The FRANKFURT — based Payment systems in Europe are on the verge of radical change. Thanks to the digital revolution appear faster and more convenient tools for conducting payment transactions, so some believe that cash has no future. But it would be a mistake to ignore the role of banknotes and coins in the economy.
In recent years, dramatically increased the number of options for cashless payments. Already well-known credit card, online payment and direct debiting payments (direct debits). And with smart phones now began to gain popularity various digital payment solutions and mobile wallets. Potentially revolutionary innovations, such technologies are distributed registry, indicate that on the horizon can loom new and possibly fundamental changes.
In addition to these new or newly emerging technologies there are a number of studies proving the necessity of non-cash. Advocates of a cashless society can usually be attributed to one of three different camps.
The first camp — “alchemists” — wants to overcome the limitations caused by the zero interest rate (ZLB) of monetary policy. The second camp — the “law and order” wants to eliminate the main means of payment in the illegal activities. And the third camp — the “Alliance Finance” (FINTECH means “financial technology”) — looking forward to great business opportunities due to the elimination of high costs for storage, production and cash turnover, which are now the responsibility of the Finance industry.
However, the arguments in favor of abandoning cash does not withstand critical analysis. Let’s start with the arguments of the alchemists. Yes, indeed, in the face of very low interest rates to conduct monetary policy becomes difficult.
However, as experience shows, the effective lower threshold interest rates is different from zero. Moreover, a policy of negative interest rates works without causing the flight to cash, especially if it is combined with direct purchases of assets, long-term credit operations (including the provision of funds to banks at a fixed rate and “purpose” loans), and informing about the future plans (forward guidance). In this regard, negative interest rates should be understood as a specific, non-standard instrument of monetary policy which is different from just low interest rates.
The arguments of the camp of “law and order” in favor of banning cash also look weak in critical evaluation. As a tool store of value and means of payment, cash fulfill an important social function for many law-abiding citizens. Who is going to propose a ban of private ownership of expensive cars or jewels only for the reason that they are like criminals? Harming the decent majority for the sake of punishing the criminal minority is like cracking a walnut with a sledgehammer — so you can break the table.
Finally, “Alliance Finance” promises that his innovative solutions in the field of digital payments will help to persuade the Commission of financial transactions. Consumers no longer need to carry cash or find an ATM. The question is, who the industry of digital payments, is still very fragmented, will be more help to consumers or to companies that offer payment solutions.
There is another big problem with the arguments in favor of a cashless society: most people, at least in the Eurozone, does not want to live in it. According to a forthcoming survey of 65 thousand residents of the Eurozone by the European Central Bank, almost 80% of all retail payments they make in cash and in value terms the share of cash accounts for more than half of all payments.
As often happens in Europe, the difference between individual EU countries are striking: the share of cash payments varies from 42% in Finland and 92% in Malta. However, in General, the companies attachment to cash remains strong, moreover, it is enhanced.
The rate of growth of aggregate demand for cash exceeds nominal GDP growth. Over the past five years, the average annual growth rate of Euro banknotes was 4.9% in value and 6.2% in quantity. This growth was spread banknotes of low face value which are used mainly for payments, not savings.
These facts confirm the validity of the neutral position of the ECB on the issue of payments that allows for both cash and cashless payments. This approach is based on four principles: technological security, efficiency, technological neutrality, freedom of choice for users of different means of payments.
The main goal of the ECB is to ensure price stability. To accomplish this, it provides a reliable liquidity in the form of reserves that banks hold in his accounts, and in the form of banknotes which have the status of the only legal means of payment in the Eurozone.
If Europe has abolished the cash, this would break the only direct connection of the people with the money of the Central Bank. In a democracy, such a relationship promotes acceptance of the idea of independence of the Central Bank, since it increases confidence and support for the people of effective monetary policy.
The ECB will continue to print banknotes. We will also help the further development of integrated, innovative and competitive market for solutions in the field of retail payments in the Euro area. If the day will come when electronic means of payment will replace cash, this decision is dictated by the will of the people, not lobby groups.