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A new currency would be better for an independent Scotland than an informal currency union with the UK, according to a new report on developments in central banking by the Centre on Constitutional Change.

From New currency best option for Scotland, says report by expert on political economy | Centre on Constitutional Change.

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Patrizia Flammini runs a cafe in the centre of Rome. According to the Financial Times, her heart sinks when a customer pays for a coffee with a payment card (as I always do, everywhere, all the time). Why? She says that the cost of accepting cards is so high that the bank earns more on a cup of coffee than she does.

When I read this, I naturally thought to myself “so what?” and “if she doesn’t like cards, she shouldn’t take them” because as far as I am concerned, retailers should be able to take whatever they want in payments. If they want to take cash or cowrie shells, cards or chocolate (cocoa was a currency in South America for hundreds of years) then it should be up to them.

In some illiberal places, however, that is not true. In some places shopkeepers are forced to accept certain payment instruments. In El Salvador, for example, retailers are forced to accept Bitcoin. In New York, retailers are forced to accept cash. In Italy, retailers are forced to accept cards.  

What? Yes. Cash payments are not banned, but Italian retailers have to electronic transactions or face a fine of €30 and 4% of the transaction value. This law was introduced as as part of Italy’s post-Covid national recovery plan as an attempt to reduce tax evasion. The retailer can choose which electronic means they accept: They do not have to accept bank cards, they could accept payments apps or digital wallets or whatever. But they must accept at least one electronic payment option and for almost all of them, that means cards.

Shopkeepers such as Patrizia may soon have the option to refuse cards for cups of coffee and suchlike though. The new prime minister, Ms. Giorgia Meloni, wants to give them the right to refuse electronic payments for transactions under €60 while simultaneously raising the limit for legal cash transactions from €1,000 to €5,000.

(I was interested to see the the president of the Lego Nord, the economist Claudio Borghi Aquilini, defend the use of raising of the limit for cash transactions to €5,000  using what seemed to me to be the remarkably Italian argument that if he wants to buy a necklace for his mistress “what can I do with the limit of one thousand euros? I take the car, go to Lugano and pay cash”.)

Why would the Italian government want to increase the use of cash? The answer, as with so many aspects of banking, payments and financial services in general is politics, not economics. Ms. Meloni says that “cash must be king” and told the Italian parliament that “the only legal currency in Italy and Europe is the paper notes issued by the European Central Bank” and that electronic money is not legal tender (which is true everywhere but, as we all know, does not matter) and it is a form of private money.

Indeed it is. But so what? Well, Ms. Meloni’s policy is aimed at her small businesses supporters who object to the commissions on card payments, agree with her that merchant services charges are an “illegitimate present to the banks and financial firms that sell these services” and, I don’t doubt, agree with her view that financiers in general and George Soros in particular are the shadow puppet masters of the deep state and manipulate the political system to enrich themselves.

(Frankly, whenever I see that kind of focus on of Soros, I naturally hear the antisemitism alarm bells ringing, but that’s another issue.)

Lorenzo Codogno, a financial analyst (and former official at the Italian treasury) reinforced my suspicion about the underlying reason for the dash to cash, saying that “I suspect this is also linked to pressure from retailers who prefer cash because it gives them the flexibility to avoid tax”, a view supported by political consultant Wolfango Piccoli, who said that the new right-wing government is listening to “groups like taxi drivers, who you can never ignore in Italy — this is a good budget for tax dodgers”. There is good evidence to support this view. Six years ago electronic payments became mandatory in the hotel and catering industry. As a result, declared revenues from those businesses rose considerably, along with their tax contributions.

This why, as you might imagine, the plan has seen some pushback from the central bank precisely because of concerns about the  black economy and the scale of tax evasion in the country. Italians evade around €100 billion in tax every year, which is around double the rate of tax evasion in  northern Europe. For comparison, in Britain the “tax gap” is more than £30 billion and around half of this is down to sole traders and small businesses not declaring cash income.

The APPian way

Nevertheless, Italian merchants have a point. They need alternatives. But what should that alternative be? Mr. Piccoli observes “Europe is well aware that Amex, Mastercard and Visa are all American. It doesn’t have a credit card company and that’s a problem”. But that isn’t the problem. The problem isn’t that Europe doesn’t have a credit card company. The problem is that Europe doesn’t have an alternative to cards, which is why “Le Third Scheme” should be based on the things that Europe does have: Open banking, instant credit transfer, smartphones and payment institutions. I was pleased to see that the European Payment Initiative (EPI) has abandoned its plans for a card scheme (which I was always against) and decided to focus on developing such a solution, an account-to-account instant payment solution for all kinds of use cases, all through a wallet.

(There is an interesting connection here with the European moves to develop a common digital identity service and euro-wallet infrastructure.)

This is the way for retailers to change the cost-benefit equation around retail payments. Moving to in-app payments in the context of a better customer experience that delivers more data at lower cost. This is one of the reasons why I found the recent announcement from Sainsbury’s, one the U.K.’s largest retailers, they are going to use Checkout.com to revitalise their SmartShop app. The new functionality will allow customers to pay for their shopping without having to visit a point-of-sale at all. They will instead pay using the app on their smartphones.

