The true goals of canceling cash

2024 Author: Seth Attwood | [email protected]. Last modified: 2023-12-16 15:55

On January 23, 2017, the EU Commission presented a plan according to which it intends to gradually introduce restrictions on cash payments. This plan is substantiated by the fight against crime and terrorism throughout the European Union.

Cash forever

Why cashless payments can never completely defeat cash

Printing presses in almost all countries of the world produce more and more banknotes and coins every year. As if there is no Apple Pay, no contactless cards, no other technological tricks. There are only a couple of countries in the world that have won cash. For everyone else, cash seems to be forever. But is it bad?

Don't rush to bury us

The volume of banknotes in circulation in the UK grew by 10% in 2016, which was the strongest growth in the last 10 years, and for the first time reached 70 billion pounds sterling. Voicing these numbers, Victoria Cleland, who is in charge of cash at the Bank of England, added that cash growth is typical for almost all countries of the world - despite all the technological advances in recent years, the ability to pay by mobile phone and even cryptocurrency. The share of non-cash payments is growing, but at the same time the amount of cash in the economy is growing.

Cash is expensive and unsafe, but that's only one side of the coin. Cash also has its own advantages, and for everyone involved in the process. Including for the state itself.

Let's take a look at the reasons why the cache is not only harmful, but also useful. And that gives reason to believe the words of Cleland of the Bank of England: "Cash has a future, and it is impressive."

First reason: supporting the economy

At the beginning of the 21st century, the share of cash payments in the UK dropped below 17% of all payments within the country. In 2011, the authorities launched a large-scale campaign that encouraged small payments in cash and was focused on minting coins. “This was primarily due to the fall in copper prices, which had an extremely negative impact on the balance of the domestic market and, accordingly, inflation,” says Evgenia Abramovich, head of the currency risk analysis department at Dukascopy Bank SA. The fact is that the UK, like the USA, Switzerland, Norway and the EU countries, prints coins from alloys with a high copper content. If you reduce the volume of coins in circulation, their production will cease to be profitable. As a result, 2011-2013 became a record year in the country for the issue of coins.

First of all, the coins were made indispensable for paying for parking, small fines (up to 20 pounds) and transport services. The police were even given a certain amount of coins so that citizens could change their bills. “In general, the percentage of cash was returned to 25-30% of the total retail turnover, although there are no exact data on dynamics, the Bank of England does not provide such figures, this is a consolidated assessment of various commercial banks,” Abramovich notes.

It would seem that copper coins are a contrived problem. You can beat a trifle from cheap alloys, as, for example, Russia does. But neither Great Britain, nor Switzerland, nor the United States want to move away from copper, seeing in this a decline in the country's prestige. “Of course, there is no direct relationship between the metal in which the coins are made,” Abramovich says. "However, as history has shown, currencies whose coins were made from steel, iron or some other inexpensive metal, devalued rather quickly."

Of course, there is no direct relationship between the metal in which the coins are made. However, as history has shown, currencies whose coins were made from steel, iron or some other inexpensive metal, devalued rather quickly.

But it's not just about the coins.“An increase in the amount of cash in circulation can occur to increase the supply of money,” explains Yegor Krivosheya, a research specialist at the Department of Finance, Payments and Electronic Commerce at the Skolkovo Moscow School of Management. -This happens for a number of reasons: because of the control of the exchange rate, because of the stimulation of the economy, or because of the provision of the necessary level of liquidity in the economy."

Reason two: policy support

Campaigns to support the pound sterling as a national treasure are periodically carried out in the UK. “In the 1990s, the Save the pound campaign was launched, which largely determined the results of the referendum on joining the eurozone. Great Britain “defended” its national currency,”says Yevgenia Abramovich.

The second time a fairly large campaign to support cash was launched in 2007, with the arrival of Prime Minister Gordon Brown. This was the second time in history that the Laborites managed to maintain a majority in parliament for two consecutive terms, and in gratitude to the voters (mainly representatives of the working class, for which cash is more familiar, more convenient and more affordable than bank cards or checks), the government lifted restrictions on cash withdrawals from ATMs. And some state and municipal enterprises began to provide a discount for paying in cash. The measures were striking, but temporary and had a clear political connotation.

