Electronic legal tender

[Dave Birch] Some time ago, in what seems like a distant, almost mythical age, the European commission published a bonkers recommendation concerning the legal tender status of the euro and setting out a number of principles to, essentially, force unwilling consumers and retailers to use high denomination euro notes and low denomination euro coins. At the time, I said

I think this recommendation is plain wrong, but it doesn’t take economics into account. Part of the EU’s goal for payment systems should be economic efficiency and forcing your average tabac to take 500 euro notes does not contribute to that goal in any way.
[From Digital Money: Tender moments]

As Norbert Bielefeld of the European Central bank noted in his excellent article “Dare to be bold: electronic legal tender is an option” in the EPC newsletter back in May 2011, the recommendation flatly contradicts the European Union’s strategic objective to switch to electronic payment methods in order to reduce the total social cost of payments across the member states. I don’t suppose the Commission’s incoherent agenda about payments should be any more surprising than its incoherent agendas about anything else, but surely there’s less excuse. Who can be against the desire to reduce the cost to society? That’s something of a rhetorical question, but if it does have an answer, then the answer can be found in the parable of the candle makers as set down by the noted French economist and Tomorrow’s Transaction blog hall of famer Frederic Bastiat a great many years ago.

When the beneficiary of a regulatory change is the net welfare, that means each and every one of us consumers is a little bit better off. But a few people will be worse off. And these are the people (retailers, car manufacturers, farmers or whoever) who set the media agenda and lobby the regulators..
[From Digital Money: Ad valorem, add value]

Thus, in an economic situation where there are a few big losers but the net welfare is increased because of the large number of small winners, then the lobbying ability of the big losers can force a sub-optimal conclusion to economic negotiations. (This is what you might call the “Cliff Richard effect” as seen in the war between Big Content and the rest of society over copyright.)

This may seem like an esoteric discussion, but it isn’t for two very real reasons. First of all, there seems to be general agreement that the euro cannot continue in its current form, in which case new currencies will arise whether at the regional national or subnational level. I was thinking about this because I read that the new Wolfson Prize for Economics (£250,000!) is for someone who can suggest how a country might make an orderly exit from the euro. I’ve already suggested how this might be done and how the e-payments sector might support social and economic change much to the benefit of the general populace.

Greece could pull out of the Euro and create a “hard e-drachma”.
[From What’s a Grecian e-urn?]

The second reason why the discussion is not esoteric is that the new technology platforms coming into place in payments will make the creation and distribution of alternative and complementary currencies almost trivial. For a consumer in London to choose between the British pound and the Brixton pound will be no more taxing than choosing a different ring tone on their mobile phone. In both cases the issue of electronic legal tender is real and immediate. Norbert is optimistic.

A forward looking solution could however be rather close. Europe’s payment systems have proven that they are secure and reliable and they are certainly well overseen. The Payment Services Directive has provided for much enhanced consumer protection for non-cash payment instruments and both this Directive as well as the e-Money Directive (now being transposed) allow for quality competition.
[From EPC | Article]

This is the kind of discussion I’m sure we’ll see at the 5th London bar camp bank un-conference on 6 February 2012 at Nesta. This event, supported by consult Hyperion, will be (as it was last year) a sell-out, I’m sure, so don’t delay! Pop over to Meetup and register for the event today. Note that we have chosen this date as it is the day before Finovate Europe 2012 and we hope that our friends from overseas who are coming to London for Finovate will take advantage and stay over.

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Consult Hyperion or any of its clients or suppliers