What next from the war on cash?

This morning the BBC has posted an article on a subject I was mulling last Wednesday.  As I walked into an appointment for some treatment for my knee the person before me was paying for his appointment by using his phone and transferring the money directly. I by contrast had put some cash in my pocket so I could pay in that fashion. If we move on from me suddenly feeling rather stone age and he being much more cutting edge there was one work related issue on my mind. What does paying by phone do to the money supply? It reminds us that the money supply also includes the ability to borrow and whilst everyone obsesses about banks also reminds us that it can now come from other sources. Or perhaps I should correct that to their being more potential routes these days.

Paying by phone

Here is an example quoted by the BBC.

Nikki Hesford, 32, is a convert to person-to-person payment (P2P) apps, using PayPal to pay for services and Venmo to pay back friends.

“The only time in the last year I’ve drawn out cash is for the school fete cake stall and to pay my manicurist,” says Ms Hesford, who runs her own marketing support company for small businesses.

“If I go for a meal with friends I can’t be bothered messing about with two, three or four cards,” she says.

“One person will pay on a card and the others will transfer through an app. It takes seconds rather than minutes fussing around with who owes what.”

PayPal has been around for some time but the likes of Venmo seems a real change and I can see the attraction. Who has not been out to eat with a group and been in a situation where the money collected in is short but everyone claims to have paid? For all our thoughts that millennials and Generation Z have it tough they may have stolen a bit of a march on the rest of us here. Venmo will by its very nature record each transfer and provide a type of audit trail.

In terms of scale then the position is building.

Zelle, one of the most popular payment apps in the US backed by 150 banks, launched in June 2017, but has already processed more than 320 million transactions valued at $94bn (£72bn).

A recent report by Zion market research suggested that the global mobile-wallet market in general is expected to top $3bn by 2022, up from nearly $600m in 2016.

The argument in favour is that it is quick and convenient,

Rachna Ahlawat, co-founder of Ondot Systems, a payment services platform, perceives a marked change in consumer behaviour.

“We want transactions to happen in an instant and at the click of a button,” she says. “Consumers not only want to operate in real-time, but they are looking for technology that allows them to play a more active role in how they control their payments, and are finding new ways of managing their financial lives.”

Financial Crime

The official and establishment view is that cash is a curse and the high priest of such thoughts Kenneth Rogoff wants this.

Why not just get rid of paper currency?

His opening argument is that cash is a source of crime.

First, making it more difficult to engage in recurrent, large, and anonymous payments would likely have a significant
impact on discouraging tax evasion and crime; even a relatively modest impact could potentially justify getting rid of most paper currency.

Yet we discover that even the new white heat world of person to person payments has you guessed it found that the criminal fraternity are very inventive.

“Malware injections and reverse engineering attacks can be used by hackers to understand the app’s code and silently trick you, going undetected by the typical security measures.”  ( Pedro Fortuna from JScrambler )

The truth is that whatever financial area we move into we take the criminals with us and sometimes there are already there waiting for us to make a mistake.

“With the increasing number of apps all requiring some form of authentication, it’s all too tempting to reuse passwords across multiple services. This increases the risk of your data being hacked.”  ( Sam Devaney from CGI UK ).

The banks

There is a very inconvenient reality for the likes of Kenneth Rogoff which is that so much financial crime is to be found at the heart of the system “the precious”.

Banks in Denmark, the Netherlands, Latvia and Malta have all been linked to criminal inflows from countries including Russia and North Korea. The EU has moved to centralize banking supervision, but money laundering has remained a national responsibility.

At the moment the European Union seems to be the weakest link in this area although of course it is far from unique. As an example the situation at Danske bank was so bad it even found itself being trolled by Deutsche Bank which claimed it was only accepting one in ten of past Danske bank clients. According to the Wall Street Journal around US $150 billion of transactions are being investigated according to Reuters the bank itself is discovering large problems.

the Financial Times cited the bank’s own investigation as saying the Danish bank handled up to $30 billion of Russian and ex-Soviet money through non-resident accounts via its Estonian branch in 2013 alone.

The European Union seems to be particularly in the firing zone in this area right now and much of it seems centred in the Baltic nations. That reminds me that back on the 19th of February I looked at the issues facing ABLV in Latvia which developed into a situation where the central bank Governor Ilmārs Rimšēvičs has been charged with taking a bribe.

