Economy

The World Is Asking If Cash Will Disappear — But Should It?

Cashless payment being utilized in Ukraine
Cashless payment being utilized in Ukraine
Bertille Bayart

-Analysis-

PARIS — Will the digital revolution get the better of physical currencies, a cornerstone of trade since 700 B.C. and a key fixture of modern society and government? Whether using cards, transfers, or cellphones, paying for things is increasingly done without coins or bills. This evolution raises the prospect of a cashless society. But is that really what we want?

Cash disappears from our daily lives a little more each day. Long gone are the cash registers that used to line bank counters. They were replaced by ATMs, but there are now fewer of those too. The amount of cash we withdraw is also decreasing, down -1.1% in France last year. Meanwhile, the alternatives to cash are growing rapidly — up more than 10% globally in 2015 — according to the consulting firm Capgemini.

"The dematerialization of payments is a spectacular rising tide," explains Gilles Grapinet, CEO of Worldline.

In France, half of payments are made with a banking card, with a volume of transactions that has been growing on average 8% every year since 2000. The more recent rise of contactless payment accelerates the trend. "The average amount paid by card decreases steadily as it challenges cash, historically the preferred method for small payments," explains Christophe Vergne, head of card payments and practices at Capgemini Global Financial Services.

The customers are king

Still, cash is putting up a fight, even in developed countries. "Cash isn't going to disappear," says Delphine Lalanne, who heads fiduciary activities at the Bank of France. The volume of bills in Europe rules in her favor. In 2016 in France, it went up 7% in quantity and 6% in value. Money — as in the kind you can hold, feel and smell — still has it!

"The French and the Europeans are still very much attached to cash," says Lalanne. "Some predict its extinction, but let's not forget that it's the customers, the users, who are king and define the method of payment best suited to them. A European survey that the European Central Bank will be publishing in the summer shows that three times out of four, in local shops, people prefer to pay cash."

There's a trust factor when it comes to cash. "It remains the only payment method that has an instantaneous, universal liberating power. It's the legacy of the Prince's privilege to mint coins," the Bank of France official explains. Being able to pay everywhere, in every circumstance, without any doubt about the value of your method of payment remains the real, or supposed, privilege of cash. Cash reassures people.

In 2008, after the collapse of Lehman Brothers on Sept. 15, demand for euro bills went up by an additional 38 billion euros between late September and late October. "We took part in a simulation of a flood in Paris. And together with feedback from natural disasters from abroad — Fukushima, for instance — we know that we'd face a surge in the demand for cash, especially if technological and electrical infrastructures are affected," says Lalanne.

But printing, handling and secure transportation of cash are costly — representing between 0.29% and 0.72% of GDP, according to a 2011 study by Denmark's central bank. There's also the fact that cash is a vehicle for fraud, tax evasion, grey or black market, corruption, but also organized crime and even terrorism financing.

One thing's for certain: Large denomination bills have a tendency to vanish. The 500-euro note is a case in point. We hardly ever encounter them. And yet, there were 269 billion euros worth of them in circulation as the end of 2016. They're generally used as hoard money, hidden underneath mattresses or inside safes. Others are used by crooked people or organization, and we don't really know in what proportions. What we do know is that more than 30% of the euros in circulation (in value) are outside of the euro zone.

The innovation in payment methods — from the good old debit card to paying with your smartphone — operates hand-in-hand with the ongoing commerce revolution. "In the digital era, retailers are reinventing the customer experience to make it as smooth as possible," Gilles Grapinet explains. "And in that respect, cash reveals its fundamental limit: It cannot accompany the digital commerce revolution."

A battle of two lobbies

The Worldline CEO calls the shift in commerce a "weapon of mass destruction" against cash. "We are killing the cash registers. And what are cash registers good for, except keeping cash?"

