MSP45 Going Cashless

This is a download from the FM 89.9, the Business Station. It's fun Friday, my name is Jeff Sandou. Money! In our world, it really does grow on trees.

And it's mine from the ground, and least the materials that represent money are. Why are we still using bits of metal, paper and plastic to fuel the global economy? Wonders, hodgepops, man, update. Weekend, morn and wind, and work digitally?

Why are we still relying on physical money? Are we ready to take the next step and go completely cashless? So Matt, if we're talking about money, does that mean you're under some new UN sanctions? Hey Jeff, well, it is true that I like cash.

I was very unhappy when the US phased out the $1000 bill. It meant I had to buy nine more stash houses just to keep the same amount of money in. It's really inconvenient. And then one of them burned down, so I switched coins because they last a bit longer.

So now, as we extract the cobalt and uranium from my mines, I refill them with coins. It really feels good to be putting something back. So your mining uranium? Well, I bought a DeLorean, so I thought I'd better have my own fuel supply.

I only sell to close friends, so I really don't know why the UN is interested. I feel like we're moving further away from today's topic and it's surprising. It's only the start of the show. Is money really a fun Friday topic?

Well, what could be more fun than money? And especially on a Friday, you're looking forward to going out with your friends. Well, that's going to cost you money and catch a movie over the weekend. Money, take your kids out, waste of money.

Money is the Fridayest thing in the world. So how does any of these relate to being ready to go cashless? Well, for the last couple of years, I've been wanting to do a show on whether or not I could survive for a week or a month in Malaysia without using any cash. So just using contactless payments, meanwhile, it's that kind of thing.

And where it stumbles is the small details, you know, things like car parks. Some of them will accept touch and go, some of them don't. Yes, I could get around by taxi and pay for the things electronically, but that would then mean spending a lot more money. So, you know, it becomes kind of self-defeating.

And presumably it also means sticking with the big retailers. Well, yeah, I mean, there are still plenty of places that don't take cards or scan your phone in Malaysia. The mum and pop places, the food stalls, and let's face it as well. Using your card is still a lot slower than using cash.

It's why the cash only lane in the supermarket is often the fastest one. It must be possible with a few tweaks to your lifestyle, though. I think it would be possible, but like I said, it would be more expensive. You know, I mentioned about car parks and taking taxis instead.

And I'm sure I'm not the only one who's experienced rolling up to a petrol station here to find out that all their electronic payments are offline, you know. So you have to have money because you've got my petrol in your car. You're done. Plenty of times I've walked into restaurants and smaller retailers and their point of sale systems are down and they can only accept cash.

So yes, you could do it, but it wouldn't be seamless or easy in the way that China seems to be moving towards, for example, or even Sweden, where close to 90% of transactions are already made with cars. Yeah, I should have known about that before going to Sweden because I made it like change. Of course, yes, because you've changed a lot of money, but you didn't use any of it. Because nobody wants to accept cash.

Sorry, no cash accepted. Oh, okay, I have to use cards. So we're talking about whether or not we need physical money. Yeah, I mean, the chances are that here in Malaysia, you do need some physical money in your pocket all time.

So an argument I constantly have with my wife. When I'm back home in the UK or on holiday in places like Australia or Japan, I don't really use a lot of cash. I said, you know, you don't need to have much in your money. In fact, you know, I'm only using cash because I'm hoping to get a better exchange rate than the ones that the banks and the credit card companies use for settling their various currency transactions.

But we are seeing an increasing number of calls for physical money to be faced. In the middle of cryptocurrencies. Partly, that is one of the options. And yes, this is me easing my way into a number of shows over the next few weeks where we will look at blockchain and cryptocurrencies and digital money.

Not all of the shows, obviously, but peppered across the next few weeks. But before we even get to the idea of replacing central bankback to national currencies in favor of decentralized international currencies, I thought we should start somewhere a little closer to home, which is the immediate future of the money that's in our pockets today. But do we need to go into what money actually is? Well, other than saying it probably isn't what a lot of people assume it is, you know, this is a business station.

So I guess we don't need to talk about that side. There's plenty of other shows where you can get the podcast and get that. So I will paraphrase Victoria Klelland, who's an executive director at the Bank of England. And this is a quote from new scientists.

She says the cash has three crucial functions in modern societies. One that it's easily exchangeable from person to person again. That's not a big surprise. Everyone knows what it's worth.

Again, no surprises there. And its value changes very little from day to day. Which is why you keep complaining that cryptocurrencies are currently largely useless. Yeah, because people are viewing them as an investment vehicle like a bond or a tradable asset, not as a means of exchange.

