Tag: cashlessness

Taking the cash out of a pop festival (literally)

9th July 2016by Consult HyperionLeave a comment

A lovely story of Caledonian crime dropped in through the interweb tubes this weekend. It must have taken some balls to do it, so I have sneaking admiration for the ne’erdowells behind this one.

A cash machine has been stolen from the main arena area at the T in the Park festival.

From Cash machine stolen from main arena of T in the Park site

My son went to this pop festival, as I believe they are known, last year. I armed him with Barclaycard bPay wristband to pay for essentials whilst bopping along to the variety of popular beat combos on show. This turned out to be completely pointless because a) no-one of the stall look cards, let along contactless and b) he lost the wristband on the first day. I’ve written before about cashlessnees in these environments (e.g., my expedition to the Roskilde Festival in Denmark) and I don’t want to go over old ground again, but the advantages of getting cash out of these environments are many and varied.

I have been to many of these “festivals” myself

How the braveheart burglars got away with this one I don’t know. You can hardly stick an ATM under your trench coat and I imagine ATMs have some sort of GPS tracing device on board so it’s hard to know how you can make off with one, but there you go. It’s time for action. They should ban cash completely from this sort of event. It is nothing but trouble. From tax-evading criminal gangs running some of the pitches to thefts and losses, to massive queues for ATMs, it is a hassle from beginning to end. The only reason to take cash to pop festivals, at least as far as I can recall from my time at such happenings, was to buy drugs.

We didn’t have mobile payments in my day

Nowadays the kids have Venmo and PingIt and debit cards and Bitcoin and iZettle and what not so there’s no need to put them in the vulnerable position of carrying cash. The market seems unable to provide a suitable payment mechanism, like Pop-PESA or something, so perhaps the Scottish authorities should step in and follow the trail blazed in Ohio. Since banks and card companies won’t provide a convenient and safe alternative to cash for the purchase of mind-altering chemicals other than alcohol and Night Nurse, the state should.

Ohio’s new medical marijuana law proposes a new way around the bank problem. The law allows state officials to set up a “closed loop” payment processing system, similar to prepaid debit and gift cards.

From Cashless payment system proposed for Ohio medical marijuana program | cleveland.com

Why not provide prepaid pseudonymous debit cards so that they could be used for the purchase of both legitimate and illegitimate goods (not only at festivals) with a cryptographically protected link to real identity that would be revealed by the issuer only under appropriate legal circumstances (i.e., a warrant). Why is it a byproduct of buying anything at all that your identity is provided to your counterparty when it has nothing to do with the transaction? It’s for a new kind of blank debit card – no name, no number on the front, no CVV, no stripe – that can only be issued to adults.

We didn’t have mobile phones, so we had to talk to each other at festivals

There was a very good edition of “In Business” on the BBC recently where Peter Day visited Colorado and noted the problems associate with the use of cash (“armoured cars full of cash a common sight”). This is all because of the bizarre situation in the US where marijuana is legal in some states but you can’t use electronic payments to buy it.

But despite the legality of at least medical marijuana in many states, and the Department of Justice’s mostly hands-off approach to state-legal businesses, the federal ban still means that every financial institution serving marijuana businesses is theoretically violating anti-money laundering laws

From Pot Banking 2016: More State Ballots But Continued Unease | Bank Think

This isn’t only about marijuana and pop festivals, of course. There is a general problem around the tension between social and financial inclusion, law enforcement and regulatory environments. John Vardaman, until recently with the Department of Justice, summed this up nicely in American Banker back in April, noting that “We’ve seen large financial institutions exiting what have been deemed high-risk areas categorically. The effect is that whole swaths of legitimate businesses have been frozen out of banking”. If we are going to take the risk-based approach to all of this seriously, it means making low-value, pseudonymous payment accounts available to all.

Cashless as Count Zero

1st February 2016by Consult Hyperion1 Comment

Speaking at this year’s World Economic Forum in Davos, John Cryan (the co-CEO of Deutsche Bank AG), said that cash could become history “within a decade”, going on to note that it is terribly inefficient. Mr. Cryan also focused on the way in which cash supports the underground economy.

