Sunday, July 13, 2014

One day we'll laugh about how we used to use notes and coins...

Australia Post was always going to wind back mail deliveries. Think about the absurdity of it... thousands of trucks and bikes traversing the country in order to move something slowly that can be delivered quickly and cheaply by computer.

It’s the same for the newspaper you’re reading right now. Printing it and delivering it by trucks is enormously expensive compared to sending the text by computer.

And it’s the same for video, music and book stores. Why set up a network of trucks and warehouses to deliver something slowly that can be delivered instantly and near costlessly?

The only reason we’ve set up these hideously expensive systems in the past is that we didn’t have computers to do it for us.

But they are not the dated technologies facing obliteration at the hands of computers.

The next big one is so obvious it’s hard to see. It’s under your nose, or in our pockets.

It’s money itself, represented by cash.

If you think cash is costless you haven’t thought about it. It gets to bank branches and ATMs via trucks, warehouses and guards with guns. You might not notice that you’re paying for it because banks burying the costs in fees and retailers bury them in their prices. One of the reasons it’s rare to see a discount for cash is that cash itself is expensive, even compared to credit card fees which are exorbitant.

We ought to be able to do to cash what we are in the midst of doing to printed newspapers and record stores.

But we mightn’t be able to rely on the banks themselves to do it. In the early days of the internet Telstra resisted embracing DSL technology because it wanted to keep making money by renting out extra dial-up phone lines. It and the other phone companies are continuing to overcharge us for text messages when anyone who has ever used a smartphone knows that the real cost of sending a short message through the air is close to zero.

The solution might have come from outside. As unlikely as it seems, it might come from Africa...

Kenya has leapfrogged much of the so-called developed world because it never got too bogged down in banking. With only 6 bank branches per 100,000 adults (Australia has 32) cash is hard to come by in Kenya. It can involves travelling long distances and often getting mugged.

So Vodafone set up m-Pesa. The M stands for mobile, and “pesa” means “money” in Swahili. Villagers pay real money to an agent at a store, get their phone topped up and then hundreds of kilometres away use it to buy and sell produce with neighbours who also have m-Pesa on their phones. About half of Kenya’s population are said to have used it.

It has since spread to Tanzania, South Africa, the Democratic Republic of the Congo, Mozambique, Lesotho and beyond Africa to India, Fiji, Egypt and Romania.

Its anonymous, requiring no bank account, no identity documents and no permanent address.

We’ve already made our big transactions cashless, unless we’ve something to hide.

I confess to being not particularly squeamish about the privacy concerns of the Australians who use briefcases full of high denomination notes to buy houses and cars. And there must be a lot of them. An astounding 92 per cent of all the cash on issue is in the form of $50 and $100 notes. They are not often used for transactions by people I know and I have a feeling I am paying more tax than I should because the people use them are pay less.

In a submission to the financial system inquiry former Reserve Bank official Peter Mair suggests doing away with high denomination notes altogether. They would be given a use-by date. Anyone who didn’t hand them in within, say, five years would get nothing in return.

After that it would pretty easy to abolish small change. Many of us already top up parking meters or buy drinks from vending machines with a wave of our phones. It’s where privacy does matter. I’m not keen the bank or the police knowing where I’ve been minute by minute. But there’s no reason they should. Kenya has shown us how to keep mobile transactions anonymous.

Axing cash ain’t radical. A leading United States conservative economist Kenneth Rogoff has argued the case twice in recent months producing one study entitled Costs and Benefits to Phasing Out Paper Currency and another entitled Paper Money is Unfit for a World of High Crime and Low Inflation.

In The Age and Sydney Morning Herald

Of course it's been said before...

HT: @Don Arthur


. Izabella Kaminska, Negative interest in cash, or goodbye banknotes, FT Alphaville, May 20 2014

. Kenneth Rogoff, Costs and Benefits to Phasing Out Paper Currency, NBER Working Paper 20126, May 2014

. Kenneth Rogoff, Paper money is unfit for a world of high crime and low inflation, Financial Times May 28, 2014

. Chartered Alternative Investment Analyst Association, The End of Paper Money, June 8, 2014

. Ken Banks, The Invisible Bank: How Kenya Has Beaten the World in Mobile Money, National Geographic, July 4, 2012 

Related Posts

. Everyday Economics. Going cashless?

. Why do we have so many $100 notes?

. The grey economy. Might pensioners have those $100 notes?