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SUMMARY REPORT 1
SUMMARY REPORT 1
2 THE CASE FOR CASH PART ONE: MYTHS DISPELLED
© 2014 Currency Research All intellectual property rights in this report are and will remain the property of Currency Research. This document can be referenced and used as needed for purposes of supporting the Currency Industry as long as proper credit is given to Currency Research.
DisclaimerInformation contained in this report is of a general nature and should not be construed as professional advice. This report is provided for informational purposes only and is not a recommendation or endorsement of any specific approach or company, and should not be taken as such. The information contained within this report should be viewed on an “as-is”/“as-available” basis. Currency Research has made its best attempt to present accurate information and data, however no warranties exist regarding the accuracy, completeness or timeliness of the information contained in this report.
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We would like to thank our report sponsors who you will see on the following pages. This report is a collaborative effort from many industry experts and we would like to thank all who provided valuable time and insight into the final document.
CR is an international organization that believes education and communication are fundamental to the growth and innovation within the currency and cash handling industries. We organize seminars and conferences where industry leaders can come together to learn, discuss, and network in a unique and engaging atmosphere. We offer community and communication within the industry and provide professional consulting and research services to both the government and commercial sectors.
CR is devoted to the industry and has undertaken research and many different conferences and projects to facilitate a deeper understanding and equip those in the industry with the best tools of the trade. Our team is located in many different countries, with offices in Malaysia, Spain, UK, Canada and America. Our events move between locations, ensuring that all areas within the regions have a fair and equal chance to attend and be represented within the industry. With over twenty years of experience of organizing conferences and seminars, Currency Research has developed the fine balance between environment, education, business opportunity, social inclusion and atmosphere.
Our team has a combined total of over 150 years of participation and experience within this industry, and we use this experience to facilitate quality conferences, communication, community, and consulting.
CR is keen to use this acquired knowledge and expertise to assist and advise Central Banks in areas of Currency Management. Please contact us if we can be of assistance.
CURRENCY RESEARCH IS ESPECIALLY PLEASED TO PRESENT THE INDUSTRY WITH THIS SPECIAL REPORT ON THE CASE FOR CASH.
4 THE CASE FOR CASH PART ONE: MYTHS DISPELLED
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SUMMARY REPORT 5
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6 THE CASE FOR CASH PART ONE: MYTHS DISPELLED
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SUMMARY REPORT 9
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10 THE CASE FOR CASH PART ONE: MYTHS DISPELLED
THE CASE FOR CASH PART ONE: MYTHS DISPELLED SUMMARY REPORT
The Case for Cash Part One: Myths examines some of the most prevalent myths surrounding the cash world, as well as the role of the central bank in society, in order to dispel the misinformation that has arisen around the product. Historically, central banks have not promoted particular payment methods and do not challenge articles or reports about cash. As such, Currency Research has chosen to identify and challenge these myths to ensure central banks and governments have a foundation of sound research and public policy on which to base their payment strategies.
This is by its nature a defensive document; however, Currency Research makes no apology for this as it is a necessary counter-argument to the widely circulating myths about cash. The Case for Cash Part Two: Justification will focus positively on why cash is indispensable given policy objectives of safety, efficiency, and the interests of users.
Although cash remains globally the preferred store of value and payment method for low-value transactions, especially in times of crisis, a concentrated effort has been made by the payments industry (notably MasterCard and Visa) and supported by the banking industry (notably the European Payments Council) to provide misinformation and create myths surrounding cash and its use.
Such myths about cash are now widespread. For example, cash is represented as low technology and expensive to use, or unhealthy and laden with bacteria. Governments often use these “facts” as a basis to move away from cash without first undertaking independent research. This misinformation also leads governments and companies to examine whether investments in cash are wise long-term investments. We believe that reviews should be conducted solely on the basis of research presented by unbiased and objective sources.
In each section of the report, the most common misrepresentations about cash are unpacked by first identifying each one of the sixteen most prevalent myths and then identifying the source(s) of misinformation. We conclude by aggregating a range of studies and relevant articles that present verified facts as rebuttal arguments to the erroneous and often sensationalist myths disseminated about the cash world.
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The full report presents a number of graphs and tables, footnotes, and visuals from a range of authoritative sources to support and supplement our argument for the Case for Cash. We do acknowledge that Currency Research is in the cash industry; therefore, while trying to present a balanced view we are by definition biased in our research.
