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Who is Framing Cash?

Categories : Cash is a public good, Cash protects privacy and anonymity, Costs of cash versus costs of electronic payment instruments
August 25, 2020
Published in : Cash demand, Coronavirus, Digital payments, War on Cash
The mythical war on cash is not new, far from it. It is however often unclear who is waging it. During the Covid-19 pandemic, some of the enemies of cash have become more outspoken.Here are some of those who want to get rid of cash.
Guillaume Lepecq

Advocates of a cashless society tend to fall into three distinct camps: the alchemists, the law and order camp, the fintech alliance

In 2017, Yves Mersch, Member of the Executive Board of the ECB wrote: “Advocates of a cashless society tend to fall into three distinct camps. The first camp, the alchemists, wants to overcome the restrictions that the zero lower bound (ZLB) imposes on monetary policy. The second, the law and order camp, wants to cancel the primary means of payment for illicit activities. And the third camp, the fintech (financial technology) alliance, anticipates major business opportunities arising from the elimination of the high storage, issuance, and handling costs of cash that the financial industry currently faces.”

In the early stages of the Coronavirus pandemic, numerous misleading reports and articles advised against using cash claiming that banknotes and coins could be vectors in the spreading of the virus. This provided a golden opportunity for the anti-cash lobbies to speak up.

Bank of America CEO: “We Want a Cashless Society”

In June 2019, Bank of America CEO Brian Moynihan kicked off Fortune’s inaugural Brainstorm Finance conference and declared “We want a cashless society.” It is telling that Moynihan chose to make the statement at a Fortune conference. The magazine was founded in 1929 in the wake of the Great Depression and claims in its 1929 prospectus for advertisers that Fortune should be “the Ideal Super-Class Magazine” for “wealthy and influential people.”

Moynihan added that “We have more to gain [from a cashless society] than anybody from a pure operating costs [perspective].” Bank of America operates 4,300 branches and 15,900 ATMs but has also spent “probably spent $30 billion on code” over the past eight years to develop and improve its technological infrastructure. Running an ATM is roughly estimated to cost $30K per annum which amounts to $477 million for BofA’s estate. That’s almost eight times less than the $3.75 billion invested in IT each year.

PayPal CFO: “The death of cash has arrived” 

In July 2020, in a call presenting the quarterly revenues, PayPay executives cited the death of cash as the company posted record earnings. According to CNBC, PayPal CFO John Rainey said: “The death of cash has arrived.” Company executives said society has reached an “inflection point” when it comes to the “death of cash,” and noted that 70% of consumers now fear for their health when it comes to paying in stores. PayPal claim that the demise of cash is due to the digitization of payments and the growth in mobile devices. This creates an opportunity for PayPal to expand its services to those who are unbanked or under-banked say the executives. However, in October 2019, PayPal withdrew from the LibraAssociation, the facebook-driven initiative to design a virtual blockchain-based digital currency, also with the aim of creating a more inclusive financial system.

This is not the first time that cash is in the crosshairs of PayPal. In 2016, PayPal paid millions of dollars for an ad during the Super Bowl, the final of the American National Football League. The ad was called “There’s a new money in town”. The narrative stated that “Old money is these people” while pictures displayed portraits of historic figures illustrated on US and Canadian currencies. It continued with “New money is all people” with a sequence showing people of both genders and diverse ethnic origins. Of the 60 broadcasted ads, PayPal’s was ranked 53rd.

Reinterpreting Gresham’s Law

But Paypal is missing a crucial point. While there has been a decline in the use of cash as a payment instrument during the pandemic in many countries, the overall demand for cash has experienced an unprecedented growth. In the US, at the end of July, the year-on-year growth of the value of cash in circulation reached almost 14% or $228 billion. Other countries have experienced similar surges including Argentina, Australia, the Euro-area, and Russia. This is largely due to consumers increasing their cash holding as a store of value. Perhaps this is a new interpretation of Gresham’s law ‘bad money drives out good’. During the pandemic, consumers have paid more with ‘bad’ digital instruments, but have stored more in ‘good’ cash.

 

Coronavirus is speeding up the disappearance of cash

In April, Gary Cohn a former banker and former director of the US National Economic Council during the Trump presidency published an op-ed in the Financial Times boasting “For the past five weeks, I have not touched a single coin or banknote, instead relying exclusively on electronic payments systems and credit cards that only I touch.’ The article argues boldly in favour of digital currencies which according to the author would increase financial inclusion, reduce tax evasion, and limit disease transmission. In the initial version of the op-ed – edited since – Mr. Cohn omitted to mention that since he left the White House, he serves on the Board of a company developing biometric blockchain technology for communications and digital payments and advises fintech companies.

Financial Privacy is a Human Right

The article recognizes that “there are privacy implications to the government having access to individual and corporate wallets” but does not propose a solution. For Alex Gladstein, Chief Strategy Officer at the Human Rights Foundation, a healthy democracy needs financial privacy. If all our behaviours and all our movements are tracked, this can damage democracy in a fatal way. Bank statements say more about what we are doing than our social media accounts or our emails. Economist and Fed Research Fellow Charles Kahn agrees: “Policymakers now fully recognize the importance of privacy considerations in financial infrastructure, including payments arrangements.” The IMF also recognises the importance of privacy in payments; in a recent paper on central bank digital currencies, it underlines that the ability to make anonymous transactions is an important criterion for a payment instrument. The paper states: “In designing money, national authorities already face a trade-off between satisfying legitimate user preferences for privacy and mitigating risks to financial integrity.”

 

 

 

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