-commerce investors, among others. The guys on the other side are not so high-profile. Key in the term 'Cash Lobby' and you need to scroll past a page of Grand Theft Auto links before you come to the groups championing the cause for cash.

One such group is the International Currency Association (ICA), an alliance of companies from the banknotes and coins industry, inks, holograms, logistics, those who make and print cash. I asked their spokesperson about the battle for hearts and minds:

ICA: "Yes there clearly is a PR battle. And what was an economic debate has shifted into the public space. Yves Mersch, member of the Board of the ECB recently declared "We currently witness frequent lobbying, overt and covert, to abolish cash. I won't dwell today on the plausibility of the justifications proposed, except to note that such lobbying fails to respect the will of the general population: cash remains popular. Recent research for the ECB finds that 80 percent of transactions at point of sale are in cash."

Q: What are the main forces working against currency and what do you think motivates those forces?        

ICA: Let me quote Yves Mersch once again, "Advocates of a cashless society tend to fall into three distinct camps: the alchemists, the law and order camp, the fintech alliance."

The 'alchemists' believe that the elimination of cash would enable central banks to introduce negative interest rates without risking a bank run. If money stored on bank account brings a negative return or, in other words, is charged a fee, individuals and businesses will, at some point, start hoarding cash instead. This would nullify the policy goal of making them spend the money. Thus, monetary policy cannot go much below the 'zero bound' of interest rates. The advantage of a cashless society, the argument goes, would be to have no zero bound, thus liberating the full power of monetary policy.

The 'law and order' camp claims that anonymity of cash purportedly makes it attractive for illegal activity. Yes, banknotes are used by tax evaders and criminals, just as they are used by billions of people all over the world for perfectly legitimate transactions. The reduction of cash in circulation, or even its elimination, would have no impact on crime and tax evasion. As we have seen recently with the Panama papers, Paradise papers, LuxLeaks, Laundromat, etc, there are numerous ways of laundering money and evading taxes which do not involve cash.

Lastly, the 'fintechs' believe they can develop alternatives to cash. But so far, they have simply changed the way we access cash. Many observers and payments experts viewed mopayments as the silver bullet to replace cash. Far from displacing cash, mobile phones are simply changing the way consumers access it. M-Pesa provides a clear illustration. M-Pesa ("pesa" is Swahili for money) was launched in Kenya in 2007 by telecommunications provider Safaricom as a money transfer service, enabling users to send and receive money through their mobile phones. Today M-Pesa is the most developed mobile money system in the world and often recognised as one of the key innovations in payments of the last decade. While numerous features have been added to M-Pesa since its inception, it remains essentially a cash transfer system using a network of over 60,000 agents. According to the World Bank, in 2012, about 21 million Kenyans made 527 million transactions. Between 2007 and 2012, the value of banknotes in circulation increased by 63 percent.


Q: Isn't this all about a nostalgic wish to hang on to old traditional values?

ICA: The success of cash extends far beyond traditional values. On the contrary, I think that cash has demonstrated a rather extraordinary capability to innovate and to adapt to a changing payments landscape. Take the case of Uber for instance: they gradually saw the benefits of accepting cash payments as they expanded into Asia and Africa. In order to win greater market shares, Uber eventually decided to take cash in Manchester and in Florida. In April, Amazon launched "Amazon Cash" in the US, a service that allows customers to load cash on their online account instead of linking it to a bank card. The service has since been launched in Mexico, the UK and Canada. PayPal followed the trend and launched My Cash, a prepaid cash card which enables users to load money to their PayPal account. A growing number of fintechs are developing solutions to enable shoppers to pay cash online. PayNearMe, in the US, Barzahlen in Germany or Cashway in France.

Following the decline in the number of bank branches, many banks have resorted to innovation to ensure the delivery of cash. In the UK, banks have reached an agreement with the Post Office to offer cash services at the 11,600 branches. Likewise, India's post offices will facilitate access to cash for senior citizens, people living in rural areas and the disabled. In northeastern Nigeria, people have turned to Point of Sale (POS) terminals for cash. Users simply go to a shop with a POS machine, pay the merchant the amount they want to withdraw. Meanwhile, Sberbank, Russia's largest bank, has successfully tested the use of drones for the transportation of cash. In India, Grofers, an e-commerce website has partnered with YES BANK, India's fifth largest private bank and enables customers to have banknotes delivered to their doorstep along with their grocery order for up to Rs. 2,000. In Poland, Ideal bank launched a fleet of BMW i3s fitted with cash-in, cash-out ATMs, which can be ordered by smartphone either on demand or by advanced booking. France's, La Poste, has developed a piggy bank that connects to both the parents' and the children's smartphone and displays the total balance.


Q: Ajay Banga, CEO of Mastercard says: 'data is the new oil.' Surely cash can't survive in a world where financial data is so valued?

ICA: On the contrary. Cash offers a space of anonymity. And in a society where cybercrime is on the rise, where, social media are transforming consumers' perception of privacy, where big data is leading to the monetisation of consumer information, the anonymity space is becoming smaller and smaller. In this context, cash is the last frontier for anonymous but controlled transactions. A regulated anonymous payment instrument is essential. Firstly, because some degree of anonymity is perfectly legitimate. Secondly, in the absence of a regulated instrument, there is a risk that consumers could opt for unregulated ones. Lastly, the absence of anonymity could lead consumers to abandon some transactions.

The brand consultancy Method conducted an experiment to discover what would happen when people's private spending habits become public. The participants were challenged to log every purchase using an Instagram picture. It became clear that there was a significant grey area not covered by the Instagram feed, constituting all the purchases that the customers deemed uncomfortable or inappropriate. The consultants concluded, "Our experiments suggested that even our most mundane financial transactions can provide private information that we don't realize is saying something about us."


Q: Will cash weather this storm?

ICA: What storm? In the Eurozone, the value of cash in circulation is growing by 4.3 percent. In the US, the figure is six percent and in the UK it is ten percent.


And it's not just vested interest groups proclaiming hard currency is still fighting fit. Sriram Natarajan, COO of Quatrro Global Services says there's no need to send the stretcher-bearers out just yet.

"Cash is doing very well, thank you! Outside the Scandinavian countries and some African countries, cash is still in pole position. Even China; with all its digital innovations is still a heavy cash user. In India, cash is back with a renewed vengeance. As far as the Americans go; the $ 100 bill still remains the favourite of money launderers and drug dealers! In fact, data from the Fed suggests that there is more 100 $ bills outside US than in the US!"

Sriram offers wise advice to those making predictions of the currencies future:

"I think it is too fastidious to make any projections beyond 2022. We need to watch the growth of IoT and any new disruptive technology that may have the convenience of digital and the anonymity of cash."

But that's enough sensible debate; let's get back to the weird and wonderful battleground of the internet. I came across the following warning on a site I'm guessing is not a fan of fintech:

"And he causeth all, both small and great, rich and poor, free and bond, to receive a mark in their right hand, or in their foreheads:
And that no man might buy or sell, save he that had the mark, or the name of the beast, or the number of his name.
Here is wisdom. Let him that hath understanding count the number of the beast: for it is the number of a man;
And his number is Six hundred threescore and six."
Revelation 13:16-18 (KJV)

All good war-movies need a hero and a villain but you know it's big budget when they've cast God and the Devil to play the leads.


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