Cash should be dematerialised, he said in a panel on the future of finance – and governments should be interested in this process because it would make transitions more traceable and would help to combat illegal financing or money laundry.
[From Bank chief: The end of cash could happen within a decade EurActiv]

Yes, all good reasons for getting rid of it. Hence it seems to reasonable to ask, and were I to have been present in Davos I would certainly have asked, why it is that central banks keep pumping the stuff out? On Deutsche Bank’s home turf, for example, cash is already undermining the law-abiding majority.

As even the most cursory examination of the statistics shows, virtually none of this cash is used to support the needs of commerce (the Bundesbank estimated that only 10-15% was used for this) and the rest of it is unexplained , as they say.
[From Behind enemy lines Consult Hyperion]

This tallies with the Bank of England’s estimates that perhaps a quarter of the cash in circulation in the United Kingdom is for what they call “transactional purposes”. So in two of the world’s largest economies, at most a quarter of the cash out there is actually used as a medium of exchange. And this fraction is, as you might imagine, steadily falling as cash is replaced at POS and, increasingly, in inter-personal transactions. I just paid Vic Keegan the money I owed him for the football on Saturday using my bank’s app and I can’t imagine how I might be persuaded to go to an ATM and draw out money to post to him instead.

Nevertheless, as cash is falling out of favour as a means of exchange, the amount of the stuff “in circulation” continues to grow. Here are the Bank of England’s figures for the UK over the last forty years.

So. Cash on the road to extinction? Well, as the chart above shows, there is now more cash than ever in circulation in the UK and the amount of cash as a fraction of GDP is trending up, not down. What on Earth is going on? More £50 notes than ever out there and I never see one from one year’s end to the next. Cash increasing as a proportion of GDP but falling as a share of retailer payments so, as we discussed here recently, who is using it and what for?

Look, I think Mr. Cryan is right, although probably not in the way that he means it. I mean that we will be effectively cashless in the timescale he discusses. Cashless in the Count Zero sense: cash will still be around and it will still be legal tender (although I don’t think people understand what a limited concept this is), but cash will disappear from polite society and from the daily lives of most people. The middle classes will never see the stuff. Although, to be frank, they pretty much don’t see it now as we are a debit card society.

He had his cash money, but you couldn’t pay for food with that. It wasn’t actually illegal to have the stuff, it was just that nobody ever did anything legitimate with it.
[From Count Zero – By William Gibson]

Assuming there still is a European Union in a decade then there will still be Euro banknotes and there will still be Eurocoins coins. But they won’t matter for business or for the economy. If this is the cashlessness that the Deutsche Bank co-CEO is imagining, then I’d say he is spot on. It’s a cashlessness that is too conservative to reap the benefits of a truly cashless economy, too disorganised to reign in the criminal exploitation of cash and too wedded to the symbolism of physical money to switch it off (just as we switched off analogue TV not that long ago).

Thus by “cashless”, I mean that cash has ceased to be relevant to monetary policy, become irrelevant to most individuals and vanished from most businesses. As we look to the future, we can begin to ask, quite reasonably, whether developments in digital payment technology and changes in payments and banking regulation will bring us to the point of this kind of cashlessness within, say, a generation as Mr. Cryan and I expect? The answer is probably yes, but that doesn’t mean we can’t take action to make sure!

That M0 rump cash (and I exclude various categories of post-functional cash from this definition) should be actively managed out of existence. Europe needs politicians to take this seriously and put forward concrete and reasonable plans to achieve effective cashlessness. In order to help them in this endeavour, I am gathering input from a group of colleagues to assemble a “Manifesto for Cashlessness” to put forward with my good friend Geronimo Emili from Cashlessway at Money2020 Europe in Copenhagen. Way back at the 1997 World Economic Forum in Davos there was a discussion about the electronic cash that attempted to cover all of the relevant topics and I’ve used it a few times because it provides a useful starting point for discussions. I’ve updated that list of issues and brought them together in a structure that I think rather helpfully identifies four key areas that I’m going to use to structure the manifesto (any more than four key points and no-one will remember them!) over the next couple of weeks.

So… if you have any comments on any of these issues please don’t be show and post them as comments on this post. I am genuinely interested to see what you think.

