Money is dying, but we’re not ready to bury it
The disappearance of cash is near. As consumers, however, we must hope that the end does not come too soon.
It is not the pandemic that ends the existence of this popular payment method. All COVID-19 has done is accelerate a trend that was already with us. When Steve Jobs unveiled the first iPhone in 2007, he began to eliminate the need for banknotes. Self-driving cars, automatically controlled refrigerators and our digital avatars in the metaverse will put the final nails in King Cash’s coffin.
COVID-19 has shifted $ 5,000 billion in global retail sales from offline to online. As much of this value was traded in cash (47% in the eurozone), the idea that central bank-issued currency was essential for purchasing basic necessities took a hit. After an initial increase in precautionary hoarding, mobility restrictions and the fear of catching germs while handling paper money forced a change in habits.
Where governments have handed out vouchers to increase spending – like in Hong Kong – millions of consumers and thousands of merchants have become new users of online payment systems just for using documents. Many will likely continue to use these new ways of paying their bills.
But how crucial have these changes been in all things? The different trajectory of banknotes in China and India provides a natural experiment to assess the relative importance of temporary shocks and constant technological change.
Cash usage has plummeted in India after Prime Minister Narendra Modi canceled 86% of existing legal tender overnight in a botched economic experiment. It was five years ago. Nowadays, digital payments are booming, but cash again makes up 14% of all currency circulating in the economy, as it did before demonetization. In China, where physical currency has been rendered useless by the growing ubiquity of Alipay and WeChat Pay, central bank IOUs on the public account are only 4% of the money.
Technological progress does not have the drama of a behavioral shock, but it is none the less staggering. As Jeremy Balkin and Neha Wattas of JPMorgan Chase & Co. remind us, the fastest way to transfer money from New York to London again in 2010 was to take a flight from JFK to Heathrow and deliver it in person. . Their report, provocatively titled “Payments Eat the World,” notes several changes that are happening in unison. In China, super-app platforms have transformed money; elsewhere, the rise of an economy of creators and odd jobs does. Globally, 50 million people blog, make short videos, or tell people what to buy on the internet – and get paid online too.
Digital wallets are mushrooming everywhere, but what’s stored in them is changing due to another technological revolution: blockchain. Fintech Circle has partnered with Visa Inc. to enable trading customers to spend USD coins – an Ethereum blockchain currency that pegs its value in the dollar – with 70 million merchants. An equally important phenomenon is âbuy now, pay later,â which incorporates finance (and cashless payments) even into low-value transactions: like buying lipstick in three installments.
Wait for each of our 15 Internet of Things devices to make their own purchases, using programmable digital money issued by the central bank to only pay when they get the right items. While all of this is happening in the real world, a whole new parallel flow of consumption in the alternate reality of the Metaverse could reach $ 390 billion by 2025.
Innovation in payments is even more important in emerging markets than in developed economies. Smartphone-based apps running on a shared public service cleared the equivalent of $ 100 billion in domestic Indian payments last month, up from less than $ 15 million five years earlier. And that’s just the beginning. Alphabet Inc.’s Google, which alone handled $ 38 billion of those instant transfers, has now developed a less than $ 100 Android-based phone. The idea is to bring mobile internet to the bottom of India’s consumer pyramid.
Cash is always in demand, especially in a very informal economy like India’s. But its importance as a means of payment is diminishing. In 2003, around 35% of euro area cash was used in domestic transactions; this number fell to around 20% in 2019. Between 30% and half of banknotes ended up abroad, while the rest is hoarded in the euro zone: for some investors, a safe sovereign liability that pays zero is better than negative – producing government bonds.
As money disappears from the vaults – with no central bank digital currency, or CBDC, to replace it – public confidence in the convertibility of deposits into official currency may become “more of a theoretical construct than a daily experience,” according to a recent research paper. by Ulrich Bindseil of the European Central Bank and others. It can destabilize entire financial systems.
If all money in circulation is private, controlled by e-commerce and social media platforms, authorities will not be able to protect consumers from exploitation. Therefore, even in countries where technology has made it an anachronistic appendage, cash cannot be allowed to die. Not until the CBDCs are ready.
Andy Mukherjee is a Bloomberg Opinion columnist covering industrial companies and financial services.
In a time of both disinformation and too much information, quality journalism is more crucial than ever.
By subscribing you can help us tell the story right.
Comments are closed.