Visa’s stated mission is “to displace all other means of payment” per the Visa Europe 2012 Annual Report. In any other industry, antitrust laws would likely prohibit a dominant player’s goal to displace all forms of competition. We believe the Case for Cash is ultimately the Case for Consumer Choice, and that central banks and governments have the duty to ensure this choice remains and continues to be viable.
Cash deserves the continued investment and support of central banks, government, and private industry despite the distracting “noise” coming from other industries.
MYTH NO. 1: CASH IS EXPENSIVETHE “EXPENSE” AND SOCIAL COSTS OF CASH ARE THE NEW ARGUMENTS FOR THE WAR ON CASH. Certain central banks are using recent studies citing the high costs of cash as a basis for actively discouraging its use. Among these is the recent Tufts University study that declared, “cash costs 200 billion a year to the US taxpayer.”
Currency Research acknowledges that the cost of cash is fraught with variables. Many assumptions can be made and independent studies often do not examine the entire spectrum. However, some central banks and retailer organizations have undertaken compelling in-depth cost studies and uniform comparisons to other payment methods. These studies strongly support the low cost of cash as compared to the higher social costs of debit and credit cards:
• The European Central Bank’s (ECB) 2012 occasional paper found cash payments to have the lowest social costs per transaction
• The British Retail Council’s (BRC) 2012 study found that “unjustifiably” high debit and credit card fees are carried over to retailers and consumers, and that the costs of credit and debit card transactions rose while those of cash fell
• The 2012 US Federal Reserve Bank of Kansas study showed that cash and debit cards had the lowest social cost per transaction
Like Currency Research, the latter study advocates for the availability of more accurate and comprehensive information about retail payment costs to better inform the decision making of central banks and the overall efficiency of the payments system.
It is clearly a myth to suggest that a cashless society reduces social costs, particularly as the proposed replacements are payment cards, along with their fees and higher social costs per transaction.
12 THE CASE FOR CASH PART ONE: MYTHS DISPELLED
MYTH NO. 2: WITHOUT CASH, CRIME WOULD DECLINE OR DISAPPEARTHE MEDIA OFTEN PICKS UP THE CONTROVERSIAL AND THOUGHT-PROVOKING MYTH THAT CASH USE ATTRACTS CRIMINAL BEHAVIOR AS IT GENERATES SENSATIONAL HEADLINES. While investigating this myth, Currency Research found each relevant “study” to be laced with confirmation bias, beginning with the premise that reducing cash would reduce crime and bypassing counter-arguments contrary to the study’s presumed outcome.
THREE RECENT REPORTS ILLUSTRATE THIS SENSATIONALIST TENDENCY TO ALIGN CASH USE WITH CRIMINAL BEHAVIOR, WHILE OVERLOOKING A COMPLEX INTERACTION OF FACTORS (E.G., A STABLE US GDP) THAT CONTRIBUTE TO A DECREASE IN CRIME RATES:
• A 2013 Tufts University “study” concluded that cash costs the US economy $200 billion per year based primarily on crime rates and that a cashless society would see an attendant decrease in crime
• A 2012 MasterCard Advisors “study” attempts to demonstrate a cause and effect between cash usage figures and crime-related data, in effect “linking” cash usage to corruption, bribery, crime, and general “bad behavior”
• A 2014 National Bureau of Economic Research (NBER) “study” attempts to link lower crime rates in Missouri and the decline of circulating cash due to the transition of welfare payments from check to debit card
To investigate this alleged correlation, we looked to Sweden, which is at the forefront of promoting a cashless society and has witnessed an overall decline in cash usage as a percentage of total purchases. This decline should indicate that people are carrying less cash. However, the Swedish National Council for Crime Prevention’s recent report on crime statistics cite a constant or increased rate of robberies and burglaries over the past decade, suggesting that the correlations often drawn are largely unfounded.
Dr. Ray Fisman, Columbia Business School professor, contends that the black market simply develops alternatives to paper money, keeping crime rates relatively constant. As history has demonstrated, criminals rapidly adapt to those technological changes that best facilitate their criminal behavior, as shown in the 2014 Global Financial Integrity (GFI) report, “African Countries Lose Billions Through Misinvoiced Trade” and the 2013 World Payments Report.
Criminals and criminal behavior do not rely on a single preferred payment instrument to the degree that MasterCard and others would have us believe. The myth that cash use facilitates crime or that certain types of crime would disappear in a cashless world is simply that, another myth.