This is not a purely European trend, of course, since some U.S. retailers have already been encouraging shoppers to try various forms of “pay by bank” options as alternatives to payment cards (by, for example, using Plaid to link the retailers to customer’s bank account) and many observers expect to see a significant increase in the use of such options in the coming year. McKinsey report U.S. growth rates for instant payments of more than 60% (admittedly from a small base) and suggest that “there remains room for a breakthrough that sparks an even higher U.S. growth rate”. That might be sooner rather than later, because I am pretty sure that the impact of FedNow, the U.S. instant payment network which is due to be launched next year, is underestimated in the retail context. As noted by The Economist amongst others, retailers have every reason to switch from paying card issuers to provide incentive to the card issuers’ customers and instead routing transactions account to account and providing incentives to their own customers.

(I rather agree with Andrew Marshman at FIS who suggests that an open, industry-wide overlay service with interoperable standards could be the way forward.)

Rita Camporeale, Head of Payments Systems at the Italian Banking Association (ABI), said last year that the pandemic had accelerated the embrace of instant payments in the country and pointed to new use cases emerging among SMEs hoping to improve their cash management practices, initially using the service to move money between their own accounts. As more and more business connect to instant payments, the pressure to use them in retail environments will surely grow.

There is another factor, though, that might accelerate adoption and satisfy the concerns of key Italian stakeholders, and that is privacy. As Diederik Bruggink and 
Alessia Benevelli from the European Savings and Retail Banking Group wrote in their interesting paper on Instant payments and cards: Apples and oranges or a possible substitute? in the Journal of Payments Strategy and Systems 15(4): p.398-409, one of the key enablers for a flourishing instant payments sector might be privacy. Using account-to-account payments via wallets, where the transaction details are conditionally anonymous, might address European sensibilities around privacy and data protection and meet the concerns of customers who prefer to keep certain transaction details confidential.

In the future, Patrizia’s QR code might trigger her customers’ smartphone wallets to then push the money directly from their bank accounts to hers while keeping their personally-identifiable information safely locked up in the bank vault. Who knows, perhaps in a few years’ time the customer’s wallet might send central bank digital currency across the internet to her wallet, leaving banking networks out of the loop altogether.

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The Payment Systems Regulator (PSR) is currently consulting on mandating banks and building societies to reimburse victims of authorised push payment fraud. The proposals set a high bar for gross negligence, meaning only consumers who show a significant degree of carelessness would be denied reimbursement.

From Treasury Sub-Committee to investigate proposals for mandatory scam reimbursement – Committees – UK Parliament.

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On Monday, the US Department of Justice announced that a Georgia man named James Zhong has pleaded guilty to wire fraud nine years after stealing more than 50,000 bitcoins from the Silk Road. As part of his plea agreement, Zhong has forfeited that massive stash of bitcoins to the DOJ—a sum that, at the time of the coins’ seizure in late 2021, would have been the biggest-ever Justice Department seizure not only of cryptocurrency but of currency of any kind. The bitcoins were ultimately found stored on what’s described in court records as a “single-board computer” hidden in a popcorn can, along with more than $600,000 in cash and precious metals, all held in a safe under the floorboards of a bathroom closet in Zhong’s home.

From IRS Seizes Another Silk Road Hacker’s $3.36 Billion Bitcoin Stash | WIRED:

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Google is working on a secretive project that uses machine learning to train code to write, fix, and update itself.

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GitHub, which is owned by Microsoft, launched a tool called Copilot that suggests snippets of code and functions as developers type. Developers are using Copilot to generate up to 40% of their code, and GitHub expects that number to double within five years,

From Google Has a Secret Project That Is Using AI to Write and Fix Code:

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Our culture of hero worship is also to blame. The desire for mythical heroes is at an all-time high, and when confronted by a world at war and under economic stress, who can blame people? Figures like SBF, Do Kwon, and Alex Mashinsky call out to us as larger-than-life figures that prove that “getting rich quick” is a thing. The enabler for this is the Twitterverse where no bad crypto deal goes unsung. I understand that Twitter is a tool for good and bad, but the impact of crypto influencers who promote whatever coin pays them is a problem.

From Sex, Drugs, Celebrities and Fraud Cover up Broader Systemic Failure in FTX’s Collapse..

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Mercedes-Benz is the latest auto manufacturer to unveil a subscription fee to unlock perks, such as the ability to boost acceleration.

The $1,200 yearly subscription is called “Acceleration Increase” and can be found on Mercedes’ online store.

From Is Mercedes Intentionally Detuning Its EVs To Charge $1,200 Yearly “Acceleration” Fee | ZeroHedge.

The features shaves about a second off of the 0-60 times.

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Legitimisation is not the only Trojan horse embedded in these crypto bills. Any legislation that creates a bespoke crypto regulatory framework will create opportunities for traditional financial assets to migrate into the new regime and so sidestep existing financial regulation. This problem is unavoidable because it’s impossible to define “crypto asset” (or “digital asset” or “digital commodity”) in a way that excludes traditional financial assets.

From Beware the proposed US crypto regulation — it may be a Trojan horse | Financial Times:

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In June 2018 the Met’s Flying Squad began to investigate an emerging linked series of robberies under Operation Atoll. It included hours of covert surveillance, automatic number plate recognition (ANPR) and extensive analysis of the movement of phones attributed to the offenders to bring them all to justice.

From Gang who carried out ‘violent’ Bedfordshire robbery raids collectively jailed for more than 100 years:

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“We will also make it easy to do crypto,” Musk told employees during an internal Q&A yesterday, a recording of which I obtained. “You should be able to easily send money to anyone in Twitter with one click,” he said. “The payments side of things will probably be more valuable than all the rest of Twitter combined.”

From Twitter will let you send crypto to accounts alongside “normal” money, Elon Musk says. – The Verge:

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