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« Freebanking and free banking | Main | Slow penetration »

Cashlessness and futures

By Dave Birch posted Feb 15 2008 at 9:46 AM
[Dave Birch] Chris Skinner was talking about cashlessness over at FinanSer but says that we're not going in the direction. In fact,
instead we have rising levels of cash in the economy
[From The FinanSer: But cash is better than cashless]
I don't think that's true, or at least true everywhere. In Iceland, 93% of all retail transactions are non-cash. Recent data by the Bank of Japan showed that the number of coins in circulation dropped 0.25 percent to ¥91.45 billion in June, the largest year-on-year decline ever, due largely to the spread of e-money. In Hong Kong, the Octopus transit card has replaced 1% of the cash in circulation. In Singapore, the government has been considering Singapore Electronic Legal Tender (SELT). In Japan, unlike all other developed countries, the number of coins in circulation has started to fall (because of mobile phone-based payments). In Kenya, the new mobile payment system M-PESA has more than a million customers. In the UK, debit cards have overtaken credit cards and cheques will certainly vanish in our lifetimes. It seems as if the trend toward electronic payments is accelerating around the world.
How far will this trend go? Since the social cost of cash is high, and the associated transaction costs fall disproportionately on the poor, we might all be better off once the shift to e-paymemnt (m-payment, actually, for most people in most of the world) is complete. But we need to explore to be sure: there are some aspects of cash (such as anonymity) that are valued and we need to understand how and why some characteristics might need to be preserved. Is a cashless economy realistic? Or desirable? How might such an economy emerge and is it possible to imagine the impact of the end of notes and coins?

I'm going to be presenting on this topic at the London Futures Symposium on 18th April at the invitation of the European Futures Observatory. I've never presented at one of their events before so I'm really looking forward to meeting the folks there and hearing some ideas from them too.

You can come along and hear some of these ideas too! The kind people at the European Futures Observatory have kindly agreed to let me offer free delegate pass to this event -- worth an amazing ONE HUNDRED AND TWENTY FIVE of your English pounds (plus VAT) -- as a blog prize. So here we go: if you will be in London on April 18th 2008 and you would like to come along, all you have to do is be the first person to reply to this thread with the name of the London Olympics 2012 financial services partner who announced a contactless payments roll out this week.

In the traditional fashion, this competition is open to all except for employees of Consult Hyperion and members of my immediate family. Oh, and no-one can win more than one of the Digital Money Blog prizes per calendar year.

These opinions are my own (I think) and presented solely in my capacity as an interested member of the general public [posted with ecto]

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Comments

Good stuff Dave ... the comment I took note of from Nyberg btw is:

"M0 in nominal terms has actually increased. If we look at the statistics for ATM withdrawals, we find that the total transaction value has remained fairly constant at around SEK 275 billion a year during the entire 2000s. The number of cash withdrawals has been around SEK 320 million."

He notes that cash in Sweden went down steadily but reached a minimum level ... that's why he concluded you'd never get rid of it!

"Last year, the value of notes in circulation was still growing at annual rates approaching 10 per cent and overtook the value of dollar bills."

It is certainly true that the 500 euro note has replaced the dollar bill as the drug dealer's favourite mattress stuffing, but that doesn't mean that the value of cash used for transactions has risen: in fact, I have evidence to believe otherwise and will post shortly.

I thought for a minute that was Lars Nyberg, the former CEO of NCR, who obviously would promote the idea of keeping cash ... but it's a different Nyberg.

Meanwhile, we used to say that the paperless office was about as likely as a paperless toilet ... and the Japanese have those too!

You might like to look at a recent Speech by Mr Lars Nyberg, Deputy Governor of the Sveriges Riksbank entitled 'Cash and payments – what lies ahead?'
It is at
http://www.bis.org/review/r080213e.pdf
He thinks a cashless society is as likely as a paperless office.

Ah, Mr. Birch,

It is true that the total value of cash circulating in the economy is rising ... but you may be pointing to the fact that this is at a decreasing rate. For example, the FT noted on 28th January with the launch of SEPA the following:

"'We don’t expect in the next 20 years to reach a society where no cash is used at all,' Ms Tumpel-Gugerell said in an interview with the Financial Times.

"Europeans have shown an enduring addiction to using cash. Last year, the value of notes in circulation was still growing at annual rates approaching 10 per cent and overtook the value of dollar bills. In Europe, six in seven payments are made with cash, according to the ECB.

"Explanations include tax evasion, fears about privacy and the cost of card transactions. But Ms Tumpel-Gugerell, a former vice-governor of Austria’s central bank who has responsibility at the ECB for payment systems, also suggested eurozone consumers feared greater card use would encourage impulse spending."

Hence, we are still seeing cash increasing right now. One day, one day ...

Chris


We have a winner! Please e-mail me Laura and I will arrange for your delegate pass.

Lloyds TSB is the answer, I think!

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