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Time to Protect Cash

Categories : Cash is a contingency and fall-back solution, Cash is a public good
May 15, 2020
Published in : Cash and Crises, Coronavirus, Financial inclusion, Social Inclusion
Cash – physical currency – is a vital public good whose social utility in times of crisis deserves to be better recognised. It is time for aid agencies to protect it. The health of vulnerable populations around the world – the people international aid agencies exist to protect – should not be put at risk by advising them to use only cashless forms of payment or systems which are not disaster-resilient. In fact, to do so goes against the humanitarian principles of ‘do no harm’.
James Shepherd-Barron

Disaster Management Consultant, Disaster Epidemiologist, Author, and Founder of The Aid Workers Union

The Covid-19 (C-19) pandemic has raised familiar arguments about the relative merits of digital payments [1] versus cash transfers in times of humanitarian crisis. The Bank for International Settlements recently warned against the risk of discrimination and social fragmentation in a paper about C-19 and the Future Of Payments in which they spoke of a widening ‘payments divide’ between those with access to digital payments and those without. Meanwhile, the policy of most humanitarian organisations is to default to mobile money, pre-paid debit cards, or electronic vouchers. But the justifications for these approaches are founded on a number of fundamental misperceptions about how cash works for society, especially societies in crisis.

The first is the belief that cash is not an integrated part of the digital payments mix. It is. The SEEP Network’s statement on C-19 of 16th April calls for members of the Markets-in-Crisis D-Group to support critical market systems by including shifts to digital payments mechanisms for vendors. But this is just not realistic, at least not in the short term, as the settlements infrastructure in most developing countries is not reliable enough to make this viable. Almost all so-called ‘digital’ transfers require cashing-out at some point in the payments cycle because merchants don’t have access to the electronic point-of-purchase, mobile transfer apps or banking platforms required to process them. Conveniently forgotten in ‘lessons learned’ from the various Ebola crisis in West Africa and DRC between 2014 and 2020 is that over 90% of digital payments were partially or completely converted to cash. It’s the same with the mobile payments platform, M-Pesa in Kenya. Digital transfers are only one part of the value chain. The process of ‘cashing out’ is not automatic; it involves the private sector and government working together to guarantee the money supply. Getting it wrong can lead to liquidity and inflationary challenges. With the exception of the World Bank, the aid sector is almost completely absent when planning this aspect of the cash cycle[2].

Second is the misperception that cash somehow contributes to the transmission of disease. Electronic forms of payment are increasingly being recommended, the inference being that cash is dirty and unhygienic. In a guidance note dated 7thApril 2020, the Global Health Cluster [3] advised that, “Where possible, contactless electronic or mobile payments should be the preferred option.” Back in 2014, the cash consultancy, Currency Research[4], investigated whether this sort of advice was valid. Then, as now, their meta-analysis of peer-reviewed research demonstrated that cash is no more harmful than other commonly used forms of payment, including debit cards and mobile phones. Although some central banks disinfected, incinerated or quarantined banknotes as a safety measure during this C-19 crisis, the Centers for Disease Control in the US, the Koch Institute in Germany and a host of academic papers agree that, “While pathogens can persist on banknotes for some days, the probability of disease transmission by banknotes has no material significance.”[5] As the evidence clearly shows, transacting with cash poses no greater risk than when using debit cards or mobile phones [6], especially when partnered with hand hygiene.

Third is that those who have little option but to use cash face financial exclusion if access to cash is limited. According to the World Bank’s Findex database, nearly half (48%) of the world’s adult population either cannot[7] or has not made a digital transaction in the past twelve months. Linked to this is a growing body of evidence that easy access to short-term, high interest digital loans through mobile phones means that countries across Sub-Saharan Africa and South America now face a looming indebtedness crisis which ends up financially excluding the very people who would benefit most from financial inclusion.

Fourth, reducing access to cash increases poverty by reducing access to markets. This has direct consequences for human health in terms of reduced nutritional status, educational attainment and access to health services, all of which negatively impact life expectancy [8] owing to the fact that there is an empirical relationship between health and per-capita income.

Fifth, digital payments accrue single-use fees to the remote service provider, thereby removing the financial multiplier effect in local markets afforded by cash which, according to the Overseas Development Institute, can more than double purchasing power. This makes cashless interventions significantly less cost-effective for donors in terms of outcomes achieved [9].

Meanwhile, we have to recognise that financial service providers, mobile network operators and a host of intermediaries benefit from any boom in digital payments. As Currency Research puts it, “The current pivot away from physical currency has become, for some, more ammunition in the long-standing war on cash that’s been waged for years by the big payments players.” Billions of dollars in profits hinge on whatever policy statement regulatory authorities issue, including those of international aid agencies, the Global Clusters they co-lead, and representative bodies such as the Better Than Cash Alliance.

We also have to remember that cash is a preferred contingency measure in times of crisis. It is universal; it does not discriminate; it involves little in the way of infrastructure; it is trusted; it is free of private and political interference; and it works [10]. This helps explain why, according to Cash Essentials, a think tank, cash use in Europe, the US and many other places around the world is surging faster now than it did following the global financial crisis of 2008.

The message is clear: Cash is a vital resource for billions of people across the globe [11]. It is a human right. To advise against its use when responding to disasters such as the C-19 pandemic is discriminatory and does harm by further marginalising the poorest and most vulnerable in society. Without it, poorer sections of society are not only at higher risk of financial exclusion but face adverse health consequences, including reduced life expectancy. At a time when so many are falling through the cracks, restricting the use of cash will impose even more of a burden on already vulnerable segments of the population. The C-19 pandemic is a crucial moment in the humanitarian Cash & Voucher Assistance (CVA) movement, one that could ultimately define the future viability of cash as a critical disaster response measure for future crises the world over. We must fight to protect it.

 

[1] Digital payments are instruments that use a digital medium to authorise or receive payment. Cash refers to physical currency, in this case banknotes.

[2] For more on this, see https://cashessentials.org/cash-crises (Episode 5: The Cash Cycle in Disasters)

[3] Clusters are combined UN-NGO sectoral coordination groups

[4] Special Report: Covid-19 A Time to Protect the Future of Cash; Currency Research, 7 April 2020

[5] Auer et al:  Covid-19 Cash, and the Future of Payments; Bank of International Settlements, Bulletin No.3, 3 April 2020

[6] In theory, contactless payments may reduce the risk of pathogen transfer but, in practice, such technologies are hard to find even in Capital cities in low-income societies.

[7] 1.7 billion (>20%) of the world’s population don’t have a bank account (WB Findex, 2017)

[8] The ‘Preston Curve’ demonstrates an empirical relationship between per-capita income and life expectancy

[9] For more on this, see https://cashessentials.org/cash-crises (Episode 3: Multiplier Effects)

[10] For more on this, see https://cashessentials.org/cash-crises (Episode 2: Role of Central Banks in Disaster Management)

[11] https://globalfindex.worldbank.org/chapters/unbanked

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