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MYTH NO. 3: THE CASHLESS SOCIETY IS JUST AROUND THE CORNERFOR THE LAST 45 YEARS, VARIOUS MEDIA OUTLETS HAVE PREDICTED THE END OF CASH:
• A 1968 article by Jack Lefler predicts the emergence of a future cashless society that would use a single identification card for all transactions
• “Cashless Society Predicted by Credit Card Use,” an article from 1972 presented at the Money2020 Conference, confidently forecasts the arrival of a cashless society by the late 1970s
• A 1996 New York Times article predicts “smart cards” and the decline of cash
• The February 17, 2007 cover story of The Economist envisions cash as a dinosaur doomed to extinction and stamps cash with a best before date of 2022
In addition, the credit card industry has also been waging its so-called “War on Cash.” Payment Cards & Mobile, a payments industry intelligence firm, posts on this topic regularly, including the 2014 post, “Cashless Volumes – The War on Cash Continues.”
The above examples are just a sampling of the many articles predicting the demise of cash. But the reality is somewhat different. For example, the US Federal Reserve predicts that cash will grow an average of 1.7% per year from 2012 to 2022, while in a 2012 Currency Research survey of central bankers, commercial banks, and cash management companies, 79% concluded that cash would increase in the next decade.
A number of recent studies conducted on the future of cash support predictions of increased cash usage. A June 2013 study, “Paying with Cash: A Multi-Country Analysis of the Past and Future of the Use of Cash for Payments by Consumers,” concludes that “contrary to popular reports, cash is not dying.” Moreover, a 2013 Market Platform Dynamics (MPD) study shows that the total use of cash is increasing in many developed and developing countries.
The conclusion to be drawn from these findings is that institutions or individuals who have predicted a decline in the growth rate of cash, let alone cash itself, have been mistaken since 1968. To quote from the aforementioned MasterCard Advisors experts themselves, even from the payment card industry there is a reluctant agreement that cash is here to stay “whether we like it or not.”
14 THE CASE FOR CASH PART ONE: MYTHS DISPELLED
MYTH NO. 4: CASH DEMAND IS DECLINING
THE CREDIT CARD COMPANIES AND THE COMMERCIAL BANKS LEAD CONSUMERS TO BELIEVE THAT THEIR “WAR ON CASH” IS BEING WON. Examining the statistics worldwide on cash issuance and usage, one concludes that while the rate of growth in cash (not cash itself) may be declining in some countries, cash overall continues to grow worldwide as evidenced in:
• A recent US Federal Reserve banknote circulation and growth chart, showing an overall increase in volume of currency in circulation
• The Bank of England’s banknote statistics tables, which clearly demonstrate that every indicator for cash in circulation is up
• The Reserve Bank of Australia’s (RBA) 2012 Annual Report that shows banknotes in circulation continuing to grow year on year at a rate of around 5% per annum
Recent ICCOS Cash Cycle Seminar presentations by the Central Banks of Turkey and Indonesia, and a study from China, all echoed the upward march of currency. While the total percentage of cash transactions may decline locally as a percentage of total transactions, with the growth in the total numbers of payments the overall use of cash is growing. In both developed and developing economies, cash continues to grow worldwide and has yet to show signs of decline in either use or preference.
MYTH NO. 5: RETAILERS PREFER CREDIT CARDSMasterCard is spreading the myth that all retailers will soon eliminate their cash registers and use only card readers for all transactions. The headlines promote a vision of retailers rushing to join the cashless world. However, Currency Research finds numerous examples where not only are retailers and retail associations actively promoting cash in their stores, but are also taking credit card companies to court over pricing practices.
The reality is that retailers in many countries actively promote cash payments, while also actively pursuing legal means to reduce the monopoly of Visa and MasterCard. In Canada, often cited as a country on the verge of being cashless, many shops display signs promoting cash payments. US retailers have recently filed a class action lawsuit against MasterCard and Visa for antitrust and price-fixing schemes. Tellingly, some retail giants, such as Wal-Mart and Target, have opted to file individual lawsuits as they feel the $5.7 billion settlement was not large enough.
Retailers prefer consumer choices with low-cost, secure, and quick transactions; obviously cash meets this need, particularly for transactions under a certain value.
A telling statement from the MasterCard Advisors study admits the challenges of convincing retailers to move away from cash: “… the challenge ahead will be to convince more stores in different sectors, to introduce this type of (cashless) register as well.”
