The World of Cash at the Crossroads
Next Post

Press {{ keys }} + D to make this page bookmarked.


The World of Cash at the Crossroads


NEW YORK – April 13, 2019

Today, the world is entering an era of the “digital” economy. An important feature of such an economy is the predominance of non-cash money in circulation, and they already have an exclusively electronic, or “digital” form. Cash in the form of paper currency (banknotes) and coins are present in circulation, but in the whole world, there is a tendency to their final replacement by non-cash money. The process is very uneven and the level of cash circulation varies greatly from country to country.

Recently, an attempt was made to draw an overall picture of the monetary world in terms of assessing the ratio of cash and non-cash components of money circulation in the World Cash Report 2018. It contains the results of the research of the international multi-company G4S based in London, the world's largest company providing the widest range of services to ensure the safety of doing business. One of its main activities is cash circulation: consulting banks, trading, and other companies, development, and implementation of technologies for working with cash.

In order to better navigate the world of cash, the company has been preparing various reviews on this topic for several years. The first report focused on the cash situation in the Netherlands (2011). A year later, a similar report was prepared on Belgium. In 2014, a report came out with projections of the future of cash in the Netherlands. In 2016, a review report was made on cash in Europe. And finally, the first report claiming global coverage appeared.

The report is based on a study of 47 countries from all continents for the period 2011–2016. The survey is based on both national statistics and sociological surveys conducted by G4S itself in 24 countries. Such surveys, in particular, showed that in 17 out of 24 countries, more than 50% of payment transactions (in terms of quantity, not in value) were carried out using cash.

The lowest percentage (below 50%) of cash transactions in 2016 was recorded in the following countries (%):

South Korea - 14;

Sweden - 20;

United States - 32;

Australia - 37;

Great Britain - 42;

The Netherlands - 45;

Estonia - 48.

In nine countries, cash utilization ranged from 50 to 80%. The highest share of cash transactions (80% and above) was in the following countries (%):

Malta - 92;

Cyprus - 88;

Greece - 88;

Spain - 87;

Austria - 85;

Portugal - 81;

Germany - 80.

In Europe as a whole, citizens made 78.8% of payment transactions using cash, and their share in the value of payments was 53.8%. The authors of the report thus hold the idea that it is still too early to bury cash, although in the long term, the tendency to oust it is obvious.

One of the key indicators used in the report is the mass of cash, called in the economic literature the monetary aggregate MC (banknotes and coins in circulation). The relative value of MC to a gross domestic product (GDP) is also interesting. In 2016, worldwide, this indicator of “cash monetization” was equal to 9.6%.

The relative level of cash supply grew in 2011-2016 in all parts of the world, but the most pronounced growth was observed in Africa and Latin America. Growth in North America and Oceania was minimal. The highest rates of relative cash supply were in 2016 in the following countries (%):

Paraguay - 38;

Ecuador - 29;

Japan - 20;

Morocco - 20;

Egypt - 19;

Greece - 17;

Hong Kong - 16;

Hungary - 13;

Spain - 12.5;

Thailand - more than 12;

Czech Republic - 12;

Italy - 11.

And here are the countries with the lowest relative value of the cash supply (%):

Sweden - 1.4;

Nigeria - 2.1;

New Zealand - 2.1;

Brazil - 3.0;

Zambia - 3.0;

Kenya - 3.0;

Great Britain - 4.0;

Canada - 4.1.

It can be noted that in the list of countries with the least cash monetization of the economy, we see both economically developed countries and developing countries, including those among the poorest.

If economically developed countries like Sweden once had much more substantial levels of cash money and reduced it, then for the poorest countries these levels were always chronically low, first of all due to the poor development of the banking system. All Western countries, as many experts believe, will inevitably follow in the footsteps of Sweden, i.e. first stop the further increase in cash money, and then begin to reduce it (first, relative to GDP, and then in absolute terms).

But in developing countries, the alternative to developing money circulation by creating a network of traditional banking institutions with their cash and ATMs is the development of mobile banking. It is with the help of mobile phones and special applications that developing countries will catch up with the West in terms of money circulation. Moreover, developing countries that are not burdened with the traditional banking system may have even higher rates of development of non-cash money circulation. This option is called the "Chinese model."

To assess the role and place of cash in the economy and the lives of citizens, in addition to such a macroeconomic indicator as MC / GDP, the speed of cash circulation should be taken into account. After all, cash can be used as a means of accumulation, and not act as a means of exchange and payments. The report uses an indicator of the amount of cash withdrawn through ATMs relative to GDP.