Digital payment versus cash is also a battle of two lobbies. "The extinction of cash is also a theory disseminated by pressure groups," one expert notes. Digital payments, after all, aren't free of charge. Their development implies a massification that generates commission payments from retailers. They also make it easier to collect commercially exploitable data, the equivalent of gold for the 21st century.

In addition, the modernization of payment methods allows for greater liquidity of the banking market and more competition, as it favors the emergence of new actors in a market where it can be difficult to make a name for oneself. The European Union, in that sense, plays the role of a stimulant.

"The new European directive on payment services (PSD2) will accelerate the replacement of cash by digital methods of payment," says Christophe Vergne. "Some countries have declared war on cash. In Northern Europe, they did so to accompany the digital evolution of society. In some African countries, for security reasons. In India, to fight against corruption."

Thus, the cashless society starts having its own supporters and theorists. The former IMF economist Kenneth Rogoff became one its advocates with his book The Curse Of Cash, published last year. The amount of cash in circulation represents $4,200 dollars per person in the United States, children included, he insists. A lot more than necessary for any honest human activity. So instead of reaching a full extinction of cash, he defends a cash degrowth, starting with the withdrawal of large-denomination bills.

The idea is gaining ground around the world. In the middle of last year, the European Central Bank initiated the trend by ending the printing of 500-euro bills — a controversial move. More importantly, in November 2016, India's government abruptly declared invalid all bills of 500 and 1,000 rupees in an unprecedented and slightly chaotic operation. Six months later, it's difficult to draw clear conclusions from this huge demonetization operation, the goal of which was to declare war on the grey economy and corruption. Others have turned to less spectacular measures, like imposing limits on cash transactions. In France, the cap was brought down from 3,000 euros to 1,000 euros in September 2015.

Swedes prefer to swish

That being said, the image of briefcases and envelopes filled with money shouldn't overshadow the other payment methods used by criminals, big or small. Transfers, offshore accounts, trusts, etc. the grey economy skillfully makes light of financial rules. And the increasing number of scams and blackmail hackers take advantage of the rise of alternative currencies such as Bitcoin. "The extinction of cash wouldn't erase money-laundering, nor tax fraud," Lalanne insists.

Monetary policy also plays a role in this debate. Ever since major central banks made a foray into the then unexplored territory of negative interest rates, cash has become an obstacle to the propagation of their policy. When it costs money to deposit money in a bank, users have an incentive to keep it at home. In Switzerland, the 1,000-franc bill became very popular after negative interest rates were introduced.

Sweden is a pioneer country when it comes to money. That's where the first bank notes were invented and where the first national central bank was created, in the late 17th century. Sweden was also the first to introduce negative interest rates in 2015. And the Nordic country is ahead of the curve when it comes to cashless societies. Going cashless is a goal openly admitted by the authorities, so much so that they even promoted it on the state-run website Sweden.se.

The Swedes no longer pay, they "swish." Swish is the name of a payment app launched by Swedish and Danish banks. And although ABBA sang "Money, Money, Money," the museum dedicated to the Swedish band in Stockholm doesn't accept any cash. Another piece of evidence of the willingness to switch is that any shopkeeper in Sweden has to right to refuse payments in cash. As a consequence, the volume of cash only represents 2.1% of the GDP in Sweden compared to 10.3% in the Eurozone and 7.7% in the U.S., according to Capgemini.

The Swedish example attracts much discussion in the world of payments. For some, it's a full-scale showcase of the prospects of tomorrow's digital world. For others, it raises serious concerns: First of all about the risk of more exclusion for the poorest and the weakest members of society, but also about the risk of a Big Brother-like turn that would, in the future, ban all non-traceable transaction and limit individual freedoms and the right to property.

We're not there yet, and far from it. The field of payments is particular in that no innovation has ever succeeded in completely replacing the former method. "Digital methods of payments widen the offer. They're not a replacement for cash," says Lalanne. Cash is resisting and bank cards continue to grow despite the rise of transfers and mobile payments. Even checks are managing still to survive. We can rest assured, in other words, that our beloved bills will be with us for a while yet.

