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The high cost of cash

We have elected and pay for decision makers and regulators. Sometimes I get the impression that they try to govern as little as possible in important areas and overcompensate with irritating nitty-gritty. 

An area where actions certainly is needing is in the fight against cash usage - at least for the following reasons:

1. Cash is expensive - according to EU-study cash-handling costs 50bn a year - and the consumer pays every cent of it. The problem is that she/he does not know it as the cost is hidden. Action point: Make cost visible by charging charging for withdrawals and usage.

2. Cash is an open invitation to crime. Be it drug dealing, illegal weapons, prostitution, gambling, black economy, grey economy, counterfeit, robberies, blackmail - you name it. If cash usage would be made difficult, an unusual and expensive practise - what would happen to crime?

Action point: Make the cost of all this (including crimeprevention, courts, jail systems - not to talk about costs to the victims) very clear to citizens.

3. Cash is the vehicle for not paying tax. The VAT-gap in EU in 2009 was 118,7bn. Much of this is due to avoidance schemes and politically motivated rather silly exceptions - but the fraud part is much dependent on cash (and paper/e-mail invoicing).

Action point: Make it clear that this is our - the tax payer's badly needed debt reduction money - being lost. Make e-invoicing and credit payments mandatory. Salaries and social benefits can be paid only to accounts (every identifiable person should have the right to a bank account and a direct debit card at decent cost).

4. Cash is CO2 heavy. How much CO2 does not the daily armoured car parades (out and in again) emit + printing and destroying vast amounts of paper.

Action point: Make the CO2 amount visible on global/EU/country levels and tax it.

When will investigating media notice this anacrony - using cash even in places where there are many alternatives - only because the many cost dimensions to society and the users are not known. Put the light on this - instead of being tools for populists protesting about handling charges becoming transparent (sic!). Media should also reveal how consumer organizations often are doing their best to protect old and create new unnecessary costs - instead of truly protecting consumer longer term interests.

Then the politicians might get the nerve to do something bolder about it.

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Comments: (5)

A Finextra member
A Finextra member 08 November, 2011, 21:11Be the first to give this comment the thumbs up 0 likes

I understand the cost you are referring to but untill there are some good privacy rules in place cash will still be king. 

I understand the crime relation but the government and the police currently already abuse their power for getting a lot of data about us, sometimes without warrant, from our phone provider, public transport (oyster card), internet provider, etc... 

It's almost reaching like reaching an orwellian future.

That would not be a problem if all that data would be properly managed but recent history shows that that isn't the case.

Perhaps a nice option would be just to make all the data public so that it is not only the government or the police who can check you but you can also check them.  

Bo Harald
Bo Harald - Transmeri, Demos, Real Time Economy Program,MyData - Helsinki Region 09 November, 2011, 08:21Be the first to give this comment the thumbs up 0 likes

I do not think cash usage is driven by privacy fears - rather inertia - much caused by the belief that use of cash is not causing consumers a 50bn of costs.

I have not come accross authorities abusing power in the data field - rather the other way around here - it is made almost too difficult for them to get at criminals.

Ketharaman Swaminathan
Ketharaman Swaminathan - GTM360 Marketing Solutions - Pune 09 November, 2011, 12:45Be the first to give this comment the thumbs up 0 likes

I agree with all your suggestions on how to minimize cash use. However, I'm not so sure that cash use has to be minimized beyond the levels chosen by consumers.

As I'd pointed out in a recent Finextra blog post, e-payments still have too much friction to become viable alternatives to cash and other traditional forms of B2C and C2C retail payments involving the common man. Cash handling certainly has costs but so does finding and using account number, sort code and other information required to put through ePayments. In fact, before making any ePayment, I do a sub-dollar test transaction to "pipe-clean" the process, thus making me do lot more work as compared to checks or cash. While things may change going forward, at this point, I'd be happy to pay for cash usage than spend my time to ensure that my ePayments are executed correctly. And, by the way, if the cost situation is really so much in favor of ePayments, I'm curious to know why banks charge for ePayments but not for checks.  

http://www.finextra.com/community/fullblog.aspx?blogid=5970

Bo Harald
Bo Harald - Transmeri, Demos, Real Time Economy Program,MyData - Helsinki Region 09 November, 2011, 20:11Be the first to give this comment the thumbs up 0 likes

The main alternative to cash in proximity payments is the debit card. Invoices should be issued for all other sales - and sending a notification as SMS with press a approval makes the transaction electronic. 

Bo Harald
Bo Harald - Transmeri, Demos, Real Time Economy Program,MyData - Helsinki Region 09 November, 2011, 20:13Be the first to give this comment the thumbs up 0 likes

Cheques were eliminated in Finland in 1983 when we introduced fees. Many banks do charge for cheques - and I agree that all should. Charging for e-payments and e-banking is naturally based on the value these deliver.