Date: 2 november 2021
Speaker: Olaf Sleijpen
Location: Amsterdam (digitally)
A very good morning to everyone. It’s great to be here – alas still virtually. I would have loved to welcome you here in Amsterdam.
You know – I once bought a hotel in Amsterdam. On the Kalverstraat, one of the most expensive streets in the city. And I paid for it… in cash. I kid you not. This happened, of course, in a game of Monopoly.
In reality, large transactions, like real estate, are of course no longer done in cash in the Netherlands. It is quite the opposite actually. In the Netherlands, the use of cash has declined steadily. Ten years ago, about 60 percent of all shopping was paid for in cash. Before the pandemic, that number had already dropped to 32 percent. During the pandemic, the number even fell to 13 percent – partially due to misinformation on the contagion risk of banknotes. Today – in a world that is, with ups and downs, gradually recovering from the pandemic – the number of retail cash payments has risen again. To a little over 20 percent.
Personally, I pay electronically most of the time. But I do still carry cash, just like every four out of five Dutch people. I carry it because it gives me peace of mind. Just imagine there is an outage in the electronic payments system. The cash in my wallet is something I can rely on then. It is a back-up system.
Others carry cash because it is just easy to use. As mentioned, twenty percent of all transactions in stores in the Netherlands are done using cash. And some people carry cash because it gives them control over what they spend – helping them stick to their budget. Still others prefer cash because it is public money and it offers them a level of privacy that electronic payments do not. And then there are those who prefer cash because it is the only way they feel comfortable making payments. For many of us, the digital era means a welcome step forward in payment options. But it would be wrong to assume that everyone in our society is fully familiar with electronic payments.
For all these different reasons, and in line with the ECB position on this topic, De Nederlandsche Bank wants to keep cash accessible, available and affordable.
To contribute to an objective discussion on the future of cash, De Nederlandsche Bank commissioned an independent study from McKinsey & Company. It is a study on the future of the cash-cycle in the Netherlands for the next ten years – ten years, because by then we assume that we will live in a less-cash society, but not necessarily in a cash-less one.
The McKinsey study identifies three roles for cash. Cash as back-up for electronic payments. Cash as a necessary option for vulnerable people. And cash as a general, public means of payment.
And these three roles determine the size and the cost of the cash infrastructure.
As long as all three roles are relevant in our society, my view is that access to cash should remain at its current level. Going forward, we could translate the evolution of these three roles into a possible roadmap. A roadmap to a less-cash society. This translation implies that any changes to the cash infrastructure should be related to changes in the role of cash.
Let me elaborate on this possible roadmap.
Today, if for some reason you cannot pay electronically, your first alternative – your back-up – will probably be cash. So you need access to cash. We even advise you to always carry some cash.
If banks consider the current cash infrastructure too costly, it is in their interest to develop alternative back-ups. Secure and reliable back-ups that do not depend on the card networks. Like off-line payments or QR codes.
Only when these alternatives are widely accepted and used, does the back-up function of cash become less relevant. And only then could we move to a next phase on the roadmap – a phase in which the cash infrastructure decreases parallel to the decrease in the amount of cash people need or need to have access to.
But also in that next phase, cash will still play a crucial role. The future of cash is a shared future. A future that is inclusive. A future in which the way we organise payments does not exclude anyone simply because they find the digital era challenging, or simply because they prefer to use a public means of payment.
So also in this next phase the access to cash should be ensured. However, to keep the use of cash efficient, changes to the cash cycle infrastructure might be necessary. For instance, by using modern, secure e-cash desks in stores. These machines allow you to pay with banknotes, coins and cards. Or, by reducing market inefficiencies. By this I mean that, with less cash use, the possibilities of a competitive market disappear. Instead of competition, we will need cooperation. Also between cash handling companies like ATM-companies and cash-in-transit companies. This will effectively allow any remaining inefficiencies to be reduced. Obviously, the relevant authorities need to keep an eye on the risks of market abuse and overpricing in the non-competitive market. This may require agreements or regulations.
And finally, in a last phase, people could still use cash, but they would no longer depend on it to make payments. This can only happen, of course, when those in our society who depend the most on cash, no longer do so.
This would be a phase in which cash, as public money, solely plays the role of a general means of payment and store of value. This is still an important role, for convertibility reasons and for trust in the monetary system – but it would mean that cash has become less important as a means of payment.
In this last phase, cash can be viewed as a universal service. This would mean a bigger role for public institutions in safeguarding an accessible, available and affordable future for cash. And the role of the market players would decline. As a result, the cost allocation would probably change accordingly.
I can also imagine that by this time, a digital euro may have been introduced – as a new, additional, way to make central bank money available to the public.
I realise that by painting this picture of the future, a lot of questions arise. How do we achieve an adequate level of access to cash in each phase? How do we make sure that stores continue to accept cash and that they can deposit cash in a safe way? How do we keep cash affordable? These are all valid questions.
So let me end by telling you what we are currently doing.
No matter what the future of cash will be, it will be a shared future. That is what I think today. And that is what we thought twenty years ago – when we set up the National Forum on Payments. This Forum, chaired by De Nederlandsche Bank, brings together banks, retail organizations, consumer organizations and representatives for the elderly and the visually-impaired. These stakeholders discus all topics related to payment services. On the topic of the future of cash, the idea of the Forum is that a bottom-up, shared and formally agreed upon vision is preferred to impairing costly legislation.
It was always the plan to use the McKinsey study as a starting point for a new and stronger agreement on the use of cash. So that is what we are doing today. We are currently setting up a covenant with all members of the National Forum on Payments, based on the McKinsey study. A covenant for the next five years on how cash can continue to function at a level that fits with the first two phases I outlined before. The covenant will cover various aspects including the accessibility of cash – for example, how many ATMs are needed and where can retailers deposit their cash? It will concern the usability of cash, that is, can I still pay with it? And it will cover the affordability, in other words, how will we finance a cash infrastructure that mirrors our goal of an inclusive society?
I am hopeful that an agreement is imminent and that we won’t need recourse to regulation. That would have to be the alternative if the current discussions in the context of the Forum would fail.
Now let me circle back to where I started.
I guess many of you know the boardgame Monopoly. Essentially, it’s a winner-takes-all game: you acquire property, you charge rent from players who land on your property, and the game is over when all but the winner are bankrupt.
As an economist, I must admit that this has always made me slightly uncomfortable.
But did you know that the game initially came with two sets of rules? This was in 1903, when Elizabeth Magie came up with what she called The Landlord’s Game. The idea was that you would start with the monopoly rules – roughly the rules like we know them today. But during the game, players could vote to switch to the other set of rules. This set was called ‘the Prosperity rules’. And under these rules, every player would win each time someone acquired property. As a way to simulate land or property taxation. Under the Prosperity rules, there would be not one sole winner. The game would simply end as soon as the player who started the poorest when the game switched, had double the money with which every player originally started.
When the game eventually got commercialised, in the 1930’s, only the Monopoly set of rules was kept. Hence the well-known name.
The interesting thing is that a game that is essentially about cash, can have very different outcomes depending on the rules of the game. A parallel to real life is, of course, not far-fetched.
So why am I telling you this story? Well, to me, the future of cash is preferably a future in which all stakeholders jointly decide on the rules of the game. To me, it is about a future in which no one is left out. To me, it is about a future that contributes to prosperity.