So I'm not going to go up on one today. Involved coming shows, we'll talk about ways that the blockchain can increase transparency and stability. Why digital currencies currently aren't doing that. But the present wave of demonetization isn't based on these kind of crypto currencies.

It's based on spending money without resorting to cash. Or rather letting those cash transactions be settled at the micro level between banks, rather than at the point of exchange. We hear reports that cash is being used less and less bad. Is that true?

Well, I'm quoting heavily today from a new scientist piece by by called Joshua Hogigo. And it seems that globally that is true, but there are some quite odd caveats. And it's also being applied a little bit unevenly. In favor of developed countries.

Well, you might seem so, but not strictly no. We all watch the news reports about China's cities where people use their phones to pay for absolutely everything and nobody ever takes cash. Even the wallers. Exactly.

Yeah, everyone uses it. And some developed economies are leading the way, like Sweden, Japan, Switzerland and Denmark. But those will have the advantage of being relatively small economies. Now, I don't have the data for this, but I think that the US is probably a little behind most developed countries in this kind of digital adoption, simply because of its size.

So there's a lot of friction built into the system. But digital transactions are rising in countries that traditionally excluded large parts of their population from the banking sector. So you see a massive uptake of digital solutions across the African continent, for example. Kenya already sees almost 50% of its GDP transacted through mobile digital payment systems.

And Malaysia? We're kind of a halfway house, I guess. I mean, we're lagging behind Singapore and implementation and rollout. And we pale against Indonesia in terms of volume and population size, obviously.

At the moment, we seem to be in the middle of one of those format battles as well. If you walk into a shop, you'll see like signs for dozens of different kind of e-wallets. So there's a whole bunch of them all competing for our mobile dollars. Each of them requires its own terminals and scanning solutions.

So I don't think that's something that's going to last. At the same time, the retail banking sector in Malaysia does have a strong reach. But there is still a vestige of that traditional, keep your money under the mattress kind of mentality. Which brings us back to the odd caveats you mentioned a little while ago.

Well, yes. Those of our listeners with the luxury of having savings will be be bemoaning the low interest rates we've seen from banks over most of the last 10 years. Some countries, including Japan and Sweden, have even instituted negative interest rates. Wow.

You put money into the bank and it's worth less every day? Yeah. This is generally known as attacks on savings. So what they expect to happen is that you spend rather than save.

Again, no good news there. We all know rather that the stagnation that the Japanese economy has experienced for the last couple of decades is partly as a result of high levels of consumer savings and low levels of spending. Low and negative interest rates push you to spend now rather than save for the future. Presumably that should increase the demand for cash.

Yes. Or at least raise the incidence of transactions whether by cash or digital. But it can also encourage people to literally put the money under their mattress. If the bank makes you little money or costs you money or you have no confidence in the banking sector, you hold on to ever increasing amounts of cash.

And that's a trend we're seeing even in countries like the UK. People are keeping more money at home and out of the financial sector because they aren't getting returns on that money. Which still isn't weird. Well, it is when you look at Sweden.

So the convenience of electronic transactions seem to be pushing Swedes to hold ever less cash. Even though they have negative interest rates. So you would expect Swedes to hold more cash. But actually they're keeping it all in the bank and doing everything in a cashless form.

Even though it literally costs the money. That's not to say that they aren't putting money into other convertible assets. It could be gold, property, potatoes. But you know, they're not moving towards cash.

And it's one of the factors that's propelling the Swedish central bank to take a serious look at augmenting their currency with a second digital version. Alright, when we come back we will look at a case for digitizing traditional currencies versus jet-serning them in favor of a digital currency. It's fun Friday. 8.9.9.

Build financial mountains. BFM 89.9. And we're back. It's fun Friday.

My name is Jasson. A very odd show this week. Matt seems to be offering us as much fat as opinions. It's weird, isn't it?

I'm not sure that I like it or I trust it. Also on previous shows when we arrive at the end then you'll just admit that this is all a lie. So Matt is today's show a lie. I hope not.

If it is, it's other people's lies. And not my own, which I guess would be kind of a first. I admit this world of digital money is a little bit confusing. So for example, before the break we were talking about Sweden's current exploration of the idea of a digital currency, which is what they're calling it the e-coronant.

Now it's not obvious to me why you would want to replace the currency rather than simply withdraw the notes of your existing currency as you replace them with a digital version. I imagine that has more to do with monetary policy governance and credibility than it does with the technology. Has any government taken concrete steps to introduce a digital currency? Well, Venezuela seems to have latched onto the idea of a cryptocurrency as a way of reining in the hyperinflation that its currency is in the midst of.

