Friday, 25 august 2017 | Redacción CEU
Perhaps we are not aware of it but the cash is starting to become obsolete. The political developments that intend to finish with money laundering and tax evasion, the new payment methods use, the cryptocurrencies introduction into the financial system,... the path to the physical money disappearance is long but inexorable. Will we say goodbye to euros as we did with the pesetas? Will our coins become collector's treasures? Will this be the end of the change purses?
Today is an ordinary day in Ingrid's life in Bergen –Norway–. This young university student has an important exam and expects to spend her morning focused on preparing it. On the way to the library, she stops at a coffee shop to order an expresso, she pays by card. When she arrives at her destination, she realizes that she needs to print some notes, she recharges her library card through a payment terminal and she prints them. After several study hours, our protagonist decides that it is time to rest and gives herself a prize. She goes into a store and buys some chocolate bars, again she uses her credit card. On the way back home, she meets a street musician, loves his guitar sound and decides to give him a donation through an application. Minutes later, she uses the same platform through which she met an old student from her career, to buy him some textbooks. Why does Ingrid not carry coins in her pocket?
The cash barely moves around in Norway, Iceland, Denmark and Sweden. Millions of daily transactions are made in these places without resorting to physical money, its disappearance is already a reality. The Danish legislation has set the year 2030 as the coins and bills existence deadline in the country. The Denmark stores can refuse to accept cash in order to facilitate the change since 2016. In Sweden, 95% of retail payments are made without using it. Although countries like the United States and the United Kingdom still live very far from this reality –they only carry out half of their transactions with it– , the cash days are counted.
This trend towards the physical money disuse is beginning to glimpse globally. Ending money laundering and tax evasion is the goal of most countries that defend it. The traceability or money tracking is essential to eradicate these practices and requires knowing at every moment where it comes from, where it is and where it goes. Of course, this is a much simpler task, when money is monitored and not kept in our pockets or hidden under the mattress.
At the end of last year, the Government of President Modi in India approved the 500 and 100 rupee bills replacement –the vast majority of the money in circulation– in a very short time period. It is an example of the changes that are beginning to implement to end with the black money. In this particular case, it was estimated that the country submerged economy reached 20% of its GDP. Stopping the financing of terrorist groups and drug trafficking is another of the great goals that the physical money disappearance seeks to reach.
On the other hand, not all the virtual money comes into the system. The cryptocurrencies themselves are deregulated and are sometimes used to move 'dirty' money. The model change involves many challenges. Digital natives love the new payment models for their simplicity, immediacy, and even cleanliness –bills and coins contain a multitude of bacteria–. But, the older generations are still wary of the alternatives to traditional formulas and prefer to carry out their transactions with money from their pockets.
In a recent interview, the Co-Director of the Executive Master Degree in Finance, Rafael Hurtado, claimed that <<the end of physical money will be a reality, but it is difficult to know when will it happen exactly>>. Most financial experts agree that the gradual cash disappearance is a fact. What clues indicate that this change will occur? Why are the experts so confident?
Taking money from a cashier takes time and effort. Immediacy is one of the first demands in the current society and the new payment methods facilitate the access to our money without going out from home.
Checking our accounts status and making transactions through cell phones is becoming more common. Although, the older generations still need to go to the bank to solve most of their doubts, young people prefer online methods.
New applications facilitate the immediate money exchange between individuals. The arrival in Europe of the new regulation on payment methods called PSD2 –Revised Directive on Payment Services– will open the way to make this type of transactions easier.
Like Ovidio Egido Gil, CEO of Mastercard in Spain, explains in his masterclass What is FINTECH?, the digital companies work not only focuses on the new payment methods development, but also in the authentication for the security reinforcement. These companies design biometric formulas like fingerprint detection or, even, heartbeat recognition.
The virtual currency has a great acceptance. In particular, bitcoins are gathering strength and positioning themselves as the cryptocurrencies that generate more trust. Of course, they still have to overcome many obstacles, including their strong volatility and the distrust that they generate in some society sectors.
Experience seems to confirm that people adapt better to changes than expected. At least, that is what the India example –although not very successful, it was made in record time– or the euro acceptance in Europe seems to indicate.
The ECB approved these bills elimination last year on March. At the moment, they are still in legal circulation but their withdrawal is decided and will be carried out in a gradual way.
The new regulations adopted in European countries are being aligned. A few months ago, Portugal set the maximum cash payment at 3000 euros. Since 2015, in France this amount was reduced to 1000 euros. In Spain, the Law against Fraud restricts cash payment up to 2500 euros and, in December, it was announced that it will be limited to 1000 euros.
The physical money disappearance can be an important step in the fight against tax fraud, the financing of terrorist groups, drug trafficking and, in short, in everything related to black money. Even so, the current legislation is far from being able to end these practices. Such an ambitious target also needs measures at its height. The cash disappearance promises a lot, but as much or more it needs.