News in Brief

Netherlands Turns to Legislation to Safeguard Cash

The Dutch Finance Minister has proposed legislation to ensure the provision of cash facilities, at least to a basic level. The legislation builds on the results of a PwC study on the future structure of the system for banknote and coin deposits and withdrawals for consumers and retailers.

The Minister of Finance and the Dutch National Bank (DNB) believe it is in the public interest that cash continues to function effectively as a means of payment, even if its use continues to decline in the future.

In April 2022, organisations and groups involved in the Dutch cash payment system reached agreements in the Cash Covenant. The Minister, Sigrid Kaag, decided to propose legislative measures to anchor these agreements in statute.

DNB wants the Cash Covenant to remain in place until the legislation comes into force. DNB expects all parties to the Covenant to fulfil their civic responsibility by continuing to respect the agreements made for the smooth functioning of the payment system.

Although more and more payments are being made electronically by debit card and online, Minister Kaag is opposed to banks further reducing the number of ATMs or discouraging the use of cash by charging fees.

Slovakia Weakens Cash Payment Rights

Slovakia’s central bank law limited the refusal of cash payments to ‘legal’ reasons. In 2010 a Commission recommended that refusal should also be allowed in ‘good faith’ cases such as when a merchant has no change. A new constitutional amendment appears, at first sight, to enhance further the protection of cash payments, giving people the right to pay with cash.

The amendment was a response to a possible future digital euro and a scenario where payment using only a digital euro was allowed and fears that over time its use would become exclusive. There were concerns about the ECB monitoring a person’s entire life, social engineer and a ‘total loss of privacy’.

However, an amendment was also passed that gives shopkeepers the right to refuse cash payments for ‘appropriate or generally applicable reasons.’ The logic for this amendment is to protect card-only vending machines or shopkeepers worried about robberies or germs on banknotes and coins.

Ethiopia to Get M-Pesa

Ethiopia, with a population over 120 million people, is a big user of cash. It has just issued a licence to a consortium led by Safaricom to act as a private telecommunication operator. The tender was opened in 2021 with two licences on offer. Safaricom will launch its mobile money in Ethiopia using its M-Pesa brand.

The National Bank of Ethiopia (NBE) wants to build the digital finance ecosystem. According to the Global Findex survey, currently 99% of utility bills are paid in cash compared with 60% across the Sub-Saharan African region. Over 80% of wages are paid in cash compared with just under 50% for the region.

Framing a Positive Narrative for Cash

Following discussions amongst members of the newly-formed Cash Associations’ Forum (CAF), CashEssentials will hold a workshop on ‘Framing a Positive Narrative for Cash’ at the Future of Cash conference, 6-8 November in Istanbul.

The CAF consists of 21 organisations representing the demand and supply sides of the cash community around the world. This diverse community uses a range of tools to make the case for cash, lobbying, social media, petitions etc. Often the task is to respond and challenge regulatory proposals such as limiting cash usage or debunk anti-cash arguments such as cash fuels the shadow economy. Equally, there is the need to promote initiatives such as mandatory acceptance of cash.

Some central banks argue that merchants and the public need to choose cash, that it needs to exist because it is wanted. In this context, the workshop in Istanbul aims to frame the positive case for cash, not only as an individual choice – I choose to pay in cash – but also as a societal issue – cash is a key factor of our economic and social resilience. Broad public support, as shown by ‘Yes for Cash’ in Norway which has 50,000 members on Facebook, is a great base for promoting the future of cash.

‘Festival of Errors’

The FT recently reported that the Bank of England recently held a ‘Festival of Mistakes’. This enlightened event celebrated lessons learnt from previous financial disasters. Given the failure of a number of central banks to anticipate and manage a surge in inflation, the festival was well timed.

Poor forecasting lies at the heart of the failure to manage price stability. The IMF has talked about its forecasting ‘misjudgements’, the European Central Bank (ECB) has promised to focus more on underlying inflation rather than forecasting models.

One explanation for forecasting failures is that people react to sentiment. The head of the UK’s Office for Budget Responsibility also pointed out that ‘[Markets are] reacting to news’, while central banks are looking at models and waiting for data. The global head of research and development at Standard & Poor’s, the credit rating agency, said the purpose of forecasts was ‘to look at the narrative, the direction and the risks’. ‘By definition a forecast is never right. The question is whether it is useful’. Decision makers can work with forecasts that show trends and which are broadly right.

Measuring Cash Usage

The paper by Tanai Khiaonarong and David Humphrey, ‘Measurement and Use of Cash by Half the World’s Population’, IMF Working Paper 2023/062, argues that the use of cash for payments is poorly measured. A better measure of transactional demand for cash is needed to provide policymakers, regulators, and the overall cash community with better data to measure the overall efficiency of the cash cycle. The paper suggests using ATM cash withdrawals rather than the value of the currency in circulation.

Cash Essentials disagrees and has published a detailed rebuttal (see ‘ATM Withdrawals Are Not a Good Proxy for Cash Payments’) Cash Essentials. It points out that measuring transactional demand is complex due to the anonymity of cash and that ATM withdrawals are not a good indicator of cash payments because they are not the only channel to obtain cash. In addition, there is no evidence that cash withdrawn from ATMs is used exclusively for payments.

Cash Essentials argues that the measure of the volume of banknotes in circulation is more appropriate as the low and medium denominations are an indicator of transactional demand. In contrast, high denominations are mainly used for precautionary purposes. While some central banks publish this data at a monthly level, the majority only do this every year, and some do not provide it at all.