Written by - Leander Bindewald, Researcher and Project Manager, Complementary Currencies, New Economics Foundation.
- Shane Happach, Chief Commercial Officer, eCommerce, WorldPay.
- Chris Salmon, Executive Director, Banking and Chief Cashier, Bank of England.
Chris Salmon, who was speaking in a personal capacity, is a) a good sport and b) the guy whose signature is on British banknotes! Here I am giving him a few tips on banking supervision and currency management.
A couple of the attendees said to me afterwards that they thought the panel had worked very well because of the different perspectives of the panelists. I agree: I felt that I learned a lot from their observations and since, ironically, the meeting at Chatham House was not held under the famous Chatham House rule and you can listen to the audio online [at the bottom of the page] I can pass on a couple of my observations on their comments.
- Chris made some measured observations on the general issue of digital currency and said in the passing that Bitcoin might turn out to be a bit like MySpace, which I thought was both perceptive and realistic. If crypto currency is the future money, it is unlikely that evolution will have stumbled across the optimum solution so early. Perhaps the future of money has crawled out of the oceans and learned to breathe, but it hasn’t yet adjusted to life in the trees.
- Shane spoke from a commercial perspective and said that their merchants were not demanding Bitcoin as a payment mechanism. This is, I suspect, because most of the Bitcoin activity is speculative trading rather than commerce. I don’t know what proportion of Bitcoin transactions are in payment for goods and services, and therefore of interest to organisations such as WorldPay, but I suspect it’s still small.
- Leander framed Bitcoin in the wider context of alternative currencies and made the point that it is part of a spectrum of developments in this field.
There were some great questions from the floor at the end and some wide ranging discussions. At one point the discussion touched on the use of Bitcoin for criminal activity, which I think is a bit of a red herring. While I understand the natural media tendency to look at Silk Road and such like, I don’t think we should let it obscure useful discussion and debate.
Dave Birch: despite media focus on digital currencies, no better way to launder money than cash #CHevents #bitcoin @dgwbirch
— Benoît Gomis (@benoitgomis) November 19, 2013
I made a point about this by reference to Somalia. Somali pirates, a very successful cash-based business, do not, by and large, ask for their ransom in Bitcoin, and I mentioned this, using the opportunity to make a joke about how proud I am of the UK’s leading role in managing anonymous, untraceable ransom cash for East African unlicensed marine entrepreneurs. I think some people in the audience thought that I was joking about this, but I wasn’t.
Britain’s leading position in the international financial services industry is well-deserved. For example, between a quarter and a third of all of the ransom money payments to Somali pirates flow through London (according to the “Sunday Telegraph”, 15th January 2012, page 4) where they are approved by the Serious Organised Crime Agency (SOCA) before the cash is airfreighted out to the East African informal entrepreneurial groups responsible for the temporary management of the ships, crews and cargos.
For ordinary Somalis, who are not pirates, transferring money from the UK back home is much more complicated. In this respect, Barclays and HSBC have been in the news of late, attracting a lot of criticism because they have been closing accounts. First Barclays decided the close the accounts of money transfer operators working in Somalia.
Humanitarian groups, politicians and Somalis themselves are now sounding the alarm over plans by the British bank Barclays to suspend the accounts of a number of money transfer companies used to send money to developing countries — rather than risk a run-in with regulators over potentially abetting the financing of terrorists or money laundering.
[From Somalis Face a Snag in Lifelines From Abroad – NYTimes.com]
Then HSBC made some headlines for closing the accounts of embassies and diplomatic missions. I thought some of the online comment about these banks was a little unfair. These are, of course, a problem with the regulators, not a problem with Barclays or with HSBC. It is the regulators who impose stringent Know Your Customer (KYC), Anti-Money Laundering (AML) and Anti-Terrorist Finance (ATF) requirements and then slap gigantic fines on banks for not complying with them. Suppose Barclays does a KYC on me when I open up my Somali money transfer business and it turns out all OK, and they strictly comply with all the rules, and then downstream in turns out that I once sent some money to my brother who is a pirate and then some lawyers in the US come after Barclays for a billion quid. You can see from their point of view it’s not worth the risk. And this has significant consequences.
A reduction in competition in the African remittance market will drive up prices. Africans already pay more than any other migrant group to send money home. The cost of remitting to sub-Saharan Africa, typically around 12%, is three percentage points higher than the global average, according to the World Bank.
[From African money transfers: Let them remit | The Economist]
The people who mainly lose out are the families of the migrants who are sending back remittances. I’m sure the terrorists and money launderers are happy to accept the slightly higher costs associated with the transfer of dirty money – they don’t care.
“The alternative is bulk cash smuggling, carrying suitcases of cash across the border from other places,” said Jonathan Schanzer, the vice president for research at the Foundation for Defense of Democracies and a former terrorism finance analyst at the United States Treasury.
[From Somalis Face a Snag in Lifelines From Abroad – NYTimes.com]
Indeed. And with cash smuggling, law enforcement has absolutely no idea how much money is crossing the border or where it is going to, except in the case of piracy where the money is counted out accurately for insurance purposes. It’s an interesting exercise for the reader to consider how Somali pirates might get paid if there was no cash. In goods and services, I imagine. A good idea for a movie! W.S. Jeevons meets Tom Hanks.
One final point. Somalia is not to be confused with Somaliland.
In the cities of Somaliland, the future has arrived: cash is disappearing, credit cards are unnecessary, and daily shopping is speedy and digital. Almost every merchant, even hawkers on the street, accepts payment by cellphone.
[From How mobile phones are making cash obsolete in Africa – The Globe and Mail]
It is fascinating to me that the lack of control over these mobile money systems seems to stimulate innovation and investment to the point where they have the potential to replace cash!
I suspect, although I’ve never been to Somaliland, that one of the reasons that Zaad and the telecommunications systems are so successful is precisely because the government hasn’t been able to control them.
[From The world’s first cashless country]
In one way and another, East Africa, it seems to me, is at the heart of the discussion about the future of money.
These are personal opinions and should not be misunderstood as representing the opinions of
Consult Hyperion or any of its clients or suppliers