Bank of England PESA

24th September 2015by Consult Hyperion2 Comments

Last week I wrote a comment piece for The Guardian, in connection with the Bank of England’s latest figures on the use of cash. I put an expanded version of the piece here on the blog. Little did I know just how immediate and widespread would be the influence of this polemic. Only a day later and the Chief Economist at the Bank of England was agreeing with me, for sound monetary policy reasons.

“It would allow negative interest rates to be levied on currency easily and speedily,” Mr Haldane added, using technology similar to that embodied in Bitcoin.
[From Scrap cash altogether, says Bank of England’s chief economist – FT.com]

A couple of days after that, and the noted economist John Kay (I am reading his excellent book “Other People’s Money” at the moment) is agreeing with me as well! In yesterday’s Financial Times he also noted the strange paradox of cash use falling yet cash “in circulation” continuing to rise and drew the same conclusion that I did. We need policy action.

The volume of currency in circulation has risen as the need for such currency in legitimate activity has declined. This is not a comforting combination. Policymakers should progress towards a cashless society.
[From The mystery of the vanishing dollars, euros and pounds – FT.com]

So let’s take it as read that it should be government policy to start reducing the amount of cash in circulation and that the Bank of England needs to come up with a plan to introduce a digital alternative. The Chief Economist touched on this, although his implausible implementation outline involving “technology similar to that embodied in Bitcoin” owed more, I think, to newspaper nonsense about cryptocurrency than to reasoned high-level architectural reflection, since the computational expense of a proof-of-work blockchain is completely pointless in a centralised Bank of England e-fiat digital cash scheme. Nevertheless, his point about a Bank of England electronic cash alternative is worth examining.

“This would preserve the social convention of a state-issued unit of account and medium of exchange, albeit with currency now held in digital rather than physical wallets,” he said.
[From Scrap cash altogether, says Bank of England’s chief economist – FT.com]

I noticed that some commentators took this remark to mean something positive for Bitcoin. That I seriously doubt, since the whole point of Bitcoin is to not have an issuer. As Chris Cook said on Twitter, this would be a financial platypus! Had Andy been more informed on the complexities of digital money and had he consulted a relevant expert (eg, me), I imagine that would instead have said “a technology similar to that embodied in M-PESA, Venmo and FPS”. The idea of the Bank of England running a national pre-paid account scheme is not at all far-fetched and if it was given a decent mobile front-end (like Venmo), had instant transfers in and out of the banking system (like FPS) and was super-efficient since transfers between accounts would just be a few bytes changing in a database (like M-PESA) it could easily handle a few thousand transactions per second. And with some decent APIs for developers to get hold of, it shouldn’t take long before it became a standard component of national commerce and, as Adam Smith would have said, a superhighway bringing goods and services to market.

Naturally the system should work on the basis of paynames so that if, for example, you wanted to make a valuable contribution to a worthy cause, such as the Dave Birch Holiday Home in the South of France Emergency Appeal Fund, then you would simply use your Bank of England app to send the e-cash to £dgwbirch. Anyone would be able to open an account – no KYC/AML/ATF or any other buggering around until the amount transacted exceeded £10,000 – and we could fund the whole thing by selling vanity paynames. I’m sure someone would pay a shedload of money to get £007 or £888 or £wad or £sergioaquero or whatever so it wouldn’t even cost that much to put together. I should have liked to have put this idea forward as part of the UK’s Payment Strategy Forum but unfortunately the powers that be decided there was no room for a tribune of the people and influential innovator in this august body.

Apple Store, Covent Garden (September 2015).
Apparently, oligarchs and drug dealers are slow to convert to tokenisation.

If the government really was committed to innovation, then it would have included cash in the Payment System Regulator’s remit and given her specific targets for a reduction in the total social cost of payments in the economy. Had this happened, then the idea of a national e-money would already been under discussion. I shall mention this at the Payments UK Customer Engagement Network coffee morning today and test the water.

The Cashless Top 10

12th December 2014by Consult Hyperion3 Comments

How are a we doing on the road to digital money? Here’s a round the world, whistlestop tour of some countries who seem to be pulling ahead of the pack in the race to a fairer and more efficient economy.

Continue reading “The Cashless Top 10”