[Dave Birch] While I was putting together my slides for my talk on the “European Road to Cashlessness” at the ACI Exchange in Monaco, I began convince myself that we’ve reached a bit of a cusp. I’ve said before that all of the cost/benefit arguments about cash replacement don’t seem to have made much of an impact. We don’t have any national, or European, policy to reduce the total social cost of payments. Yet things are changing.

Members of Gen X (ages 30 – 39) – who came of age during the advent of electronic banking, online shopping and are now in the midst of the mobile wallet revolution – are most in favor of paying for everything electronically and a world in which they wouldn’t have to carry cash (61 percent). A significant portion (44 percent) of members of the baby boomer generation (age 55 and over) also favors a cashless society.

[From Survey Examines Shift Towards Cashless Society – Americans Use Less Cash Today Than 10 Years Ago | Business Wire]

Now we have the technology to get rid of cash and a growing demographic that doesn’t care about cash any more. And perhaps we now have a reason, other than business efficiency, to get rid of it. Having spent years calculating transaction costs as the basis for choices are around payments, I’m now wondering if it governments will, after all, begin to take some active measures to reduce the amount of cash in the economy for another reason.

There are growing pressures for governments to reduce the use of cash because it is used to facilitate crime and tax evasion more than because it is inefficient.

[From The technology of money]

Most European governments have been putting in place restrictions on the use of cash in transactions. I think I’m right in saying that in Greece now the limit is down to 450 euros. Spain is enacting similarly strict legislation.

Transactions of more than 2,500 euros that “involve at least one professional entrepreneur” won’t be allowed to be made in cash,

[From Spain to Limit Cash Transactions to Fight Tax Fraud – Bloomberg]

Similarly

Argentina limited the use of cash in the country’s financial markets as President Cristina Fernandez de Kirchner ramps up oversight of currency transactions. The government will restrict daily cash transactions to 1,000 pesos ($231) per person, down from 10,000 pesos, according to a statement today in the Official Gazette.

[From Argentina Tightens Limits on Use of Cash Transactions in Financial Markets – Bloomberg]

I’ll find out the latest situation in Italy when I pop down to Milan for “No Cash Day 2012” next week. In advanced economies, where the overwhelming majority of retail transactions are non-cash, there is less and less need to waste money on transporting, storing and protecting the stuff. Banks, who bear the lion’s share of the cost of cash, are forced to subsidise cash from more efficient electronic payment instruments but they too are starting to drive cash out.

The Stavanger branch stopped taking cash on May 1st, bringing it in line with company policy. Of Nordea’s 98 branches in Norway, only nine still handle cash.

[From Bank tells customer: We don’t take cash anymore — Counting On Currency]

Scandinavia is certainly in the forefront of the drive toward ceaselessness. Iceland has the most cashless economy in the world, with 90%+ of retail transactions non-cash and Norway is second with 70%+ of retail transactions non-cash. Sweden, though, is now accelerating. 

The most notable of these is Sweden, with just 3% of its economy in notes and coins, according to the Bank of International Settlements. (The U.S. economy is comprised of about 7% cash.) Indeed, many businesses in Stockholm no longer accept paper notes, several churches have installed credit card swiping devices in lieu of passing the collection basket, and even some small towns are entirely cashless.

[From Why Banks Want Us To Go Cashless – Business Insider]

When I get down to Milan I’m going to be suggesting that governments take positive action to do something about cash. In fact, I’m going to suggest three things. First, get rid of high value notes and low value coins. Second, make interchange-free debit a condition of a banking licence. Third, incentivise businesses. I’m writing this blog post in Monaco, near the heart of the French experiment in mobile proximity future of payments, yet at the airport yesterday I could not find a taxi that took electronic payments! I had to go and get cash. 

Some years back, the Republic of Korea (South Korea), implemented a scheme where retailers would pay a reduced VAT rate for payments received electronically (compared to cash).

[From Mobile Banking: Tax Cash]

I don’t understand why this isn’t implemented across the European Union, with immediate effect. It wouldn’t make much difference to government revenues in places like Norway and Finland where most retail transactions are already non-cash, but it would make a big difference in places like Greece and Italy.

By the way, I’ve thought of another positive. Obviously the switch to cashlessness will be opposed by people who print cash for a living. I think that they should start planning for new markets. There are some retail environments where it is quite hard to envisage an electronic replacement for cash because there are some retail environments where the medium is the message. What about strip clubs, for example?

Australia got around this – you don’t pay strippers with real currency, instead you buy “notes” from the strip club bar and they come in 1,2,5,10,20,50,100 denominations.

[From Freakonomics » Canada Kills Its Penny; Can We Please Be Next?]

This is where De La Rue and G&D can make a living after the abolition of cash in retail transactions – niche markets, like the money people give each other for Chinese New Year or at Greek Weddings..

These are personal opinions and should not be misunderstood as representing the opinions of 
Consult Hyperion or any of its clients or suppliers

 

 

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