Member Article

Cash still has bright future

While international stakeholders involves in the cash cycle met in Paris to discuss new strategies to optimize cash and to talk about “The Future of Cash“, the European Central Bank was deciding of scrapping the euro area’s largest denomination note. The 500€ is dead but long live the cash?

Not everyone in the Euro zone has held a 500 € banknote though there are many in circulation and abolishing it will be a long, costly and complex task for the ECB. ‘Today we estimate that between 30% and 50% of Euro cash is stashed away. Of course the 500€ seems to be more convenient to stash than the 5€.’ said Doris Schneeberger from the European Central Bank in her opening statement. ‘We see that people love cash; they trust it and prefer it. 25% of cash isn’t checked because they trust their customers in the euro zone. Less than 50% of retailers have machines to verify cash authenticity; vendors trust their customers and they believe in their banknotes’ she added, proving that we are wrong to believe that carrying cash could be ‘less safe’ than carrying cards or other electronic payment means. In fact we see increasingly more criminal activity with online and electronic payments than through cash counterfeiting or robberies.

President Mario Draghi had said earlier in February that European policy makers were examining the ‘controversial’ 500 € (571$) amid concern that it aids criminal activity and potentially facilitates terrorism. The controversy was deemed ridiculous when police found out that most of the weapons used in the Paris attacks last November had been purchased with credit cards. Earlier in May, a statement issued by the ECB said the note would no longer be issued from 2018 . ‘In view of the international role of the euro and the widespread trust in its banknotes, the €500 will remain legal tender and can therefore continue to be used as a means of payment and store of value. The Eurosystem, which comprises the ECB and the euro area national central banks, will take steps to ensure that the remaining denominations are available in sufficient quantities’ the statement said. Media reporting on the future of the note may have created some insecurity among the public about larger notes but there are still “very, very high cash transactions in the Euro area” and the ECB is to introduce new 200€ and 100€ by 2018.

However, today, there is no correlation between the use of cash and the so called black or gray economy. Abolishing the note will cost more than 500 million euros according to The Frankfurter Allgemeine Zeitung. Getting rid of cash is neither cheap nor desired.

We also observe that in the past decade, criminality has merged online and isn’t likely to stop with the diminution of banknotes in circulation.

As a matter of fact, most of the Central Banks present at the conference have reported increasing number of ATMs in their countries. ‘Retailers are actively investing in cash handling equipment - meaning they believe in it. Cash also remains strong as a store of value’ said Joshua Opatz from the Federal Reserve System.

In the U.K, cash isn’t dead either. The Central Bank is introducing new bills and investing in handling equipment. According to Graham Mott, head of Development and External Relations for LINK UK, ‘the number of ATM continues to grow significantly in the UK as do the locations for ATMs: more and more stores are investing in small in-store ATMs.’

There is however a cash dilemma in countries where an attempt was made to reduce the use of cash or fully go ‘cash-less’ at a national level. Paivi Heikkinen, Chief Cashier of the Bank of Finland said there is a dilemma in central banks in Northern European countries such as hers wherein the use of cash is declining but users are neither prepared nor willing to get rid of their banknotes. Officials must be able to respond in bad times when people want to use cash in a situation of emergency. ‘Cash is the fallback solution, and that lies very heavily on my shoulders’ said Heikkinen.

The attempts of going cashless have failed as more and more customers are rising against the idea which reduces their freedom of making purchases without being tracked, and which discriminates between the people who can have another mean of payment and those who simply cannot. Cash remains the less discriminatory way of paying; it is also the most simple one and that is why it is still holding strong in all parts of the world in poor and rich countries alike.

Cash death seems to have been exaggerated. Cash industry stakeholders remain optimistic as they find ways of optimizing the use of cash in order to keep the most secure, reliable, easy and quickest mode of payment. ‘Cash isn’t dead in the U.K., it’s certainly not dead at all’ said Victoria Cleland, Bank of England’s Chief Cashier: ‘the Bank of England is very much in the business of cash’ and this seems to ring true in most countries around the world.

This was posted in Bdaily's Members' News section by Nils Aucante .