[Dave Birch] Peter Jones of Payment Systems Europe, a long time friend of the Digital Money Forum and this year’s chair of the European Perspectives session on 24th April, has written a typically excellent piece for European Card Review called “Europe set to lose its ‘war on cash'”. He says that “Despite its high profile there are indications that the eurozone may lose its ‘War on Cash’. The banking sector appears unable to deliver a strategy and vision… The eurozone remains highly cashcentric and there is evidence that the current cash growth outstrips substitution by cards and electronics”.

Oh dear. So much for the Lisbon agenda and all that.

The central banks are charged with making the European economy more competitive, and replacing cash with electronic transactions is an easy win in this regards. Yet the central banks income, as we drone on and on about here, comes from the least efficient payment mechanism of all, cash. Surely there’s some tension here?

Peter concluded “So will the EU win the ‘War on Cash’ and achieve improved efficiency in payments? Without focus and leadership this appears unlikely. Fragmentation will grow as will the eurozone’s costly cash mountain. Sadly the indications are Europe’s payments sector productivity will take years to achieve best in world performance”. A disappointing conclusion, but Peter is, of course, right.

Is it merely a question of introducing a functioning market with proper pricing, or are there some entrenched interests (eg, drug dealers) set against cash replacement? Peter quotes Gertrude, as I did, to show the European Central Bank’s leadership, but I would argue that if Gertrude wanted to take some practical action she has plenty of options: she could stop printing 500 euro notes, for one thing. The alternative (my favoured strategy) would be to rely on competition and enterprise rather than regulation to deliver the improved competitiveness that she wants in Europe. The ECB should be agitating to make the KYC/AML requirements less onerous for small payments, to make it easier for non-banks to compete in the payments world and to make national governments use electronic means for welfare, benefits and pensions. If they took some positive action in these directions, then Peter’s analysis might take a turn for the better.

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

1 comment

  1. I recently found a nice new discount shop for all the great computer gear we can think of, just down my street. It is one of these “must order from Internet” shops, with a row of browsing stations to help you do that. Best bit is, there is a 2% discount for cash.
    If one were to accept the cashier’s explanation, it is because the banks charge 2% for the normal direct transfer. As this is a chain operation with some 10 or so stores, it suggests that cash is at least cheaper than 2%.
    I think you are right. Only competition will deliver productivity increases. Giving banks less competition by removing cash will likely just move the numbers in their favour.

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