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Stop extreme cash and stop it now

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While I was undercover, as a sleeper deep behind enemy lines, at Security Printers 2016, I picked a copy of a report from Guillame Lepecq’s Cash Essentials.

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One section of the report talks about the European Commission’s 2010 recommendation on Legal Tender, which I’ve written about before.

A bank person mentioned to me that they think the European Commission’s recommendation on legal tender (22nd March 2010) is, as he put it, “strange and undesirable”.

From Tender moments | Consult Hyperion

After I’d taken the time to read and reflect on the recommendation, I posted a more sober and balanced perspective, giving a reasoned judgement on the recommendations.

the European commission published a bonkers recommendation concerning the legal tender status of the euro

From Electronic legal tender | Consult Hyperion

One of the main reasons that I think the recommendations are bonkers is because they have no strategic context and no economic purpose. They are wholly political, divorced from the dynamics of payment systems in the real world. They are also wholly contradictory. The always excellent Norbert Bielefeld (from the European Savings Bank Group) wrote about this five years ago. In an article called “Dare to be bold: electronic legal tender is an option” he wrote for the EPC newsletter (May 2011) he notes that the recommendation on Legal Tender

flatly contradicts the European Union’s strategic objective to switch to electronic payment methods in order to reduce the total social cost of payments across the member states

From Electronic legal tender | Consult Hyperion

So, as you can imagine, I thought I just had to blog something about these recommendations again! The Cash Essentials report sets out the “guiding principles” of the recommendation. Here are the first four, all of which are, in my opinion, wrong.

  1. Legal tender: mandatory acceptance of banknotes and coins, for full face value with the power to discharge debts. This is wrong because no-one should be forced to accept payment in anything. Legal tender, in English Law at least, does not mean what people think it means. It does not mean that shops have to accept cash: it means that if you incur a debt, you can settle it with central bank cash and have the debt discharged. If a shop wants to accept cowrie shells, Bitcoins and Avois that is up to them: you don’t have to do business with them and they don’t have to accommodate your fivers.
  2. Cash can only be refused for “good faith” reasons (e.g., retailer has no change). This is wrong because even if the mandatory acceptance of principal one exists, there is no way to determine what “good faith” means.
  3. The acceptance of high denomination banknotes should be “the rule”. This is wrong because of principle two. Just as “good faith” is meaningless, so “the rule” is meaningless. And that’s is not even taking into account that it is wrong for society to have these high denomination notes in circulation.
  4. No surcharges on cash payments.This is wrong because retailers should be allowed to surcharge for whatever they want. If the Commission wants to single out the payment method that has the lowest total social cost and make that the benchmark against which other mechanisms are surcharged, then it is PIN debit. The rule should be no surcharging for PIN debit but allow surcharging for everything else.

I won’t go on. Except to talk about the later recommendation about coins for a moment. Coins? Yes, the recommendation goes on to insist that retailers accept the 1- and 2-euro cent coins and that governments do not allow “rounding”. To understand why anyone would make such a baffling recommendation, you have to understand that the euro is for some people (e.g., the Commission) a political project. To retailers, and to most other people, the small coins are pointless and a waste of time and effort. But to the Commission they represent an aspect of the European family and to refuse them is a slap in the face to political union. There are people out there who think that producing the smallest denomination coins is a ridiculous affectation and it may be time to stop: if there are none of these coins in circulation then retailers won’t have to accept them so the Commission’s principle is redundant.

Mark Carney, the Governor of the Bank of England, has suggested that the 1,200-year-old British penny could be scrapped.

From After 1,200 years, could it really be time for the penny to be dropped?

Actually, I’ve suggested this more than once and even tried to get a No. 10 petition about it going, but just because he’s the Governor of the Bank of England so his plagiarised proposal gets all the attention. Meanwhile, across the Irish Sea, the Commission’s recommendation appears to have fallen on deaf ears.

Some 126 million coins have been taken out of circulation since a scheme was introduced to round shoppers’ bills up or down.

From 126 million coins taken out of circulation

Ireland can do it, why can’t we? Minting one penny and two penny, one cent and one euro cent coins is a waste of manpower and metal. The European Commission might stand against rounding, but even in that last redoubt of currency conservatism, the United States, the writing is on the wall and rounding is taking root. For one thing, they are a waste of time.

According to a study undertaken by the National Association of Convenience Stores and Walgreens, handling pennies adds 2 to 2.5 seconds to each cash transaction.

[From The Fight Against the Penny | News | Oakland, Berkeley, Bay Area & California | East Bay Express]

Who can blame retailers for wanting to get rid of them then? And they don’t have to wait for national policy! They can just decide to do it for themselves. This what the Cheeseboard Pizzeria has been doing at its eleven Bay Area stores for five years now.

Although Mike’s Bikes and Cheeseboard Pizzeria still accept pennies as payment, neither store hands them out in change. Instead, both stores round transactions down in the customer’s favor to the nearest nickel. Although the stores lose a little from the rounding, [Owner Ken Adams] said it’s ultimately worth it: “For us, it’s a net savings. It’s more convenient, and the time it takes to roll the pennies and deal with them makes it worth it.”

[From The Fight Against the Penny | News | Oakland, Berkeley, Bay Area & California | East Bay Express]

To the man, or woman, or indeed LBGT person in the street, it is obvious that coins are an antiquated affectation. I judge there to be widespread opposition to the sound policy of halting 1p and 2p production immediately. And now that Mr. Carney no longer has to pay any mind to the prognostications of Brussels in this respect, he should listen to this sensible Swedish lady.

The Swedish central bank’s recent release of a new line of bills and coins struck her as foolish. “It’s trying to be more like the E.U.two-kronor coins and things like that,” she said. “But it’s, like, why? What’s the point? No one uses it anymore.”

From Imagining a Cashless World – The New Yorker

Whatever the European Commission might think,  I don’t think retailers should be forced to accept cash at all, but if they are, there’s no reason why they should accommodate the extremes: the 1- and 2- cent coins, the €200 and €500 notes. Let them wither or, better still, just get rid of them altogether. Now.

[Corrected 6th November 2016: Norbert’s affiliation]

One thought on “Stop extreme cash and stop it now”

  1. gijsboudewijn@gmail.com' Gijs Boudewijn says:

    Of course I fully agree! Cash should be the exception. The joint target of banks AND retailers in the Netherlands is 60% electronic and 40% cash at the point of sale in 2018. Aiming for 90% a couple of years later as far as I am concerned. Only remark on the excellent blog is that colleague Norbert works for the European Savings Banks Group, not the ECB 😉

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