Whilst the European Union is presently in the firing line we know that banking scandals of this sort occur regularly in most places. Yet the establishment ignore the way that the banks are the major source of financial crime in their rush to implicate cash.

Some new notes

A sign that there is indeed counterfeiting happen was provided yesterday by the European Central Bank or ECB although it chose to present it another way.

New €100 and €200 banknotes unveiled!

Sadly the excitement captured only a couple of journalists attention but the press release did hint at “trouble,trouble,trouble.”

The new €100 and €200 banknotes make use of new and innovative security features.

I think we know why! But there was another sign.

In addition to the security features that can be seen with the naked eye, euro banknotes also contain machine-readable security features. On the new €100 and €200 banknotes these features have been enhanced, and new ones have been added to enable the notes to be processed and authenticated swiftly.

It makes me wonder how many counterfeit ones are in existence. This seems likely to get Kenneth Rogoff to add those note to the 500 Euro ones he wants banned.

Comment

This is a situation which has a paradox within it. We see that technology is providing plenty of ways which provide alternatives to cash and in spite of presenting myself as something of a cash luddite earlier I find them convenient too. Yet we want more cash in the UK the £40 billion mark was passed in 2008 and now we have according to the Bank of England.

There are over 3.6 billion Bank of England notes in circulation worth about 70 billion pounds.

We are far from alone as for example in 2017 the growth rate was 7% for the US and Canada and 4% for the Euro area and Japan. Yet the Bank of England confirms that the medium of exchange case has indeed weakened over time.

Cash accounted for 40% of all payments in 2016, compared to 62% in 2006

The Bank will have something of an itchy collar as it notes that the increased demand for cash will be as a store of value and the rise accompanies its era of QE and low interest-rates. Kenneth Rogoff is much more transparent though.

Although in principle, phasing out cash and invoking negative interest rates are topics that can be studied separately, in reality the two issues are deeply linked. To be precise, it is virtually impossible to think about drastically phasing out currency without recognizing that it opens a door to unrestricted negative rates that central
banks may someday be tempted to walk through.

As Turkish points out in the film Snatch “Who da thunk it?”

 

 

44 thoughts on “What next from the war on cash?

  1. The first thought on this is that peer to peer apps will go exactly the same way as messaging apps, it’s all but impossible to agree one as everyone has different ones. Doubtless the apps will depend on iphone or Android as the platform so I reckon you’ll be best off sticking to cash. Besides why take all the fun away of the after dinner “you had two more ribs than I did” arguments?

    • Hi bill40

      Perhaps you are right but technology is marching on in this area and who knows what will come next? Or a new PayPal might emerge. As to the after dinner arguments they have been something of a hardy perennial haven’t they?

  2. Shaun,

    The war in cash is not just about drugs and money laundering, the black economy affect billions of money lost to the taxman and the rest of the public have to pay higher taxes to make up for the shortfall, and as such everything else suffers including the NHS and state pensions and care for the elderly.

    A cash-less society will be easier to monitor and ensure all pay their fair share of Tax.

    The public don’t like “big brother” looking over their shoulder but the people who object have probably got something to hide.

    • This “something to hide” bullshit is the preserve of tyrants.
      You are probably wealthier than I, so when cash goes, and CBs go for more and more negative rates, hopefully you’ll lose far more than I.
      Cash is freedom.

      • I will have to disagree with your reply as I did have a business that took cash and the people who were giving me cash at the time evidently were not declaring their money.

        They could tighten up on crime through paper (notes) however by ensuring the modern technology was able to track their progress through the financial system, all notes going through a checker on receipt.

        Lets face it your every move is monitored with a credit card and debit card, and mobile phones know where you are at any one time, not to mention the UK has the highest amount of CCTV in the world. Its here now whether we like it or not.

      • Agree, banning cash also removes the one last weapon we have in the war with the banks, which is the ability to remove your assets from the system as cash (for the banks the dreaded bank run).

        Once we are entirely electronic we will be slaves for the elite. People are ingenious however, and new (or old) forms of cash will surface. I expect they will attempt to ban/confiscate these in time too.