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MYTH NO. 6: CASH IS “DIRTY” THE OFT-CIRCULATED CLAIM THAT A “MICROBIAL JUNGLE” RESIDES IN THE WORLD’S WALLETS DUE TO “DIRTY MONEY” MAKES FOR A SENSATIONAL, ALBEIT MISLEADING, HEADLINE. A recent “independent report” commissioned by MasterCard claims that banknotes are far less hygienic than payment cards. Currency Research believes such claims (i.e., cash is dirtier than other items or transmits diseases) are unbalanced reporting.
Recent studies and articles have responded to this type of misinformation, finding that cash and credit cards carry comparative levels of bacteria:
• In 2010, a team of researchers at Ballarat University examined the bacterial content of circulating banknotes from 10 different countries, concluding that there should be no cause for alarm when handling cash
• A study by the University of London’s School of Biological and Chemical Sciences analyzed 200 banknotes and 45 credit cards, showing that 26% of the former and 47% of the latter carried high levels of bacteria
• A study by the London School of Hygiene and Tropical Medicine found that one in ten credit and debit cards contained faecal bacteria, with 8% of cards showing “gross contamination”
Currency Research agrees with the general consensus prevailing among the media and researchers cited above; good health is enhanced by frequent hand washing regardless of what is handled, whether it is a payment instrument or any other item encountered in day-to-day life. Despite alarmist headlines suggesting otherwise, it is important to note that researchers have found cash to pose no danger to overall public health.
MYTH NO. 7: CASH IS ONLY USED BY THE OLDER GENERATIONJudging from recent headlines, newspapers and the payments world would have us believe that younger generations are driving monumental shifts in payment trends, while also moving away from cash in droves. Typically, this takes the form of anecdotal stories, with younger individuals quoted as saying “I never use cash.” This powerful general-purpose statement also handily promotes the myths that cash is disappearing, is low technology, and that consumers prefer cards to cash.
Once again, however, recent surveys and payment studies do not support this claim, including:
• A 2010 UK Payments Council’s Strategic Cash Group report that found both older and younger generations to prefer the ease and simplicity of cash as a payment method
• The 2012 US Federal Reserve System’s Diary of Consumer Payment Choice (DCPC) survey showed that cash use continues to be prevalent among people from all age groups and educational backgrounds and that cash is the preferred first or second choice as a payment instrument among all ages and socio-economic classes
On a basis of strong supporting evidence, such as the above studies, Currency Research concludes that the general public continues to prefer cash as a means of payment regardless of age, education, or any other discriminating criteria.
16 THE CASE FOR CASH PART ONE: MYTHS DISPELLED
MYTH NO. 8: BITCOIN WILL REPLACE CASHLately it seems as though everyone, from technology futurists to bloggers and journalists, has been loudly predicting that cryptocurrencies like Bitcoin are poised to replace cash. Articles are published regularly praising Bitcoin as a “game changing” payment instrument that is set to overtake traditional currency as a universally preferred payment method. The omnipresent media coverage makes this takeover appear imminent.
However, the value of Bitcoin fluctuates so regularly and so dramatically that its risk factor is very high. In fact, a 2013 Forbes article reported that Bitcoin is uncannily tracing the stages of a classic bubble chart, using a 2013 Bitcoin price chart for comparison.
Currency Research also looked into claims that Bitcoin possesses certain desirable attributes of cash, including security and anonymity. With the US federal government cracking down on Silk Road and many companies losing Bitcoins to hackers, popular claims that Bitcoin is unhackable and anonymous are now proving false.
Of late, defenders have stepped up to explain why Bitcoin will not, and cannot, replace cash. A consensus is emerging that Bitcoin is not: easy to understand, create, or to use; quick, unique, secure or convenient.
Taken together, these factors indicate that Bitcoin is not well situated to replace cash as a payment method. Currency Research believes that there has not yet been a viable alternative to replace cash; however, central banks should not ignore the world of cryptocurrency payments. Central banks and mints must fully understand all implications of any payment method and be able to regulate it for consumer protection.
MYTH NO. 9: CREDIT CARDS ARE “SAFER” THAN CASH In promoting the use of their cards, MasterCard and Visa claim that credit cards are “safer” and regularly produce stories of robbery and loss of cash via transport and handling to convince both retailers and consumers of the dangers of cash. However, the recent attack on point-of-sale terminals at Target Stores, for example, dispels this myth.