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Future

7 Ways The Pandemic May Change The Airline Industry For Good

Will flying be greener? More comfortable? Less frequent? As the world eyes a post-COVID reality, we look at ways the airline industry has been changing through a pandemic that has devastated air travel.

Ready for (a different kind of) takeoff?

Carl-Johan Karlsson

It's hard to overstate the damage the pandemic has had on the airline industry, with global revenues dropping by 40% in 2020 and dozens of airlines around the world filing for bankruptcy. One moment last year when the gravity became particularly apparent was when Asian carriers (in countries with low COVID-19 rates) began offering "flights to nowhere" — starting and ending at the same airport as a way to earn some cash from would-be travelers who missed the in-flight experience.

More than a year later today, experts believe that air traffic won't return to normal levels until 2024.


But beyond the financial woes, the unprecedented slowdown in air travel may bring some silver linings as key aspects of the industry are bound to change once back in full spin, with some longer-term effects on aviation already emerging. Here are some major transformations to expect in the coming years:

Cleaner aviation fuel

The U.S. administration of President Joe Biden and the airline industry recently agreed to the ambitious goal of replacing all jet fuel with sustainable alternatives by 2050. Already in a decade, the U.S. aims to produce three billion gallons of sustainable fuel — about one-tenth of current total use — from waste, plants and other organic matter.

While greening the world's road transport has long been at the top of the climate agenda, aviation is not even included under the Paris Agreement. But with air travel responsible for roughly 12% of all CO2 emissions from transport, and stricter international regulation on the horizon, the industry is increasingly seeking sustainable alternatives to petroleum-based fuel.

Fees imposed on the airline industry should be funneled into a climate fund.

In Germany, state broadcaster Deutsche Welle reports that the world's first factory producing CO2-neutral kerosene recently started operations in the town of Wertle, in Lower Saxony. The plant, for which Lufthansa is set to become the pilot customer, will produce CO2-neutral kerosene through a circular production cycle incorporating sustainable and green energy sources and raw materials. Energy is supplied through wind turbines from the surrounding area, while the fuel's main ingredients are water and waste-generated CO2 coming from a nearby biogas plant.

Farther north, Norwegian Air Shuttle has recently submitted a recommendation to the government that fees imposed on the airline industry should be funneled into a climate fund aimed at developing cleaner aviation fuel, according to Norwegian news site E24. The airline also suggested that the government significantly reduce the tax burden on the industry over a longer period to allow airlines to recover from the pandemic.

Black-and-white photo of an ariplane shot from below flying across the sky and leaving condensation trails

High-flying ambitions for the sector

Joel & Jasmin Førestbird

Hydrogen and electrification

Some airline manufacturers are betting on hydrogen, with research suggesting that the abundant resource has the potential to match the flight distances and payload of a current fossil-fuel aircraft. If derived from renewable resources like sun and wind power, hydrogen — with an energy-density almost three times that of gasoline or diesel — could work as a fully sustainable aviation fuel that emits only water.

One example comes out of California, where fuel-cell specialist HyPoint has entered a partnership with Pennsylvania-based Piasecki Aircraft Corporation to manufacture 650-kilowatt hydrogen fuel cell systems for aircrafts. According to HyPoint, the system — scheduled for commercial availability product by 2025 — will have four times the energy density of existing lithium-ion batteries and double the specific power of existing hydrogen fuel-cell systems.

Meanwhile, Rolls-Royce is looking to smash the speed record of electrical flights with a newly designed 23-foot-long model. Christened the Spirit of Innovation, the small plane took off for the first time earlier this month and successfully managed a 15-minute long test flight. However, the company has announced plans to fly the machine faster than 300 mph (480 km/h) before the year is out, and also to sell similar propulsion systems to companies developing electrical air taxis or small commuter planes.