        • Yes, they have thought of pretty much everything, but holding cash isn’t the answer as if people think they can take their cash out(before withdrawal limits are imposed) and stuff it in a mattress they will simply declare old notes after a certain date to be cancelled, new notes will be constantly issued and there may even be a conversion charge, new notes might have a time limit on their life(easily incorporated into the note via a code number or bar code) that will force holders to spend it as it loses value over time on a sliding scale.
          Until we take away the power of central banks to steal our buying power and wealth, all this and more is possible,the closer the system is to collapse and the increasing likelyhood their power is going to be removed, will result in ever more desperate and draconain measures to prevent this from happening.

          • Kevin, great comment. And I was waiting for the new £20 note before cashed-out at the bank. I thought the plastic version would last well under the mattress but you are saying they will make my stash out-dated.?

          • Absolutely hence my comment on alternatives (silver gold etc) but again I can see the options being closed off too (I.e. US exec order 6102 in 1933)

    • yes that tired old excuse for authoritarian control..

      “…the people who object have probably got something to hide.”

      Big Sista is watching you .
      You will allow you face book to be accessed by HMG
      You will allow cameras in your home
      You will allow your mobile device to monitor yours and your friends conversation
      You will allow all you financials to be checked at all times
      You will allow “pay per mile” devices in you car to track your every journey
      You will allow a fit-bit to be permanently worn at all times to track your health and movements .
      You will go to corrective anti lessons

      And when the times comes,

      You will allow a thought reading device to be attached to your head.

      Calling PeterPan – you have been found to exhibit inappropriate behavior or thoughts .

      Take your hands away from the keyboard, do NOT attempt to call or contact anyone, all of your cards and devices have been LOCKED .

      Sit still and wait for the representatives Ministry of Corrective Political Thinking to arrive,

      they will be but a few minutes ………..

      Forbin,

        • indeed warnings are often seen to be funny at the time

          Currently we do not have much of a joined up monitoring system , the removal of cash money will help, well, it will help someone but not the plebs

          I just don’t like the disingenuous excuse of ” you’re a criminal ” if you use it.

          the current generation of Big Data ware housing will generate all sorts of connections that previously were “secret”

          Even now if you turn up a bank with more than £2000 in cash you are asked where you got it from – and yes it can be tracked via each unique note index number

          you do not have to ban it.

          banning is a smoke screen for something more pernicious and nasty

          Forbin

          • Hi Forbin,
            Yesterday you posted a list of countries with Ireland at the top with $2.47bn, what do those numbers represent exactly?

          • I have had my credit card details compromised 3 times in the last five years and so I now use cash only in restaurants, bars, small shops and petrol stations and since doing that have had no problems. A friend had their contactless card used somehow without her knowledge; for a small amount but still worrying. I have a phone but not a smart phone ( and have no wish for one) so how do I go cashless? I have employed painters, plumbers, general fix it men and small garages over the last few years and have never been asked for cash. I have on the odd occasion paid cash but have always been given a proper receipt. I think the PTB are making an issue out of something that isn’t and we should be left with a choice. The big money is taken by online fraud or credit fraud and whilst most people are compensated, we all pay for it in the end.

            Although I am not normally a conspiracy theorist, I agree with Forbin, there is another agenda behind this.

          • Kevin:
            It’s RoI’s public and private external debt, and it’s 2.47 TRILLION.
            That’s why the EU cannot afford a hard Brexit, the EU implodes if RoI govt. and businesses default if a logjam of RoI trade (70% comes through Holyhead) happens post Brexit.
            The EU does have a plan (of sorts) to by-pass UK landbridge, but it will cost >€30bn for the necessary infrastructure, it wouldn’t be in place until 2027 and the French are squabbling with the Dutch and Belgians about who gets the dosh.
            This is how we can tell that Brexit is being sabotaged by our Govt. because it is deliberately undermining the strength of our hand in negotiations.

            A hard Brexit implodes the EU and is why Theresa May could tell Michel Barnier to jump, and his answer would be, “How high?”

          • Thanks Forbin, you’re certainly right about T.May, it is blindingly obvious she is doing everything to keep us in The EU and the single market, after all that was why she was appointed in the first place!, and she has now taken sole negotiators role for future talks, “they” don’t want the risk of anyone preventing the sellout to get in the way at this stage.

        • I think it’s a matter of be careful what you wish for.The reality is that if they get rid of cash,something far more untraceable/untaxable will take it’s place eg crypto’s.

          The HMRC have a pretty decent record of letting cash kings build up decent stashes before coming in ten years later and asking individuals to explain where their wealth has come from.