Furthermore, banks and companies now issue non-liability statements in their terms and conditions, rendering customers using enhanced security cards (e.g., chip-and-pin) fully liable for any losses. This pushes the burden of fraud responsibility directly over to the consumer, while costs to protect against credit card fraud are passed to the retailer and, yet again, over to the consumer.
Both retailers and consumers must be vigilant against cyber-thievery and the theft of personal data when using payment cards, for example:
• The Swedish National Council for Crime Prevention’s recent economic crime statistics show an upswing in payment card fraud
• The 2012 ACI Annual Fraud Survey shows that 27% of cardholders in 17 different countries have experienced fraud in the past five years, with 14% experiencing multiple frauds. Moreover, the report finds that financial fraud is “rapidly growing around the world” and has become more organized and sophisticated in recent years
In many studies by central banks the average cash holding by an individual at any one time, regardless of currency, is between $50 USD and $100 USD. If an individual loses his or her cash the loss is minimal as compared to the much greater losses of both money and time involved in cases of identity theft.
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MYTH NO. 10: CASH IS “LOW TECHNOLOGY” Currency Research estimates that each year billions of dollars are invested in banknote and coin advanced technologies to secure them from counterfeiting and to improve overall efficiencies in the cash cycle. Of necessity, the currency industry is at the fore of technological innovations and the technology developed for banknotes has been utilized to secure many other products susceptible to counterfeiting.
Recent trends and new technologies in cash include: streamlining cash handling functions; minimizing the returns of criminal activity; optimizing cash management and flow; security inks; and developing innovations in banknote security, banknote design, and security printing. The reputation of the central bank, and the country itself, is at stake and must be protected by this ongoing research and development.
The life span of banknotes has increased dramatically over the last decade with the advent of polymer, hybrid, varnished, and reinforced banknotes, which has also brought down the cost of production and the overall cost of cash in circulation. In the last three years hundreds of new patents for banknote securities and handling have been filed. Coins too have benefited from technological advances, reducing overall costs while increasing durability and security.
Clearly, the technology that goes into banknotes and coins to make them the most simple, trusted, and efficient payment means in the world, as well as universally accepted, is anything but “low.” Counterfeiters and criminals rely on the latest technologies in attempting to exploit “holes” in the cash cycle. All stakeholders invest heavily to ensure this does not happen. Consumer confidence in banknotes and coins is a testament to the overwhelming success achieved to date.
MYTH NO. 11: ONLY CRIMINALS USE . BANKNOTESThe card industry’s sensational claim that cash use implies criminality is extremely insensitive and overwhelmingly based upon biased research in an effort to convince central banks and governments to abandon cash. What this claim does not take into account is the number of unbanked and underbanked individuals that rely on cash for everyday transactions, as well as stored value.
Central bank payment studies from around the world have clearly shown that a majority of people worldwide continue to use cash every day for a number of perfectly legitimate and logical reasons, including poor credit history, language barriers, a lack of identification, and unstable income. A SIZEABLE PERCENTAGE OF THE GLOBAL POPULATION DOES NOT HAVE A BANK ACCOUNT OR USE FORMAL FINANCIAL SERVICES, FOR EXAMPLE:
• The 2011 National Survey of Unbanked and Underbanked Households found that over 28% of US households are considered unbanked or underbanked and have used alternative financial services
• Central Banker reports that the percentage of unbanked individuals has remained relatively constant at 9% of the total American population from 2001 to 2009
• A 2011 World Bank survey found over 2.5 billion people around the world to be unbanked, not only because of poverty, but also due to the cost, travel distance, and paper work involved in opening an account
18 THE CASE FOR CASH PART ONE: MYTHS DISPELLED
(Myth #11 Continued)• The Central Bank of Ireland’s 2013 National Payments Plan showed that 20% of Irish households
lacked a bank account for a variety of legitimate reasons
To imply that being unbanked/underbanked precipitates or predicts criminal activity is not only false, it is extremely insensitive to those in underprivileged situations. Moreover, in times of economic crisis when banks, electrical, and even mobile systems fail, cash is the only truly reliable method of payment. Diverse groups of people use cash for a range of legitimate reasons and Currency Research disagrees with the sensationalist and false claim that cash use implies criminal behavior.
MYTH NO. 12: CASH WILL BE REPLACED BY MOBILE PAYMENTS The omnipresent headlines seem to indicate that the mobile payment revolution is around the corner. However, as Forbes recently pointed out, less than 7% of all retail transactions are currently conducted through e-commerce channels (including mobile).