New aircraft designs

Airlines are also upgrading aircraft design to become more eco-friendly. Air France just received its first upgrade of a single-aisle, medium-haul aircraft in 33 years. Fleet director Nicolas Bertrand told French daily Les Echos that the new A220 — that will replace the old A320 model — will reduce operating costs by 10%, fuel consumption and CO2 emissions by 20% and noise footprint by 34%.

International first class will be very nearly a thing of the past.

The pandemic has also ushered in a new era of consumer demand where privacy and personal space is put above luxury. The retirement of older aircraft caused by COVID-19 means that international first class — already in steady decline over the last decades — will be very nearly a thing of the past. Instead, airplane manufacturers around the world (including Delta, China Eastern, JetBlue, British Airways and Shanghai Airlines) are betting on a new generation of super-business minisuites where passengers have a privacy door. The idea, which was introduced by Qatar Airways in 2017, is to offer more personal space than in regular business class but without the lavishness of first class.

Aerial view of Rome's Fiumicino airport

Aerial view of Rome's Fiumicino airport

commons.wikimedia.org

Hygiene rankings  

Rome's Fiumicino Airport has become the first in the world to earn "the COVID-19 5-Star Airport Rating" from Skytrax, an international airline and airport review and ranking site, Italian daily La Repubblica reports. Skytrax, which publishes a yearly annual ranking of the world's best airports and issues the World Airport Awards, this year created a second list to specifically call out airports with the best health and hygiene standards.

Smoother check-in

​The pandemic has also accelerated the shift towards contactless traveling, with more airports harnessing the power of biometrics — such as facial recognition or fever screening — to reduce touchpoints and human contact. Similar technology can also be used to more efficiently scan physical objects, such as explosive detection. Ultimately, passengers will be able to "check-in" and go through a security screening anywhere at the airports, removing queues and bottlenecks.

Data privacy issues

​However, as pointed out in Canadian publication The Lawyer's Daily, increased use of AI and biometrics also means increased privacy concerns. For example, health and hygiene measures like digital vaccine passports also mean that airports can collect data on who has been vaccinated and the type of vaccine used.

Photo of planes at Auckland airport, New Zealand

Auckland Airport, New Zealand

Douglas Bagg

The billion-dollar question: Will we fly less?

At the end of the day, even with all these (mostly positive) changes that we've seen take shape over the past 18 months, the industry faces major uncertainty about whether air travel will ever return to the pre-COVID levels. Not only are people wary about being in crowded and closed airplanes, but the worth of long-distance business travel in particular is being questioned as many have seen that meetings can function remotely, via Zoom and other online apps.

Trying to forecast the future, experts point to the years following the 9/11 terrorist attacks as at least a partial blueprint for what a recovery might look like in the years ahead. Twenty years ago, as passenger enthusiasm for flying waned amid security fears following the attacks, airlines were forced to cancel flights and put planes into storage.

40% of Swedes intend to travel less

According to McKinsey, leisure trips and visits to family and friends rebounded faster than business flights, which took four years to return to pre-crisis levels in the UK. This time too, business travel is expected to lag, with the consulting firm estimating only 80% recovery of pre-pandemic levels by 2024.

But the COVID-19 crisis also came at a time when passengers were already rethinking their travel habits due to climate concerns, while worldwide lockdowns have ushered in a new era of remote working. In Sweden, a survey by the country's largest research company shows that 40% of the population intend to travel less even after the pandemic ends. Similarly in the UK, nearly 60% of adults said during the spring they intended to fly less after being vaccinated against COVID-19 — with climate change cited as a top reason for people wanting to reduce their number of flights, according to research by the University of Bristol.

At the same time, major companies are increasingly forced to face the music of the environmental movement, with several corporations rolling out climate targets over the last few years. Today, five of the 10 biggest buyers of corporate air travel in the US are technology companies: Amazon, IBM, Google, Apple and Microsoft, according to Taipei Times, all of which have set individual targets for environmental stewardship. As such, the era of flying across the Atlantic for a two-hour executive meeting is likely in its dying days.

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