Yves Mersch, member of the European central bank (ECB) executive board, recently expressed himself on the role of cash in the evolving payments landscape and highlighted its popularity among consumers. He also explained that cash is a crucial tool to build consumers’ trust in the central bank and the financial system overall. Mersch is a fervent advocate for paper money and already underlined its advantages on multiple occasions.
In recent years, we have seen a proliferation of new payment instruments in the market, with mobile banking apps and virtual currencies adding up to credit and debit cards. As a result, many banks are considering shifting to digital in order to avoid storage, issuance and handling costs inherent to hard cash and remain competitive against non-banking startups. Nevertheless, Mersch sees this move as an error and reminded that banks should always ensure consumers’ freedom of choice and respect their desires. Recent studies of the ECB indicate that 80% of transactions are made in cash at points of sale (POS), representing more than the majority of payments in terms of value. In Mersch’s view, banks should use cash as a means of customer retention rather than going against their will and imposing restrictions.
Furthermore, virtual technologies that could replace cash – such as the Distributed Ledger Technology (DLT) used for bitcoin – are still in their early stages and various security, governance and operational questions remain unaddressed. Before proposing these tools to consumers, governments must ensure that these comply with minimum requirements in terms of efficiency and safety while safeguarding people’s personal data. Mersch warned that a hasty adoption of untested technology could backfire – should there be a problem -and affect the public’s trust in currency and institutions.
Finally, cash represents a tangible connection between citizens and the central bank, a crucial link to maintain trust. Commercial banks that do not respect consumers’ preference for cash and force them to adopt digital instruments are at risk of losing their loyalty and confidence.
To read the original ECB article, please click here.