From what I've read about it and yes, and you're laughing, no one really seems to understand what it is or how it's supposed to stabilise the economy. Most economists certainly don't seem to be taking it seriously. It's very dodgy, that's what they see. Well, exactly.

I mean, it is something to watch, but it's hurried introduction and the already kind of dangerous state of the Venezuelan economy may make it difficult to objectively analyse it in any case. Certainly, I think Sweden, Singapore and South Africa, all the yes countries, are looking into some form of digital currency or at least backbone or system for the currency. The blockchain. Well, again, I'm not going to get too involved in what the blockchain is or isn't today, isn't, seems to be the more important thing.

I will do more of that over the coming few weeks. Certainly, if my understanding is correct, Singapore is very interested in the ability of the blockchain to increase transparency, speed, accountability and also to reduce the cost of banking transactions. It has a project called Project Ubin, but that's currently limited to back-end transactions, so things that settle into bank debts and transfers. It's not a consumer experiment, at least not yet.

And South Africa is taking a more regulatory approach? Yes, South Africa's central bank has instituted a regulatory sandbox and that's sandbox with a capital S. They are calling it a sandbox, which is quite cool. It's like the Minecraft generation is finally making financial policy, so they're partnering with some technology companies to examine the implications of various cryptocurrency and blockchain implementations.

How do Sweden's approach is different? Well, Sweden's re-exbank has proposed two alternatives, and that Sweden's central bank, I just thought I'd use the Swedish word for it. One would be similar to the kind of money and transactions we already use, except that it would be digital. So the digital currency would be maintained centrally and money would be transferred back and forth.

The second is a more radical solution. It's the digital files themselves that have value. Now, I don't pretend to understand that. At this point, I don't think we need to.

But the digital file itself would be almost like a piece of gold. It would have value in and of itself. And that would allow you to exchange them with people who are actually outside the formal banking system. Is that important in the modern economy?

And most people already within mainstream banking system? Well, most are, but it's easy to overlook the people in the dark or the great economy. Sociologists often look at this section of the workforce as living or leading precarious or chaotic lives, not because they are necessarily doing anything criminal or wrong, simply because they are at risk of exploitation. So they work as casual laborers, people whose income is not fixed or regular.

And one way to regularize or normalize people in the sector is to give them a method of transacting that brings them into the wider economy. That enables them to declare their income and pay taxes. Not that they will want to do that, but it enables them to do that. They can receive government credits.

It makes it harder as well for employers to underpay or exploit them in all sorts of ways. Again, we'll talk more about this subject and its relation to blockchain and the dark economy over the next few weeks. Sweden can't have such a large informal sector that it needs a digital currency. Well, obviously there are a lot of reasons why the country is looking into an e-currency.

One of the interesting ones is to protect Swedes from volatility. Haven't we seen digital cryptocurrencies increasing volatility? Yes, and one of the reasons for that is the lack or absence of a central bank. So there's no one to intervene and stabilize the currency.

So that's great if you're a free market advocate, not so great if you want to use a cryptocurrency to buy milk and eggs. So I keep saying this today, I'm not going to go too much further into that area. We'll go back to Sweden. Oh, and if any of our listeners want to watch a gentle, funny comedy, check out the two seasons of Welcome to Sweden on your favorite streaming service.

Back to Sweden, the Reecsbank is proposing the currency to partly to ensure Swedish citizens against the power of digital payment merchants. Like Visa and PayPal in those kinds of stuff. Well, precisely, because one thing we overlook is that cashless transactions are not frictionless. That's one of the purposes, I believe, of Singapore's experiments with blockchain.

Currently, most of our digital transactions involve a third party, Visa or MasterCard PayPal, and increasingly those app-based services that we mentioned at the start. And what's Sweden's problem with that? Nothing per se, but when you pay something with cash, you make a direct agreement with the retailer. You're making an exchange.

When you make a cashless transaction, there's an intermediary, a third party who guarantees that you have the money to pay and that the retailer will receive that money. But that increases the cost of your purchases because the third party takes a cut. So either the retailer absorbs the cost of it or it gets passed on to the consumer. Generally, it gets passed on to the consumer.

It's why, in Malaysia, still, some retailers will give you an additional discount if you're paying in cash. Again, this isn't new. Forgetting Sweden. Why would any country want to protect its citizens from a payment gateway?

Well, when cash is still in the majority, you don't have to worry about the third parties because they're just bit players in your economy. Sweden is accelerating this because, as we said at the start, its citizens are already completing nearly 90% of their transactions electronically. In that scenario, the third parties have a lot more power. So let's be realistic.

