The Cash Agenda for 2020 (2/3)

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 New asked a cross-section of cashMoney in physical form such as banknotes and coins. More experts from different parts of the cash cycleRepresents the various stages of the lifecycle of cash, from issuance by the central bank, circulation in the economy, to destruction by the central bank. More (and the world) to consider the challenges of 2019 and the priorities for 2020, with each facing the implications and realities of changing usage. Here is the interview with Franz Seitz, Professor at the Ostbayerische Technische Hochschule in Germany, and member of the CashEssentials Steering Committee. This article was first published in Currency News Volume 18 – n° 1 January 2020.

Franz Seitz will be presenting at the next Future of Cash Conference in Madrid.

During 2019, I carried out a wide range of research looking at key topics affecting cash, the impact of less cash, cash and the shadow economy, cash and negative interest rates and non-transactional demand for cash.

Less cash will have a negative impact for financial systems

The conclusions largely challenge the accepted wisdom. For example, less cash will have a negative impact for financial systems whilst increasing risks in the event of a financial crisis.

The evidence for cash driving the shadow or black economy are hard to establish. When you study its growth and evolution, it is not clearly linked to increases in the level of 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.

The existence of cash means central banks cannot introduce negative interest rates, and I have shown that introducing negative interest rates would have negative repercussions on the economy.

In 2020, my research will focus on cash usage in different countries in Europe, particularly the EurosystemThe Eurosystem comprises the European Central Bank and the national central banks of those countries that have adopted the euro. More compared with Switzerland and Sweden, the relationship between less cash in circulation, the potential public demand for Central Bank Digital Currencies and the cost of different paymentA transfer of funds which discharges an obligation on the part of a payer vis-à-vis a payee. More media from a consumer perspective.

Key challenges for 2020: availability and acceptance

The key challenges facing the future of cash are how to make cash available and the acceptance of cash and the impact of less cash on both payment networks and society.

My research shows that cash will decline if it is not made available and it is not accepted. Central bank policies are, therefore, important for the future of cash. When one considers the disadvantages of a cashless society for the economy as a whole, can central banks really continue their policy of being neutral on payment methods?

Cash usage in transactions is likely to reduce, but cash will survive because there will continue to be demand from at least a proportion of consumers who, in particular, will use it as a store of valueOne of the functions of money or more generally of any asset that can be saved and exchanged at a later time without loss of its purchasing power. See also Precautionary Holdings. More.

But the public is unaware of the risks and consequences of less cash. It is important to have an efficient mix of payment options and to lose cash would be a serious development with negative and unintended as well as unexpected consequences.

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