What, exactly, are the issues preventing mobile payments from mainstreaming as fast as was initially expected? There are almost 200 mobile payment schemes now in existence, all trying to capitalize on the success of M-Pesa, by far the largest and most successful mobile payment method in the world. However, it has been estimated that over 90% of these schemes are currently struggling or have failed with less than one million users. Barriers to mobile payment scheme success are varied, ranging from a lack of standards to stiff competition, and prevent many new mobile payment schemes from providing a smooth, easy, and universal transaction for the consumer.
In light of M-Pesa’s impressive success and widespread usage, it is perhaps surprising to note that since it was introduced in Kenya rates of cash usage and the volume of currency in circulation have actually increased. According to an NBER study, M-Pesa is primarily used to facilitate the transfer of cash from one person to another, with cash remaining the preferred payment vehicle for the majority of people. Likewise, despite Japan’s reputation as an advanced mobile payments market, the country has one of the highest rates of cash transactions in the world.
The slower pace of mobile transaction growth has been openly acknowledged by many, including Capgemini Australia’s Director of Banking, Cards and Payments, Phil Gomm, who admitted, “We are questioning some of the assumptions that the analysts have made.”
Now that identity is the new currency, ongoing predictions that cash will be replaced by other payment methods have missed the point. Consumers are growing more and more concerned with the security of their personal information. Cash simply has no replacement when it comes to safety and security.
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MYTH NO. 13: CONSUMERS DON’T LIKE CASH As mentioned above, numerous newspapers regularly publish anecdotal stories about the “average” person on the street who no longer carries cash. In 2012, the Bank of Canada conducted a much more rigorous and methodologically sound survey in order to determine why some shoppers continue to use cash. Unsurprisingly, the final report concluded that, according to the survey findings, consumers simply preferred to use cash.
Reports by the UK Payments Council and Link and the Sloan School of Management show that cash remains a preferred payment method because it allows consumers to exert more control over their spending habits.
In light of the growing threat of data theft, wary shoppers are also turning to cash as a safe and trusted method of payment. Like Currency Research, the Canadian Bankers Association (CBA) favors consumer choice when it comes to preferred payment methods. Consumers both want and need choice and should not be forced to use electronic payments by policy.
MYTH NO. 14: CASH HAS NO SOCIETAL BENEFITSSeigniorage is a quantifiable societal benefit of coin and banknotes. This revenue represents a substantial economic profit that would need to be replaced by increased taxes should it decline.
Over recent years, American and Canadian seigniorage earnings have totaled hundreds of billions and hundreds of millions of dollars for each country respectively. The US Mint’s 2012 Annual Report cited the generation of a positive seigniorage in its circulating program.
Furthermore, banknotes and coins benefit society by educating citizens about social issues such as gender equality, as well as cultural figures and events, architecture, indigenous flora and fauna, and geography. Numismatics also plays a role in providing income to central banks and in educating the public, including Fiji’s recent new banknote series and numismatic program.
For generations, physical money in the form of banknotes and coins has served a societal role in educating children on both the value of money and how to manage or save money in a way that cannot be replicated by non-tangible forms of payment.
Charitable giving is another societal benefit of cash. The UK Payments Council’s “Pay Your Way” campaign found cash to be the payment method most commonly used for donations. From an unseen tax to a work of art, from an educational tool to a preferred method of payment for charitable giving, and even acting as a catalyst for the discussion of important social issues, cash is much more than just a payment method.
20 THE CASE FOR CASH PART ONE: MYTHS DISPELLED
MYTH NO. 15: SOCIETY BENEFITS FROM CONVINCING PEOPLE CASH IS BADIt should come as no surprise that Visa, MasterCard and Citibank, together with the Gates Foundation, are members of the Better than Cash Alliance (BCA). One would be led to believe that membership in the BCA is spurred solely by humanitarian impulses; however, one thing is certain: the world would be a more profitable place for commercial banks and the card payment industry without cash. USAID, another founding BCA member has as its charter to promote the interests of US businesses, obviously including all of the above.
According to the 2013 McKinsey on Payments report, the commercial banks generated revenue in excess of $1.3 trillion USD from the payments business in 2011 alone. This report also shows that the two major card companies are, of course, forever locked in stiff competition to increase fee and interest revenues as well as already massive profits. In the race to the top, both Visa and MasterCard have expressed their intent on capturing even more business in new and emerging markets.