          I also think cash is necessary to avoid handing the CB’s the equivalent of the keys to the red button as a cover for their monetary policy failures.

          Beside QE, the Black economy is small beer.

          • forbin,

            It would appear my post gone down like a lead balloon.

            I’m only spelling out the facts, one of the problems with Greece is drugs, and the black economy.

            Like it or not our every move is being monitored. If you have mobile phone with you its basically a satellite, you can be tracked wherever you go if you take it with you and its on.

            So people should keep that in mind if they want to go to look for a robot doll, their wives might find out and serve divorce papers.

          • I’m only spelling out the facts, one of the problems with Greece is drugs, and the black economy.
            _______________________________
            No the problem with Greece is that the country has been pauperised by its corrupt elite, making the black economy a survival issue.
            Want to see what banishing cash will mean?
            Look at Greece.

    • new thread as I cannot apparently reply !

      yes your post has provoked a lot of thought ! – good for you because we do need to talk and think about these things and the road that AI and surveillance ( be it explicit or implicit ) is taking us…..

      There are still 1.6 million of the UK that do not have bank accounts , 40% have no credit cards either.

      Many don’t want credit or debit cards – and not just the old either .

      most financial fraud is online and with debit/credit card, not cash .

      and I find it rich that leading bankers and the like want to end cash , considering their track record that’s the pot calling the kettle black !

      but with the advent of powerful Big Data computing regardless of if paper money ( which will be plastic – or grease proof paper as I put it) is around you can work out who’s cheating the tax system( amongst other things).

      ( and JSA and other bennies are needful of a bank account …..)

      for Greece , that’s the endemic avoidance of paying taxes that their leaders appear to powerless to stop – as pointed out by other posters their elites appear to be complicit on keeping things that way . I’d suggest they need their own “doomsday book” , and that can be achieved too with tech. though I don’t think they’re going to like it

      and you still don’t need to kill cash off , it has index numbers that can be scanned and tracked – the power needed is here , just needs the investment ( there is already some tracking done)

      keep poking the wasps nest 😉

      Forbin

      PS: Kevin , I see that you have a reply , yes its external debt , its bad enough raiding your country’s pension pots but owing so much to others…….

      • forbin,

        Never thought I would see so many thumbs down but I can take it. I learnt this a long time ago on other financial forums.

        In actual fact I have been defrauded myself but don’t want to get into all that at present as litigation is underway, so I know what it is like and it isn’t pleasant not when your life been left in tatters and lost everything you have worked for all your life!

        • I have not given you thumbs-down, I tend only to mark up, unless it’s a truly unpleasant post.
          I am sure, however that no-one marks you down for personal reasons, and we don’t agree about everything.

  3. With the no expense spared systems reliability of TSB, RBS, HSBC, NatWest, et al. and the success of the demonetisation experiment in India, I see a great future for visionaries such as Mr Rogoff on the family whelk stall.

    • Those are the systems for the plebs the elite will have their own ultra-reliable systems in place, they will not go without.

      I see this along with other types of technology (i.e. smart meters, etc) as the foundations to manage the upcoming rationing which is going to take place in the next few years as the resource crunch hits.

  4. Cash is King! You can keep all your phone apps and plastic. I like something tangible and I always keep some in reserve at home in case the atm is out of action.

    • Don’t get me wrong I like cash myself, but it can be lost and stolen. Now I know some will criticise me here saying there is fraud online and people getting hold of your credit/debit card details but any money lost is easier recovered.

      If posters listened to the media on police ability in solving crimes about a week ago they would have realised about 90% or of thefts so remain unsolved.

      • The thefts aren’t solved because the police are focusing too much on the PC crimes which aim to criminalise the silent majority (as is the constant whining about cash as the tool of criminals)

        If they done the job most people expect them to do then petty theft would be minimal (and it does work look at zero tolerance in New York, street crimes fell of a cliff as a result)

        • Maybe but the facts speak for themselves. In actual fact there are less bank robberies now as cash is restricted.

          Gone are the times when the company clerk would go to the bank and collect cash for their workers pay is not paid into their accounts, its less risk to the clerk when he leaves the bank.

          A crook is always one step ahead but the balance could change for the better.

