What I was asking back then was, in essence, how could the benefits of digital money be extended across a country in which one in five adults has no current account and four million people still rely on cash to pay their bills (a figure that appears to have remained steady for a decade) ?
This question still stands, and answering it now has added impetus in a SEPA context, since one of the key hopes of SEPA is to boost cashlessness in Europe (Getrude Tumpel-Gugerell, who is in charge of such things at the European Central Bank, is already talking about eSEPA as the next step on this path). The dynamics of payments within SEPA were neatly summarised in a paper by McKinsey: cash is subsidised by electronic payments, businesses subsidise consumers and interest margins provide most of the revenues. With these dynamics, where do we go?
So, to restate my 1997 question in a 2007 context, what should the European Commission do about those who can’t or won’t move to digital money? There are, essentially, three options as far as I can see:
- People should be allowed to continue to use notes and coins at their own expense (which ought to be the Anglo-Saxon option), or
- People should be allowed to continue using physical cash but at someone else’s expense (which we might call the French option although it is the regime in the UK as well, where taxpayers fund the post office network so that people who don’t want bank accounts can muck around with cash at the taxpayer’s expense not their own), or
- People should not be allowed to continue to use physical cash. I’d be tempted to label this the North Korean option, although a similar money technology rollover policy was once in place in China. According to Marco Polo, Kublai Khan made all travellers to China exchange their technology implementing the means of exchange (ie, gold and silver) for his (ie, paper). As was the general approach, he took a more robust line on the cut-off: if you tried to use bullion in a transaction, your head would be cut off. I don’t think the European Court of Human Rights would endorse such a policy, even for something as important as eSEPA.
While options 1 or 2 may intuitively seem to fit with people’s conservative nature and while certain lobby groups (for the aged, the poor and so forth) might prefer option 2 over option 1, it may well be that taking the apparently extreme step of dumping notes and coins altogether is the only realistic option for the future. This implies some form of regulation or, at least, firm government policy to open up the benefits to society as a whole. Let’s pretend. How about a carrot-and-stick approach: the ECB announces that from 1st January 2011 (SEPA day) notes and coins are no longer legal tender and public authorities can no longer accept them in payment, even for taxes. Throughout 2010, anyone who deposits cash to fund a SEPA-compliant payment-capable account (including prepaid cards) is paid a 1% bonus by the government up to a limit of, say, 10K euros or something. That way, they get to share in the savings made to the economy by getting rid of notes and coins and European GDP grows 0.5% percent in return for an one-off bribe of 1% of Euro-M0.