Reason three: supporting the poor and migrants

But all the same, the support of the unprotected layers of the population is more a real measure, and not a political PR. Today, in Europe and the United States, the growth in cash circulation is largely due to the influx of migrants. Most of them do not have a bank account - they simply cannot open one. And if we talk about modern Europe, then a significant proportion of migrants are refugees.

“According to the Regulation on Refugees, adopted by the European Union in 2010, refugees are not allowed to be serviced in banks as citizens of the European Union - only as citizens of their states. You cannot find a bank in Europe that would open an account for a citizen of Syria, says Yevgenia Abramovich. “Migrants, or naturalized citizens of the European Union, are for the most part the working class, moreover, one of its lowest strata, so the active use of bank payments is not very acceptable for them.”

The fourth reason: a way to make money

Cash is a whole industry, including a collection one. Each country in the euro area has the right to issue two types of commemorative or commemorative coins with a face value of 2 euros. Plus there are collectible sets: despite the limited editions, they still generate some income. Although, of course, this is also the PR of the national currency in parallel.

One of the largest commemorative series was launched by the UK in preparation for the 2012 Summer Olympics in London. Despite the obvious PR of the pound sterling, the main motive for the authorities was to make the British Mint profitable, Yevgenia Abramovich believes.

Fifth reason: protecting your money

All of the above reasons indicate why cash is beneficial to the state. But, of course, they have significant benefits for business and the population.

“The increase in cash has always been a sign of times of crisis,” believes Konstantin Solovyov, deputy chairman of the board of the Leader payment system. “In the case of Great Britain, this growth is associated with Brexit. The country faces not only political, but also economic changes. They will affect both banks and payment systems. The financial market will become more isolated. People cannot predict how it will work under the new conditions. Of course, confidence in the financial system has not been undermined there, but there are certain fears, so people prefer to keep their savings close."

Moreover, cash can become a transitional link to cryptocurrencies, since the very concept of "money" is being rethought.“Financial regulators, as has already happened more than once in history, actively“spoil”this money - for example, with the help of negative interest rates, as well as using procedures that impede money circulation, slow down business activity with the help of anti-money laundering laws and other procedures, as well as opportunities banks to block money on the account - all this automatically squeezes people out of traditional money circulation, "says the partner of the investment company First Imagine! Ventures Alexander Starchenko. In this situation, the way to get away from "tainted" money is the use of cryptocurrencies. “We can say that cryptocurrencies do not have any collateral, but there is usually no real collateral under paper money," Starchenko notes.

Cryptocurrencies do not have any collateral, but there is usually no real collateral under paper money either.

Cash price

Of course, it's all about quantity. What is more in cash - medicine or poison - depends on their share in the economy. Many nations are indeed challenged to reduce the amount of cash, because it is too expensive for the country to maintain.

Take Italy, for example. The country is experiencing a boom in contactless payments: over the past year, the volume of non-cash payments increased by 16% and reached 190 billion euros. Contactless card payments grew by 700% to 7 billion euros, card payments in general - by 75%, mobile payments - by 63%. Such calculations were recently published by researchers from the Polytechnic University of Milan.

Despite these impressive numbers, Italy is still a land of cash. The volume of cash in circulation is 182.4 billion euros (at the end of 2015). Moreover, the cache is growing from year to year both in absolute numbers and in relative terms. If in 2008 the volume of cash in circulation was equal to 8.1% of GDP, then in 2015 it was already 11.2% of GDP with the average indicators of the eurozone being 9.7%, the Italian company The European House cites data -Ambrosetti. The country spends about 10 billion euros on servicing cash every year. While the total costs of the EU are 60 billion.

If the state can lower the share of cash to the European average, then every year the budget will save 1.5 billion euros.

