Cash Is More than a Public Good
Chair, CashEssentials
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The paperSee Banknote paper. More, authored by Héctor Labat, Franz Seitz, and Guillaume Lepecq, is based on a literature review by Labat, which offers a comprehensive taxonomy to frame the conversation. It was followed by a research seminar held in Istanbul in October 2023, bringing together a multidisciplinary panel of experts:
- Héctor Labat, Research Fellow, CashEssentials
- Tim Stuchtey, Brandenburg Institute for Society and Security
- Frédéric Allemand, Robert Schuman Institute, University of Luxembourg
- Carin van der Cruijsen, De Nederlandsche Bank
- Franz Seitz, Weiden Technical University of Applied Sciences, Weiden
- Ursula Dalinghaus, Ripon College
CashMoney in physical form such as banknotes and coins. More Is a Good of Public Interest
Banknotes and coins constitute a form of public 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 as a public institution issues them. However, like private money, they serve private purposes and are not a public good per se. However, cash contributes to several social benefits that are of public interest.
The cash ecosystem and its collective benefits—financial and social inclusion, economic stabilisation, the resilience of the payments system, and protection of privacy—are public goods in the economic sense. They are non-rivalrous in consumption—all people can benefit equally from them—and nobody can be excluded from using them. Economic theory suggests that, without the participation of the government, their provision cannot be guaranteed.
Cash is a good that is accessible to the public. Its tangibility makes it suitable for the elderly, the unbanked, and groups at risk. It can also be used without a device, third-party intermediation, or being online. The public sector also issues and regulates cash to guarantee its public access and widespread acceptance. Cash ensures universal access to the monetary system and economic life, promoting financial, social, and paymentA transfer of funds which discharges an obligation on the part of a payer vis-à-vis a payee. More inclusion of all.
Cash guarantees the respect of several rights deemed necessary for society, such as the right to privacy, freedom of choice, and other civil liberties. It also contributes to guaranteeing a more resilient and cohesive society. Thus, cash is a good of public interest and contributes to the welfare of the general public.
Digital Payments are Imperfect Substitutes for Cash
Digital monies and electronic payment systems are imperfect substitutes for cash in any societal role.
Because they are digital, they cannot fully ensure privacy protection, economic inclusion, and resilience to power outages, cyberattacks, and crises. Private monies and systems may contribute to efficiency but are profit-driven, which limits the extent to which they can contribute to the public good. Central Bank Digital Currencies (CBDC) can be potentially designed to serve society’s interests in better ways than private alternatives do. However, due to their digital nature, they cannot deliver public benefits to the same extent as cash.
The Cash Ecosystem is a Public Good
The use of cash depends on the stability of the cash ecosystem, which both the private and the public sectors contribute to. If the private sector disengages from its role, then the public sector must react to realign private interests with the public interest or fill the gap itself.
The active use of cash must remain above a certain threshold to keep the cash infrastructure alive – in terms of access, acceptance, availability, and affordability – and profitable for the private sector. The government can stimulate the use of cash through informational campaigns that raise awareness of the societal benefits (positive externalities) of cash and new legislation favouring cash.
The cash system requires an appropriate legal framework and institutional support for it to be trusted and credible. The government should strengthen cash access (deposit and withdrawal), convertibility (deposit into bank accounts), and acceptance rules to support the use of cash and establish rights to access and pay in cash.
The cash infrastructure must be adapted to the needs of cash users, who otherwise will have no option but to shift to electronic payment alternatives. This would generate negative externalities in terms of 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, resilience of the payments infrastructure, the protection of privacy and civil liberties as well as economic stabilisation in the case of a crisis.
The cash ecosystem and many of its collective benefits qualify as public goods as everyone can enjoy them simultaneously without restriction. If cash is not profitable for private providers, the government should fill the gap by, at least partly, funding the private sector or taking direct responsibility for its provision. In addition, it can set the scope for innovations that render the infrastructure more efficient.
Final word
Many decisions that would contribute to ensuring reasonable access to and acceptance of cash are ‘political’ rather than technical. Addressing the question of ‘public good’ and ‘basic right’ is essential to make the case for public support for cash and cash infrastructure.
Equally, the paper provides examples of options for public support. While every situation is different, again the paper usefully presents many sensible options. Even if not necessarily ‘right,’ they provide readers with the right scale of choices and decisions required.
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