The cashless society?

From an economist’s perspective, cash has few advantages. It creates friction in the economy that makes things more expensive and time-consuming: getting cash from ATMs, counting takings in a shop and transporting it to the bank. It also facilitates crime, ranging from theft to narcotics trade to tax evasion and corruption. Moreover, businesses all over the world will save money on cash storage and security while consumers will benefit from lower costs as a result of these savings.

Governments in the emerging world could have the most to gain by cutting the amount of cash circulating in their economies: these are sometimes countries where the shadow economy is larger and corruption is usually more endemic. And across emerging markets, the advent of mobile money is allowing millions of people to enter the banking system for the first time – giving them access to credit, savings and mortgages that wasn’t possible before. This could provide a huge lift to growth prospects.

The move away from cash isn’t welcomed by everyone. Older generations (who are the heaviest cash users) don’t like the speed at which this is happening: particularly with stores starting to turn cash away. In Sweden, 62% of 65-84 year olds who expressed an opinion were negative on the move away from cash. This compares to just 18% of 18-24 year olds.

A possibly even bigger challenge is cybercrime, which has been on the rise as online activity has increased. Data from Javelin Strategy & Research, showcased in the Wall Street Journal, suggests that 16.7m Americans were victims of fraud in 2017, up from 12.6m in 2012, coinciding with a greater online threat. Technology is helping to overcome these challenges, with better algorithms to spot money laundering and greater security measures to prevent hacking.

Central banks now face a challenge. As cash becomes less of a universally accepted and accessible means of payment, what should they do? According to the BIS, 70% of central banks globally are exploring the idea of issuing their own digital currency, aimed at providing the same properties as cash, but in electronic form. The rationale for doing so varies by country, but a BIS survey suggests that most developed market central banks are concerned by financial stability and payment safety, whereas in emerging markets the priority is financial inclusion.

The exact form that this money should take is the cause of much of this research: should a central bank digital currency (CBDC) use a token or account system? A ‘token’ system, which could use blockchain technology akin to that which Bitcoin uses, would allow central banks to design a form of money that has all of the features of cash but is electronic. And it could provide the option of paying interest should a central bank decide that it is useful. An ‘account’ system would work with a mobile app and be more akin to a commercial bank account today. This account-based system would be like having a bank account at the central bank, available to the general public.

Given the work that needs to be done to explore how feasible a CDBC could be, a fully-functional example may be some way off. Equally, while many parts of the population don’t want to see cash disappear, it may be hard for governments to promote such a position and policy may have to lean against the societal shift to keep cash in circulation. For the time being we are still in a ‘less-cash’ world rather than a cashless one, but the benefits for businesses, consumers and governments should gradually become clearer.

James Pomeroy,
Associate Director, Global Research, HSBC

Given the work that needs to be done to explore how feasible a CDBC could be, a fully-functional example may be some way off. Equally, while many parts of the population don’t want to see cash disappear, it may be hard for governments to promote such a position and policy may have to lean against the societal shift to keep cash in circulation. For the time being we are still in a ‘less-cash’ world rather than a cashless one, but the benefits for businesses, consumers and governments should gradually become clearer.

James Pomeroy,
Associate Director, Global Research, HSBC

In this increasingly interconnected world, ideas and capital are flowing around the globe, driving growth and disrupting the status quo. New trade routes emerge, propelling emerging economies to the spotlight and creating opportunities for companies and financial institutions worldwide. Our Global Banking and Markets business is globally connected with a strong footprint in many of the World’s key regions both in the developed and emerging markets.

Our Central Banking and Reserve Management team comprises experienced bankers and product specialists, each chosen for their specific expertise and knowledge of the global financial markets. They work closely with a broad and diverse range of reserve managers, across the globe, to understand their needs and deliver integrated, customised banking propositions. We provide a full range of products and services to central banks globally, including fixed income, foreign exchange, equities, precious metals, asset management, custodial services and payments & cash management.

Our aim is to partner with our clients to help them achieve consistent, long-term performance while delivering commercial opportunities and solutions in both developing and developed markets.

Contacts:

EMEA :
Name: Bernard Altschuler
Email: bernard.altschuler@hsbc.com
Phone: +44 (0)20 7992 2330

Name: Tom Wright
Email: tom1.wright@hsbc.com
Phone: +44 (0)20 7005 8664

Americas :
Name: Elissar E Boujaoude
Email: elissar.e.boujaoude@us.hsbc.com
Phone: +1 212 525 3017

Asia Pacific:
Name: Charlotte Kirkcaldie
Email: charlotte.kirkcaldie@hsbc.com.hk
Phone: +852 28222403

Name: Witanya Singkanjanawongsa
Email: witanya.singkanjanawongsa@hsbc.com.sg
Phone: +852 28222403