When any country with a large share of cash is faced with the task of reducing its volume, the gaze of the financial authorities immediately rushes to those rare states-exceptions in which the output of cash is not growing, but decreasing. Everyone wants to be equal to them. The most prominent examples are Sweden, Norway and Denmark. The volume of cash in circulation in these countries is decreasing, albeit at different rates, and today about 85-90% of all payments there are made through non-cash channels.

What do these countries have in common and what prevents everyone else, for example, Italy, from achieving the same success?

Vodka + pajamas

“These countries are a vivid example of calm, both political and economic, which, of course, is interconnected,” says Konstantin Soloviev, deputy chairman of the board of the Leader payment system. - Trust in the state and financial institutions there is at the highest level. In addition, these countries have a highly developed network for accepting non-cash payments - you can pay by card even on the market."

Neither Italy nor Russia, of course, has either one or the other. But there are many countries on the world map where everything seems to be in order with these two factors, but there is no rapid growth in non-cash payments. Maybe there is some Scandinavian secret? Of course, there is, Yevgenia Abramovich believes, and identifies three features characteristic of the economies of these countries and the mentality of their inhabitants.

1) A small population and approximately the same population density throughout the country

In 1970-1980, the Scandinavian countries began to pursue a policy of resettlement of people throughout the country, as a result of which the population density in the capitals decreased. If the population is spread across a territory, cash becomes less convenient. It is much more convenient to order groceries home if the supermarket is 10 kilometers away using a bank card than when buying for cash.

2) The mentality of the population

“There is even a separate word in Finland, kalsarikännit, which translates to 'I drink at home in my underwear, not going to go out,' says Abramovich. And as we know, the language describes the world of the people who speak it. The Swedes and Norwegians have a similar picture of the world. If something can be done remotely, then they prefer to do it remotely.

Starting in the 2000s, Scandinavia began to provide significant tax incentives to distance selling companies. As a result, it has fueled further growth for companies such as OTTO and Stockmann.

3) The impossibility of buying alcohol for cash

“This measure was introduced in 2013, and it has had tremendous success,” says Yevgenia Abramovich. “As it turned out, residents of these countries spent on alcohol on average about 20% of their income minus tax, utilities, insurance and credit payments.” Strictly speaking, the goal of the authorities was different - to take alcohol consumption under tighter control. It is not known whether alcohol consumption has been reduced, but the share of cash in retail has been significantly reduced.

The future of cash: shrink but survive

Developing a cashless economy, one should not "throw out the child" by somehow artificially reducing the presence of cash. “A cashless economy is not the same as a world without cash,” recalls Yegor Krivosheya. "In a cashless economy, equality of all payment methods is created, and there are no additional barriers for market participants when choosing one method or another."

While these barriers exist. For example, they are for business. Banki.ru wrote about the fact that the development of non-cash payments is hampered in many ways by their high cost for the seller. According to the calculations of the Opora Rossii business association, the cost of acquiring for online stores offering non-food products ranges from 1.6% to 3.5%, while the total cost of servicing cash turnover is from 0.1% to 0, 5%.

This differentiation exists not only in our country. The UK Retail Consortium has calculated that the average cash transaction cost is approximately 0.15% of the payment (calculated for 2015), while a debit card payment costs 0.22%, and a credit card costs 0.79%. This gap is narrowing every year. But as long as it remains very sensitive, we should not expect a decrease in the popularity of the cache.

Do not forget that the percentage of cash in retail settlements in the country directly depends on the volume of the shadow economy, which includes not only informal employment, but also corruption and criminal components. And it is unlikely that Russia or any other country will be able to completely defeat these phenomena in the coming years.

So let's leave talk of the complete disappearance of cash on the foreseeable horizon. “There is reason to believe that in Russia in 10 years the share of cash payments in retail turnover may drop to 30% from the current 60-70%,” Abramovich notes. - 30% is the most optimistic scenario, most likely, they will remain at the level of 35-40%.

In general, in the world, the optimal share of cash payments in trade turnover is about 25%, such figures were once called by the ECB during the next revision of monetary policy.