  5. Great blog as usual, Shaun.
    I had to pay a $25 charge in advance at an Ottawa Ikea store to deliver a desk, and was surprised that even for such a small amount cash was not accepted. It seems like Ikea, being a Swedish company, is carrying Sweden’s drive for a cash-free economy abroad.
    Canada’s largest bill in circulation being a $100 bill with a value of a little more than £58, with a lower purchasing power than the largest bill in circulation of any G8 country. Although inflation in Canada since 2000, when the Bank of Canada stopped issuing $1,000 bills, has been low, a $100 bill was only worth about $73.16 in 2000 constant dollars, and based on the forecast in the July 2018 MPR it will only be worth $68.47 in 2020. At the risk of getting political, dropping the $100 bill from circulation allegedly to reduce criminal activity would likely appeal to the current Liberal government, since Conservative/Unionist PM Sir Robert Borden, whose face is on the $100 bill, is now the only Conservative PM on any Canadian banknote. (Two Liberal PMs, Laurier and Mackenzie King, are on the $5 and the $50 respectively.) As you know, Governor Stephen Poloz announced that negative interest rates were part of the Bank of Canada toolkit if our economy again went into recession. If Trump hits Canada with special duties on our exports of motor vehicles to the US, this will almost certainly put our economy into recession, and Poloz will get a chance to channel his inner Mario Draghi.

    • Big companies don’t like cash as there is a cost involved in handling it and it working into their systems. That’s why so many here offer cash back. A senior exec at one of the big supermarkets in the UK told me that they would like to ban cash as well but fear the fall off in trade. Ikea has a market almost to themselves so can afford the risk.

    • Andrew,
      In a scene in one of my favourite films ever “The Long Goodbye” Elliot Gould’s character(Philip Marlowe) is sent a $5,000 bill in the post, the film was made in 1972, imagine the buying power of that much money then! And how large a note would be required to be equivalent now.

      US inflation calculator estimates $1 now requires $6.03 so shall we say $30,000 to be equivalent?, the largest US note is now the $100, so the war on cash is certainly near its endgame.

      https://www.usinflationcalculator.com/

  6. Hello Shaun,

    ” Yet we want more cash in the UK the £40 billion mark was passed in 2008 ”

    if the pound hadn’t been made to be worth bu@@er all by the BoE then we would need less in circulation

    Forbin

    • Hi Forbin

      Ironically the BoE made the same point as you but it blamed the Pound £ depreciation after the EU Leave vote for a rise in cash in 2016/7. Somehow the Pound £ depreciation in 2007/08 than Baron King of Lothbury was so keen on got forgotten though!

  7. One of the most cogent reasons to eliminate cash is to pave the way for negative interest rates which TPTB have not disavowed and of course the ECB rate is already -0.4% and others have hinted at negative rates in certain circumstances.

    If negative interest rates were introduced widely in the event of a new crisis then the corollary is that cash should be banned otherwise folk will withdraw and put their money “under the (metaphorical) mattress”.

    Eliminating cash for this reason is, in my view, tantamount to theft; it would effectively be a stealth tax without the legislation as well as severe infringement of civil liberties.

    Having failed to resolve issues in the last crisis by ZIRP the only thing to do is double down on the idiocy and go negative; it would be a very stupid thing to do which is why I think it’s a real possibility.

    • Yes, I am afraid so. And the next crisis born out our debt soaked economy could be triggered by a near brexit/remain. Something to plan for I would say.

  8. Hi Shaun,

    “One person will pay on a card and the others will transfer through an app. It takes seconds rather than minutes fussing around with who owes what.”

    Maybe I’m missing something but how does an electronic transfer remove the need to figure out ‘who owes what’ ?.

    And if people can short change you in a restaurant Shaun surely they can do they same through a P2P payment app. Having an electronic audit trail just moves the discussion from ‘who paid what’ to ‘who ordered/ate/drank what’.

    Here in NZ eftpos is very popular thanks to an intensive advertising campaign when it was introduced years ago. For very small amounts, typically less than $2 or $3, it can sometimes take longer than paying cash.

    • Hi Eric

      I was thinking that the app would tell you had paid their £20 so if you had 7 names on the list and 8 round the table, it would be clear who had not paid. But I guess you are right that other arguments would ensue.

      In the UK contactless payments are getting ever more popular and for small payments they are a good idea. In fact it seemed an even better idea earlier as I paid for some milk with my credit card earlier via the chip and pin system.

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