Today has been an extraordinary day with President Obama’s historic speech in Havana coinciding with a very tragic terror attack in Brussels. Sadly for many, terror has become part of the new normal and markets are hardly moved. A little bit more in the background though, is another topic that is slowly gaining momentum: Cash
Bloomberg reported yesterday that demand for 1,000 Swiss franc notes, Switzerland’s most valuable banknote, is at an all time high. This comes after a report last week that Munich Re, will store at least EUR 10mio in two currencies so it won’t have to pay for the right to access the money at short notice – meaning to avoid paying negative interest. The ECB (European Central Bank) recently cut the rate on its deposit facility to -0.4% from -0.3%.
It comes as no surprise then that Mario Draghi from the ECB indicated that he is seriously considering ditching the 500 euro banknote because it is intertwined with criminal activity. And naturally it didn’t take long for Spanish police, who arrested two men at Madrid airport and seized 200,000 euros in cash - part of a money laundering scheme - to come forward with exhibit A:
According to Europol, terrorists have been known to trade the 500 euro bills for more than 500 euros - a sign of its value to them. Other big bills like the 1,000 Singapore dollar bill and of course the 1,000 Swiss frank note are also popular. In addition, Larry Summers, former Treasury Secretary and former Adviser to President Obama, has argued that the US should get rid of the 100 dollar bill.
Terrorism, tax evasion and technology are therefore the biggest drivers of this trend towards a cashless society. And it is clearly towards electronic money transactions: from credit cards, to Apple Pay, to PayPal, to Cryptocurrencies like Bitcoin – even Snapchat! As an example, nearly 40% of the Danish population use Dankse Bank’s MobilePay, which allows money transfers between people. And even though Bernie Sanders thinks of Denmark as a role model for the US, he might be disappointed to know how much importance the Danish government recently placed in the hands of banks and financial institutions by proposing to make it legal for Danish businesses not to accept cash, which would mean more transaction fees for banks. And, if physical cash is removed, it will be even easier for central banks to dive deeper into the world of negative interest rates.
Some believe that this might work well in Denmark but what about third world countries. Ironically, third world countries implemented electronic money transfers long before developed countries did. Recently, friends of mine drove to Nairobi, Kenya to come and see me there while on a visit. Unfortunately their car broke down and they needed to get it fixed by a local mechanic next to the road. They didn’t have the funds but asked me to send M-PESA (M for mobile, pesa is Swahili for money) from my mobile phone to the that of the mechanic via the Kenyan Safaricom mobile network and within no time my friends were back on the road. In the mean time M-PESA is used in Kenya, Tanzania, Afghanistan, South Africa, India and Eastern Europe.
The technological framework has clearly been established and with the soon to be implemented global common reporting standard (CRS) by the OECD, less and less obstacles to a cashless society remain in the way.
Last but not least, I leave you with a nice little statistic of the amount of cash that can be fitted in 1 cubic meter:
Wishing you peaceful Easter. Our prayers are with those who lost their loved ones in today’s attacks in Belgium.
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