Stop extreme cash and stop it now

While I was undercover, as a sleeper deep behind enemy lines, at Security Printers 2016, I picked a copy of a report from Guillame Lepecq’s Cash Essentials.

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One section of the report talks about the European Commission’s 2010 recommendation on Legal Tender, which I’ve written about before.

A bank person mentioned to me that they think the European Commission’s recommendation on legal tender (22nd March 2010) is, as he put it, “strange and undesirable”.

From Tender moments | Consult Hyperion

After I’d taken the time to read and reflect on the recommendation, I posted a more sober and balanced perspective, giving a reasoned judgement on the recommendations.

the European commission published a bonkers recommendation concerning the legal tender status of the euro

From Electronic legal tender | Consult Hyperion

One of the main reasons that I think the recommendations are bonkers is because they have no strategic context and no economic purpose. They are wholly political, divorced from the dynamics of payment systems in the real world. They are also wholly contradictory. The always excellent Norbert Bielefeld (from the European Savings Bank Group) wrote about this five years ago. In an article called “Dare to be bold: electronic legal tender is an option” he wrote for the EPC newsletter (May 2011) he notes that the recommendation on Legal Tender

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

From Electronic legal tender | Consult Hyperion

So, as you can imagine, I thought I just had to blog something about these recommendations again! The Cash Essentials report sets out the “guiding principles” of the recommendation. Here are the first four, all of which are, in my opinion, wrong.

  1. Legal tender: mandatory acceptance of banknotes and coins, for full face value with the power to discharge debts. This is wrong because no-one should be forced to accept payment in anything. Legal tender, in English Law at least, does not mean what people think it means. It does not mean that shops have to accept cash: it means that if you incur a debt, you can settle it with central bank cash and have the debt discharged. If a shop wants to accept cowrie shells, Bitcoins and Avois that is up to them: you don’t have to do business with them and they don’t have to accommodate your fivers.
  2. Cash can only be refused for “good faith” reasons (e.g., retailer has no change). This is wrong because even if the mandatory acceptance of principal one exists, there is no way to determine what “good faith” means.
  3. The acceptance of high denomination banknotes should be “the rule”. This is wrong because of principle two. Just as “good faith” is meaningless, so “the rule” is meaningless. And that’s is not even taking into account that it is wrong for society to have these high denomination notes in circulation.
  4. No surcharges on cash payments.This is wrong because retailers should be allowed to surcharge for whatever they want. If the Commission wants to single out the payment method that has the lowest total social cost and make that the benchmark against which other mechanisms are surcharged, then it is PIN debit. The rule should be no surcharging for PIN debit but allow surcharging for everything else.

I won’t go on. Except to talk about the later recommendation about coins for a moment. Coins? Yes, the recommendation goes on to insist that retailers accept the 1- and 2-euro cent coins and that governments do not allow “rounding”. To understand why anyone would make such a baffling recommendation, you have to understand that the euro is for some people (e.g., the Commission) a political project. To retailers, and to most other people, the small coins are pointless and a waste of time and effort. But to the Commission they represent an aspect of the European family and to refuse them is a slap in the face to political union. There are people out there who think that producing the smallest denomination coins is a ridiculous affectation and it may be time to stop: if there are none of these coins in circulation then retailers won’t have to accept them so the Commission’s principle is redundant.

Mark Carney, the Governor of the Bank of England, has suggested that the 1,200-year-old British penny could be scrapped.

From After 1,200 years, could it really be time for the penny to be dropped?

Actually, I’ve suggested this more than once and even tried to get a No. 10 petition about it going, but just because he’s the Governor of the Bank of England so his plagiarised proposal gets all the attention. Meanwhile, across the Irish Sea, the Commission’s recommendation appears to have fallen on deaf ears.

Some 126 million coins have been taken out of circulation since a scheme was introduced to round shoppers’ bills up or down.

From 126 million coins taken out of circulation

Ireland can do it, why can’t we? Minting one penny and two penny, one cent and one euro cent coins is a waste of manpower and metal. The European Commission might stand against rounding, but even in that last redoubt of currency conservatism, the United States, the writing is on the wall and rounding is taking root. For one thing, they are a waste of time.

According to a study undertaken by the National Association of Convenience Stores and Walgreens, handling pennies adds 2 to 2.5 seconds to each cash transaction.

[From The Fight Against the Penny | News | Oakland, Berkeley, Bay Area & California | East Bay Express]

Who can blame retailers for wanting to get rid of them then? And they don’t have to wait for national policy! They can just decide to do it for themselves. This what the Cheeseboard Pizzeria has been doing at its eleven Bay Area stores for five years now.

Although Mike’s Bikes and Cheeseboard Pizzeria still accept pennies as payment, neither store hands them out in change. Instead, both stores round transactions down in the customer’s favor to the nearest nickel. Although the stores lose a little from the rounding, [Owner Ken Adams] said it’s ultimately worth it: “For us, it’s a net savings. It’s more convenient, and the time it takes to roll the pennies and deal with them makes it worth it.”