Apple and Samsung and Amazon and Alipay are not in this game for a slice of the pie. They want the whole pie. Apple and Samsung, because it boosts their ecosystem and it opens other profitable avenues. Amazon and Alipay, because, well, they want all of everything pretty much.

They're a bit like the zek in those chat region movies. And because technology tends to push one party to a monopoly position. Exactly. We've seen that frictionless adoption in technology tends to favour a dominant party.

Facebook is for whinging about your bars. LinkedIn is for pretending you're the boss. Instagram is for cat pictures. Snapchat is, well, nobody really knows what Snapchat is for.

If you do know what it's for, you can tweet us. But then Twitter is for crazed despots. So we really don't want you to tweet us. Google is for search.

Being is funny. And Apple Maps is someone's weird, steampunk vanity project. Last week, I tried it again. And it told me it would take 12 minutes to walk to somewhere that was literally two minutes away in this great line.

It also wanted me to use an elevated walkway to cross the same highway twice. Across it and to come back to where I started. Tenet aside, what is your point? Well, the fear is that one or two companies would eventually rise to the surface.

Because that is what has happened, tends to happen in the digital revolution. So that power becomes concentrated. Not such an issue when it's a three-way tussle between Visa, MasterCard, and American Express for a 20% share of the transactions. Less fun when it's Apple and Amazon fighting over 90% plus.

So there's a possibility of a chilling or distortion effect. Well, if there's one dominant payment system, then the likelihood is that payments would become more expensive because there's no competition to encourage lower costs. So it becomes, take it or leave it. And you can't leave it because no one is carrying cash anymore.

So you're forced to actually adopt the system. And presumably there are security concerns. Well, that's also part of the argument. When we've seen concerted cyber assaults on countries like Estonia and the Ukraine, payment systems are one of the first things that come under heavy attack.

Taking government websites offline is one thing, but stopping ATMs and debit cards from working is a really blunt tool for causing social chaos. If you only have one system and that system is a third-party private company, you open yourself to some fairly substantial security issues. No matter how good a system's security, there are always going to be weaknesses or there'll be a flaw that some kind of bad actors can exploit. And then of course, you get to all the data.

I knew it. We've come back around to one of your pet subjects, privacy. I told you today wasn't going to be a pack of lies. I never claimed it wouldn't be self-serving.

Why do you think my name is on the show? Yes, those transaction companies would have an enormous picture of your life. So go back to Amazon. If you use the IMDB website, Amazon knows your film and TV preferences, even if you aren't using any of its services to watch your stream them.

Repeat that a dozen times over every day. And then if you use Amazon or any of its partners for your online shopping, imagine the picture of your life it would have if it also controlled the payment gateway. Consider how many transactions most of us make every day, from public transport or paying tolls to buying a coffee after lunch. That's also a physical tracking mechanism.

Those till receipts show where you are and when you were doing that. You really don't like Amazon, do you? Well, I'm ambivalent about Amazon. I'm kind of marvel at it at the same time.

But it isn't really about Amazon. Maybe Amazon won't be the one that rises to the top. It's just a useful example because we can all picture it and imagine it. So it's a tool in that sense.

But on the other hand, some digital advocates say that this data concentration needn't be all bad. For example, some online banks already consolidate your purchases into categories. And that makes it easier for you to track and manage your expenditure. So it shows what percentage you spend on groceries or beer or online shopping.

So you can manage things a bit more easily. But they do admit that it requires a different approach to privacy. And that's why with a lot of these kind of new online and app-based banking systems, they do maintain that the information gathering has to be upfront and obvious. People have to consciously opt in.

Which people have to understand what they're opting into. Well, yeah, and that brings us back to the eCorona. With the digital currency, you know what you're opting into. So with our existing money supply and the digital part controlled by intermediaries, you don't always know what you're opting into.

And most of us don't need money for its own sake. Well, no, it's not an original Star Wars figurine that you need to keep pristine in its box. You know, it's a necessity, but it's also part of our security and safety. And until we sort out those issues of security, safety and privacy, I think most of us are going to want to keep a little bit of cash under the pillow.

So for now, I think you can keep the digital currencies. Men, I'm going to teach that talking about how we could or could not possibly go cashless. I'm still confused at the end of like, what, 25 minutes of talking to you, man? Well, if you have a clear picture after 20 minutes of conversation with me, then you've been listening wrong.

Men have a day today with another episode. You'll be back for gigs of after this. Also, you can check out culturepop.com. It's called to get a K for transcripts of these shows.

And you can find out how to be a little bit of Matt's painting to your company. We'll be right back. We have an 8.9.