This is a guest contribution to Finance TnT by Eduardo Righi, director of financial services at PayPal Latin America. The views expressed are those of the author and not of Finance TnT.
It could be said that money is one of humanity’s greatest inventions. In spite of the proliferation of other means of payment, particularly in the last century, “cash” payments have certain characteristics that alternative means lack. We can mention some: the possibility of remaining anonymous, immediate compensation, and the fact that it is universally accepted (especially in the case of the dollar or the euro).
At the same time, it could be used even if the world were left without electric energy. However, in spite of all these marvelous aspects, according to a recent study published by The Economist, there are more and more economists who continue to insist on the theory that bills will come to an end, even for reasons of hygiene.
Why is it so important? The best answer can be found in a book called The Curse of Cash, written by Kenneth Rogoff and published recently in the United States. The author, a professor of public policy at Harvard University and ex-chief economist of the IMF, explains the darker side of money, which in the present technological setting loses the effect of all its excellent qualities.
Photo: Eduardo Righi, director of financial services at PayPal Latin America. (Credit: PayPay)
Rogoff talks about the said “anonymity” with respect to the use of money. “It could be something positive if there were no delinquents on the face of the earth.” But they exist, and in fact, there are lots of them. And so-called “hard cash” is the best way to finance activities involving trafficking, fraud, and terrorism.
According to the former IMF economist, at this very moment there are more than $1.4 billion USD in bills circulating outside of the banking system. For those who work in the financial sector, and who see more and better electronic tools against fraud, the figure is simply astonishing. Nothing could be worse for law-abiding citizens than leaving their money in good faith. However, we know that part of that considerable amount is not in honest hands.
Rogoff also sustains that a world without money (where people buy products and services, pay bills, and make all kinds of monetary transactions exclusively by means of debit and credit cards or digital payment systems) would make the country’s monetary policy more effective. Moreover, security of the operation is a palpable reality that substantially reduces the cost of each operation (and I’m not even comparing it with the cost of producing money).
Many of those who hate the idea of the end of money consider that a non-banking population is a problem that marginalizes them even more. We agree, but with the present-day systems, people who have a smartphone also have a virtual account without needing to have a link to banks or financial entities, which reduces the problem.
There are also those who say that churches and NGOs survive thanks to donations, which are mostly anonymous, and even because, according to IDIS research for the Ayrton Senna Institute (with the support of PayPal), more than 50% of people prefer their donations to remain anonymous. In other words: they believe that they should do good deeds without anyone looking at them. In fact, one can already donate electronically in a simple, safe, and anonymous way. There are definitely always ways to make everyone happy.
There are also those who simply enjoy having money in their pocket to buy chewing gum or pay for lunch. There is no doubt that this would seem to be the excuse for keeping bills and coins in circulation. Since it doesn’t matter where the money is (in a wallet, in a pocket or under the multiple layers of technology of the virtual world), it’s still exclusively yours and yours alone.