Our conclusion is that the more the major banks and card companies can convince governments and consumers that the myths surrounding cash are true, the faster their profits will grow.
MYTH NO. 16: CASH IN CIRCULATION AS PERCENT OF GDP AND COST OF PAYMENTS TO GDP IS RELEVANTThe myth that cash in circulation is a percentage of total Eurozone and US GDP and thus somehow relevant to the case for cash originates from a one-time “cash-in-circulation as a percentage of GDP” chart published in the 2011 World Payments Report as well as a simple calculation by the Bank for International Settlement.
Tellingly, this chart has not been repeated for the 2012 and 2013 World Payments Report, yet this information was widely reported as “true” at the time, despite inconsistencies and misleading omissions, such as the exclusion of high-value banknotes. There is now a growing tendency of central banks and national payments plans to cite cash-to-GDP ratios as a justification to promote non-cash payment methods.
Furthermore, this ratio is sometimes reported and/or confused with the “cost of payments” as a percentage of GDP measurement, without “payment costs” being defined. If there is simultaneously a high cash-in-circulation to GDP ratio as well as a high payment cost to GDP, then somehow cash must be considered inefficient and solely responsible for high costs!
These oft-quoted cost figures are not only misleading, but also neglect to factor in the great and ongoing strides in efficiency that have been implemented throughout the cash life-cycle over the last decade. Currency Research continues to support and advance these efficiencies through conferences, seminars, and training workshops.
SUMMARY REPORT 21
Although by now an older study, the European Security Transport Association’s (ESTA) 2006 report is worth mentioning and calls into question the high cash-to-GDP ratios conveniently cited by central banks to legitimize a cashless agenda. Furthermore, ESTA points out the continued cost savings and social and economic benefits of cash, something conveniently neglected in counter arguments.
As we have seen in Myth #1, reports that the cost of cash is more expensive than cards are overblown or just simply biased. Yet, governments use these misleading figures to justify policy changes that favor other payment methods. Currency Research encourages governments to examine the societal costs and benefits of all payment instruments in order to draw their own conclusions and not to rely on broad meaningless statistics.
CONCLUSIONS Why do we need to argue the Case for Cash? We need it largely because organizations and governments are promoting agendas that are not always in the best interests of society. Large organizations are spreading myths as facts that eventually serve as the platform for payments systems planning, and therefore also the platform for our collective future.
Currency Research believes that cash in the form of banknotes and coins will be in widespread use for generations to come. Cash has no obvious replacement in sight. We do not see any legitimate reason to decelerate our collective investments and research into improving the cash consumer experience and cash life-cycle costs.
FOR MORE THAN 40 YEARS, WE HAVE READ ARTICLES HERALDING THE DEATH OF CASH DUE TO CREDIT CARDS, DEBIT CARDS, THE INTERNET, MOBILE PAYMENTS, DIGITAL/VIRTUAL/CYBER CURRENCIES, AND NOW “IDENTITY” AS IT BECOMES THE NEW CURRENCY. WHEN OR IF A NEW PAYMENT METHOD IS INTRODUCED THAT IS 99.9992% SECURE, 100% TRUSTED, AND 100% RELIABLE IN TIMES OF CRISIS, AS WELL AS EASY, CONVENIENT, UNIVERSAL, AND UNDERSTANDABLE, IT MAY REPLACE CASH. UNTIL THAT TIME, CASH WILL CONTINUE IN REGULAR USE, PERHAPS DECLINING AS A PERCENT OF PAYMENT MEANS, BUT GROWING AS OVERALL PAYMENTS GROW.
But perhaps the strongest case for cash is that it continues to be demanded by our citizens in the face of arguments to the contrary.
Please contact CurrencyResearch ([email protected]) for information on receiving the full Case For Cash report.
22 THE CASE FOR CASH PART ONE: MYTHS DISPELLED
CURRENCY RESEARCH GIVES THANKS TO THE SPONSORS OF THIS REPORT
SUMMARY REPORT 23
CURRENCY RESEARCH IS HONORED to have the support and participation in our Currency Conference, The Cash Cycle Seminar (ICCOS) and other industry initiatives, of the world’s leading suppliers in currency production, handling and management. Through innovation and education these suppliers demonstrate commitment to ensure currency is safe, efficient and trusted. Currency Research gives special thanks to these companies and would be pleased to provide a connection.
Cash Protection