[From The Fight Against the Penny | News | Oakland, Berkeley, Bay Area & California | East Bay Express]

To the man, or woman, or indeed LBGT person in the street, it is obvious that coins are an antiquated affectation. I judge there to be widespread opposition to the sound policy of halting 1p and 2p production immediately. And now that Mr. Carney no longer has to pay any mind to the prognostications of Brussels in this respect, he should listen to this sensible Swedish lady.

The Swedish central bank’s recent release of a new line of bills and coins struck her as foolish. “It’s trying to be more like the E.U.two-kronor coins and things like that,” she said. “But it’s, like, why? What’s the point? No one uses it anymore.”

From Imagining a Cashless World – The New Yorker

Whatever the European Commission might think,  I don’t think retailers should be forced to accept cash at all, but if they are, there’s no reason why they should accommodate the extremes: the 1- and 2- cent coins, the €200 and €500 notes. Let them wither or, better still, just get rid of them altogether. Now.

[Corrected 6th November 2016: Norbert’s affiliation]

Money with negative added value

The Zimbabwean Dollar officially vanished on 15th June. Those people unfortunate enough to hold any remaining Zim$ will have until September to exchange their bank notes for Uncle Sam’s at the rate of 35 QUADRILLION to one. Yes, that’s right: no spelling mistake. A quadrillion is ONE THOUSAND TRILLION or, to put it another way, ONE MILLION BILLION. I’m no expert on international commodity prices and the current price of waste for recycling, but at that rate Zim$ literally cannot be worth the paper they are printed on. One Zimbabwean quoted in the report says he used his for garden manure so they literally ain’t worth shit. Meanwhile, in Socialist egalitarian paradise Venezuela…

some part of Venezuela’s coinage is now worth more as scrap metal than it is as money. To the point that you’d probably do better by going and getting change from a bank rather than robbing it.

[From The Mystery Of Venezuela’s Missing Coins – Forbes]

The smallest Venezuelan coins are now worth approximately 20 times as much as scrap metal as they are as money. That’s much better than in the US, for example, where minting the smallest coins only wastes a hundred millions of dollars or so per annum, a small price to pay for all those jobs at the mint and in the zinc supply chain. Yes, zinc. The “zinc lobby” continue to defend the insane practice of manufacturing pennies.

For the year, the cent generated negative seigniorage of $55 million and the nickel generated negative seigniorage of $49.5 million. These negative amounts were more than offset by the positive seigniorage from the other denominations.

[From US Mint Releases Alternative Metals Research and Development Report | Coin Update]

So the Mint loses money on pennies and nickels and makes money on dimes and quarters. I say the message is clear: dump the pennies and nickels. Abandon the kind of negative seigniorage we associate with third-world Marxist central planning and let the market work. We should do the same here in the UK.

The penny is virtually worthless and useless; the 2p is absurdly large for what it is. So when it was introduced 40-odd years ago, one 2p coin was about enough to buy a second class stamp, or a Mars bar. Today you’d have to have a pile of 20 or 30 to do the same. The 5p should probably be the minimum unit, and prices rounded down to cope with it, as has happened in other countries in the same situation

[From Should we get rid of the penny and 2p coins? – Business Analysis & Features – Business – The Independent]

Would it be such a big deal to just scrap the 1p and 2p? There’s no need to phase them or re-engineer them. As we move into the age of digital money they are past their sell by date. The Irish government ran an experiment on this last year: we should do the same and I suggest Swindon is the obvious place to begin..

A new national survey shows that [Irish consumers] favour the withdrawal of 1c and 2c copper coins. Some 85pc of consumers surveyed were in favour of extending an initiative nationwide to round up and down prices… The survey follows a pilot programme in Wexford where prices in shops were rounded to the nearest 5c at cash registers. The Central Bank has now recommended the roll-out of a voluntary scheme across the State aimed at cutting the use of 1c and 2c coins.

[From Time for change as 85pc want to banish coppers – Independent.ie]

The Irish are not in vanguard here. in fact, the idea of getting rid of coins is widespread.

Five EU member states have already adopted a rounding policy that dispenses with the need for the small-denomination coins. The countries include the Netherlands, Sweden, Finland, Denmark and Hungary, while Belgium is currently in the process of adopting it.

[From Time for change as 85pc want to banish coppers – Independent.ie]

Baronet Osborne should take the plunge. Enough is enough. Scrap the coppers. I’ve set up a national petition to ban the 1p and 2p piece in Swindon City-of-the-Future to celebrate the 20th anniversary of the launch of Mondex there. Help me to get this discussed in Parliament: join my campaign here! Well, if they re-open the UK government petitions site in time anyway.

We must have practical cash alternatives for supermarkets and strippers

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If we are going to replace cash with more efficient electronic alternatives, we must have practical solutions to hand for certain niches not suited to digital revolution.


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