For example, in New Zealand, the level of cash monetization is 2.0% of the GDP, and through ATMs, money is withdrawn annually with a total volume of 6.4%. It turns out that the stock of cash more than three times a year passes through ATMs. And what about the United States? They have a cash monetization of 8.9% of the GDP. And the amount of money withdrawn from ATMs in a year is estimated at 3.9% of the GDP. It turns out that the entire mass of cash in the US will be able to go through ATMs for 2 or 3 years. The speed of cash circulation in the US is about seven times lower than in New Zealand. It is easy to guess that in the US it has been stalled as a means of accumulation and in bank deposits.

The authors of the report tried to identify those countries that were the most “emancipated” from cash and the closest to the transition to fully “digital”, i.e. non-cash monetary circulation.

The following indicators were used for this purpose:

-             the relative value of the available cash supply (MC/GDP);

-             the amount of cash withdrawn through ATMs in relation to GDP;

-             the number of payment transactions carried out with bank cards (debit and credit) per capita;

-             the number of issued bank cards per resident;

-             the number of POS-terminals per 100,000 inhabitants. (POS—Point of Sale—terminals refers to an electronic software and hardware device for accepting payment cards for payment: A POS-terminal often means the entire hardware-software complex that is installed at the cashier’s workplace);

-             the proportion of adults who have access to bank accounts of the total adult population (over the age of 15);

-             the share of payment transactions carried out by the population using cash (this indicator was determined using sociological surveys).

Despite active attempts by the monetary authorities to oust cash from circulation, the cash supply in most countries of the world in the period 2011–2016 grew in both absolute and relative terms. The fact is that after the financial crisis of 2008−2009 the monetary authorities of many countries of the world (especially Western countries) made every effort to revive the economy (which could not fully recover). For this purpose, means such as increasing the money supply were used.

We will draw your attention to the fact that the money supply in the economy consists of two components:

-             money issued by the central bank;

-             money issued by commercial banks.

The first is mainly cash; the second — non-cash (deposit). The share of the first in the total money supply varies in different countries, mainly in the range of 10−20%. Accordingly, the money emitted by commercial banks accounts for the remaining 80–90%. But the issue of money by commercial banks (in the form of loans issued) is possible only if there are a certain amount of legal payment instruments in the deposits of these banks.

In economics textbooks, this is called the money multiplier. In other words, building up the total money supply is impossible without building up the MC monetary aggregate; without this the money multiplier will not work. Relatively speaking, at the expense of each dollar increase in the money supply, it is possible to ensure the increase in the entire money supply by three dollars. The accumulation of cash money is needed not only and not so much to serve payments and settlements in the economy, but to act as a “money base” to build up the entire money supply and increase the monetization of the economy. Monetization is expressed as an indicator of total money supply (cash + non-cash money) related to the GDP (in percent).

This is how the monetization of the economies of some countries changed in the period 1960-2016 (% of GDP):

Japan - from 50 to 240;

Great Britain - from 45 to 140;

Australia - from 45 to 120;

United States - from 60 to 90.

In China in 1977 (the first year when Chinese statistics appeared), the level of monetization of the economy was 26.4%. And according to the latest data, in 2017 the level of monetization of the Chinese economy was one of the highest in the world - 202.6%.

So, the global financial elite today are in a difficult position. On the one hand, they are very interested in the liquidation of cash. For many reasons, they are interested in the creation of electronic banking "domes", in which it is necessary to "lock" all citizens. On the other hand, for many reasons, they cannot do this immediately, because first it is necessary to radically change the entire structure of the banking system, which has been built over several centuries. And at the same time, the central banks continue to pump up the economy with cash, strengthening the “monetary base”. If this is not done, then the economy will collapse with unpredictable consequences for both the society and the financial elite.

However, pay attention to Sweden. It is perhaps the only country of the “golden billion” that has continuously reduced the cash supply for several years, not only in absolute but also relative terms. Today, as noted above, the level of monetization of the Swedish economy in cash is the lowest in the world - 1.4% of the GDP. At the same time, by the way, the overall level of monetization of the Swedish economy is quite high - 73% of the GDP. It gives the impression that the world financial elite is using this Scandinavian country as a testing ground for working out a new model of money circulation and turning the banking world into an “electronic concentration camp”.

Outside the “golden billion,” there are several countries in which a reduction in the level of cash monetization of the economy was also observed. According to the World Cash Report 2018, this includes China, whose cash monetization rate has decreased from 11% of the GDP in 2011 to 9.5% in 2016. Judging by the data in the report, China can also claim to be included in the list of countries with the least dependence on cash. Low cash monetization of the Chinese economy does not prevent it from occupying one of the first places in the world in terms of total monetization. If in 2000 China accounted for 13% of cash in the total money supply, by 2017 this share fell to 5%. The authors of the report clearly paid attention to China, which is moving by leaps and bounds to a non-cash society.

In 2015-2016 there was a decrease in cash monetization of the Indian economy from 12 to 9% of the GDP as a result of the monetary reform.

Author: USA Really