Cash amidst Volcanic Ash?

In December 2019, the Central Bank of the Philippines – BSP –  hosted a Digital Payments Leaders Summit  alongside the Better Than CashMoney in physical form such as banknotes and coins. More Alliance – BTCA – which launched its report on The State of Digital payments in the Philippines. According to BSP Governor Benjamin E. Diokno “These efforts are aimed at bringing the country closer to our ultimate objective of having an inclusive paymentA transfer of funds which discharges an obligation on the part of a payer vis-à-vis a payee. More system where no adult Filipino is left behind in terms of access to payment and other basic financial services.”

The Philippines is a global early-mover in Digital Payments

“The Philippines has been a global early-mover in digital payments with the launch of mobile moneyFrom the Latin word moneta, nickname that was given by Romans to the goddess Juno because there was a minting workshop next to her temple. Money is any item that is generally accepted as payment for goods and services and repayment of debts, such as taxes, in a particular region, country or socio-economic context. Its onset dates back to the origins of humanity and its physical representation has taken on very varied forms until the appearance of metal coins. The banknote, a typical representati... More in 2001” claims the BTCA. Remarkable progress has been achieved as the share of digital payments grew exponentially from 1% of the total volume of transactions in 2013 to 10% in 2018, representing 20% of the overall value of transactions. The BSP aims to further accelerate the adoption of digital payments and has set an ambitious target of a share of 20% of total transactions in 2020.

Cash in CirculationThe value (or number of units) of the banknotes and coins in circulation within an economy. Cash in circulation is included in the M1 monetary aggregate and comprises only the banknotes and coins in circulation outside the Monetary Financial Institutions (MFI), as stated in the consolidated balance sheet of the MFIs, which means that the cash issued and held by the MFIs has been subtracted (“cash reserves”). Cash in circulation does not include the balance of the central bank’s own banknot... More is Growing at 13.3% (CAGR)

The adoption of digital payments has not happened at the detriment of cash. According to BSP data, currencyThe money used in a particular country at a particular time, like dollar, yen, euro, etc., consisting of banknotes and coins, that does not require endorsement as a medium of exchange. More issued has grown by 87% between 2013 and 2018, from 797 billion pesos to 1,490 billion. This represents a Compound Annual Growth rate of 13.3%.  The BSP continuously invests in and upgrades its capacity for coinA coin is a small, flat, round piece of metal alloy (or combination of metals) used primarily as legal tender. Issued by government, they are standardised in weight and composition and are produced at ‘mints’. More and banknoteA banknote (or ‘bill’ as it is often referred to in the US) is a type of negotiable promissory note, issued by a bank or other licensed authority, payable to the bearer on demand. More production to further increase its agility in meeting the country’s currency requirements. Towards this end, the BSP plans to establish a larger currency production facility.

The infrastructure for the distribution of cashActivity consisting of the delivery of cash throughout the territory in the amount and modality required to adequately cover the needs. It is one of the central bank’s core functions, for which the necessary logistics, materials and human resources are used, either in-house or outsourced. More is expanding; the number of bank branches grew by 4% in 2019 and ATMs by 4.6%. The non-bank infrastructure grew at a faster pace and in particular pawn shops grew by a spectacular 93% last year, totaling 13,190 outlets. Pawnshops are used extensively to pay bills, send and receive remittancesMoney sent home from emigrants working abroad. More and have become major providers of financial services.

In November 2019, the BSP rejected a proposal to regulate and cap ATM fees. The move would have led to a further reduction in the number of ATMs throughout the country, particularly in rural areas – which would have brought major repercussions. Keeping both digital payments and cash is necessary in promoting financial inclusionA process by which individuals and businesses can access appropriate, affordable, and timely financial products and services. These include banking, loan, equity, and insurance products. While it is recognised that not all individuals need or want financial services, the goal of financial inclusion is to remove all barriers, both supply side and demand side. Supply side barriers stem from financial institutions themselves. They often indicate poor financial infrastructure, and include lack of ne... More, especially since cash is resistant to system failures and power outages – making it better trusted, universally accepted and more reliable in times of crisis.

Access to Cash is the First Step Toward Financial Inclusion

In spite of the central bank’s push in favour of digital financial inclusion, the results are modest. The BSP 2017 Financial Inclusion Survey reports that:

• The number of Filipino adults with a formal account is estimated at 15.8 million or 22.6% of total adult population. This is a modest improvement from 22% based on the maiden survey in 2015.
• Only 18% of Filipino adults with an account use their account for payments. Almost two-thirds (64%) of adults who did not use their accounts for payments cited that they still prefer cash in paying while 20% said that they are not aware that they could pay electronically using their account.
• Out of 52.8 million adults who do not have an account, 60% cited not having enough money as the primary reason. The number was followed by the perceived lack of need (21%) and absence of documentary requirements (18%). Other reasons cited are high cost (10%), lack of knowledge in account opening (9%), lack of work (8%), and lack of awareness (8%).

When Crisis Strikes, Cash Saves

On 12 January,  the Philippine government urged a total evacuation of nearly a million people near the capital Manila in response to the eruption of the Philippines’ second-most-active volcano. The Taal Volcano spewed ash up to nine miles (14 kilometers) in the air and is now set for a possible “explosive eruption”, according to the Philippine Institute of Volcanology and Seismology (PHIVOLCS).

The country’s Department of Agriculture announced that the eruption’s damage to crops and livestock has reached a figure of PHP74.55 million (US$1.5M) and is still increasing. Affected farmers and fishermen will be given cash loan assistance worth PHP25,000 (US$493), with zero interest, payable in three years. In addition to in-kind donations, various organisations and government agencies are also accepting cash transfers as donations for evacuees.

The Philippines is no stranger to crisis situations, enduring numerous natural disasters on a yearly basis. In November 2013, the Philippines was struck by super-Typhoon Haiyan where over 6,000 people died. As the storm approached, the Mayor of Tacloban, a coastal town of 240,000 people lying directly in the storm’s projected path, ordered a series of protective measures to be taken, one of which was to construct walls of sandbags around the town’s ATMs. He also requested the country’s central bank to pre-position an extra supply of low-denomination banknotes because he knew that access to cash would be an immediate priority once the accompanying storm-surge retreated.

Watch the first Episode of our Cash and Crises series to learn more on how cash saves when crisis strikes:

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