Friday, December 16, 2011

The ePunt

I've had a number of interesting conversations recently about if/when/how we're going to switch from the euro to the punt nua (or whatever it might be called: the pound sterling perhaps?) One thought I've had is that we may not need to produce new bank notes or coins. Instead, we could simply become the first digital currency in the world (ignoring bitcoin for now). No more notes or coins - a cashless society (in the nice, not broke sense).

Is it feasible? I believe it is. Think back to when the euro went into circulation nearly ten happy years ago. Back in January 2002, only a minority of Irish people used the internet, a slim majority had mobile phones, credit and debit cards were used by less than half the population and most people got their wages paid in cash or by cheque. Fast forward 10 years and now 8 in 10 use the internet, 4 in 10 use internet banking, nearly everyone has a mobile phone and most of us have credit/debit cards. Also every shop and pub has machines for swiping the same cards. Indeed, for the vast majority of people, some 90-95% of the value of the transactions in and out of their bank accounts are now entirely electronic. Money is digital already, we just don't want to admit it.

Soooo... if we had to start from scratch tomorrow (or, er, by the end of Q1 next year if it's going to happen), we wouldn't need to print billions of punts worth of notes and mint millions of coins. Instead, all we would have to do is manufacture about 4 million smart cards: one for every man, woman and child in the country. The government would instruct the banks and the card operators that every transaction under, say, the equivalent of €5 would be 'free' for the retailer to process. Overnight (quite literally perhaps) we would switch to a new, entirely digital currency without stopping at the printing presses in between.

IBEC has already provided a roadmap for my idea. Not for the purpose I've suggested I should add, but in relation to social welfare payments, including child benefit. As a suggestion for boosting domestic demand, they recently proposed moving to an electronic payment method for all recipients - a smart card in effect. They even checked out the feasibility and concluded:
While there would be some costs in the transition to a payment card model, preliminary discussions with a number of private sector providers indicate that the project timescale should be no more than three to six months. A payment card model would not require beneficiaries to have a bank account as it would not involve a credit transfer to a bank account but would operate more like an electronic voucher model.
Some are already thinking about a cashless future. Dave Birch, for example, gave a fascinating talk at the RSA recently on this very subject. Whether its smart cards, next generation mobile phones or some form of 'Google Money' it looks like the days of notes and coins are numbered. Except maybe the gold and silver variety.

Necessity is the mother of invention, and uncertainty its father, so perhaps now is the time for the contingency planners in the Department of Finance (I hope there are some) to contemplate our digital currency future. Better still: give it to the Revenue Commissioners to implement. The end of cash will mean the end of the black economy, brown envelopes and all that. And I reckon the resulting boost to tax returns would more than pay for the cost of producing a few million plastic cards...

2 comments:

  1. Thanks for kind comment Gerard. This sort of talk used to sound crazy, but the mobile phone has made all the difference. It might be an inspiring project for Ireland to create the first cashless economy in Europe.

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  2. A cashless economy also allows the central bank to set a negative interest rate, removing the zero lower bound problem. This isn't possible if people can legally hold cash. You'd need some exchange controls before doing that though, I would imagine.

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