Snippings

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Even private corporations agreed that non-deployment was the best solution in this case: Amazon, Microsoft, and IBM all voluntarily adopted non-deployment moratoria until facial recognition in policing is subject to top-down regulation.

From Stop Building Bad AI | Boston Review:

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The People’s Bank of China (PBC) has just released its report on “Progress of Research & Development of E-CNY in China”. It makes for pretty interesting reading for anyone interest in topic of digital currency in general and central bank digital currency in particular. Ygb v v 8
 

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Demographics of BNPL Borrowers Who Take Out Multiple Loans Simultaneously:

More than half of BNPL and short-term financing borrowers take out more than one loan simultaneously.
67% of BNPL loan borrowers have taken out more than one loan simultaneously, compared to 65% of those who have used short-term financing.
Over 13% of BNPL borrowers have taken out more than 10 loans simultaneously.
31% of respondents ages 18-24 have taken out 5+ loans, making them the most likely age cohort to do so. 
30% of BNPL borrowers earning $150K+ have borrowed more than 5 loans at once, compared to just 13% of borrowers earning under $50k.
Mercator Advisory Group survey results demonstrate that respondents who took out a greater number of loans are more likely to have missed or been late making payments.

From Demographics of BNPL Borrowers Who Take Out Multiple Loans Simultaneously: |.

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There are many people who think that there should be some sort of universal service around cash, forcing banks to provide it and forcing retailers to accept it. Age UK, for example. A lobby group for older people, it is calling on the British government to designate access to cash as a universal service obligation, much like the supply of electricity and drinking water to consumer homes. I disagree, but I do understand why some people think that imposing the additional costs associated with cash on financial institutions and merchants seems appealing. One of the arguments often made to justify these costs is that cash is a necessary fallback, the only payment mechanism that society can depend on in the event of nuclear war or natural disaster or management incompetency in key industries and therefore businesses should be forced to maintain the ability to distribute and collect notes and coins.

In a debate around these issues that I was involved in a while ago, one commentator made reference to the aftermath of the Japanese cataclysm of a decade hence, where following a magnitude nine earthquake and a tsunami, the nuclear reactors didn’t melt down but the payment system did. The disaster, as you will recall, was the consequence of massive earthquake off of the northeast coast of Japan’s Honshu Island in 2011. This triggered a massive tsunami towering a hundred feet above the ground that surged far inland. The wall of water went crashing into cities, towns and villages devastating more than 200 square miles.

NFT available direct from the artist at TheOfficeMuse (CC-BY-ND 4.0)

What is the right lesson to learn from this awful event, though? Yes, there were some temporary problems with the card networks because of the disruption, but it’s important to note that this did not impact all cards: Japan has quite a rich retail payment landscape, so immediately after the disaster the offline electronic money systems (such as Edy and nanoco) carried on working so long as there was power and the backup battery systems or generators were working, and the unfortunate citizens could still go round to 7-Eleven and buy their staples.

In that particular disaster, it was actually the people who kept their money in cash who suffered the most. Japan remains a cash-oriented society and has been through a generation of low inflation and low interest rates, a great many people keep their savings in cash in their homes. Now, keeping ugh piles of cash at home may seem a suboptimal wealth management strategy in some countries (eg, the USA and the UK), but it is generally not a problem in Japan, unless (for example) a wall of water were to wash your home out to sea and take your money with it.

This is indeed what happened ten years ago, on a grand scale. It led to the (from a Western perspective) unusual phenomenon of wreckage full of safes and cash washing up on beaches. I cannot, at this point, resist quoting one Yasuo Kimura, a former bank employee then aged 67, who said that he had many friends who lost everything. “I spent my career trying to convince them to deposit their money in a bank,” he said, “They always thought it was safer to keep it at home.”

(Japan is a very honest society, though. In the months after the disaster, citizens handed in thousands of wallets found in the debris, containing $48 million in cash, and most of the safes discovered in the rubble were eventually returned to their owners.)

(Many Japanese safes contain much more than cash, of course. They also hold the identity documents that people need to rebuild their lives: bank books, stock certificates, land rights deeds as well gold bars and other precious metals. People need a backup for of all sorts of physical wealth, not only banknotes!)

Is Cash The Backup?

Is cash a good backup though? It was not need in China this year, where catastrophic floods devastated major conurbations earlier and mobile base stations in drones were sent in to keep things moving. A “Wing Loong” drone was deployed in Henan, providing a stable communication signal for an area of more than 50 square kilometers without pause for 24 hours. The rain couldn’t stop money moving via mobiles, although I suppose that a clever cyberwar strike might do so. There was certainly an amount of global chaos when a bunch of 4G data networks (including O2 in the UK) went down in 2018 for a few hours, although to be fair this was because of bungled software updates rather than sabotage by cyber-commandos.

The big question is whether we keep should keep cash going, whatever the cost, just in case of a zombie apocalypse, asteroid strike or cloud services cyberwar first strike.  On balance, I think not. I even checked out a prepper web site to see what they said about cash, but even they seem to think that might not be the ultimate backup, saying that “when cash and credit cards are meaningless you can turn to your bartering stockpile”. (The suggested bartering stockpile, by the way, includes bullets, marijuana and condoms.)

There is actually a very good case study of what might happen when cash vanishes. I cover it in my book on the history and future of money, “Before Babylon, Beyond Bitcoin”: the Irish bank strikes from 1966 to 1976. In that time there were three major bank strikes in Ireland and these closed the retail banks for a year in total. The public were left with the notes and coins in their pockets and nothing more. Since people could not obtain cash, they developed their own currency substitutes: people began to accept cheques and IOUs directly from each other, and these instruments began to circulate. Antoin Murphy points out that one of the key reasons why this ‘personalized credit system’ could substitute for cash was the local nature of the circulation. As Patrick Cockburn wrote a few years ago, when the financial crash came in 2008, Irish bankers turned out to be far more irresponsible than those who wrote cheques on beer mats a generation earlier.

The point is that the people exchanging cheques and IOUs knew each other, and if they did not, they could soon find the necessary information to assess each other’s creditworthiness (generally from the pub). In our post-industrial economy, local means something different and it would be LinkedIn more than the landlord providing the connections, but you get the point. The use of cash as an intermediary is not a prerequisite for functioning economy.

In a more recent and similarly man-made example of cash failing in difficult circumstances, South Africa has seen extensive rioting and disorder. Looters targeted bank branches and ATMs precisely because they contained cash. Not only was that cash stolen, but of course the banks were reluctant to repair and restock while the disorder continued so that law-abiding citizens were soon denied that cash they needed for life to go on. It will take months from order being fully restored to anything like normality returning to the cash distribution systems.

So it seems to me that forcing business to provide cash services as a backup in case of disaster is the wrong approach. There are other reasons, of course, and these must be addresssed. An example is privacy. The Electronic Frontier Foundation point out, quite reasonably, that a growing number of retail businesses are refusing to let their customers pay in cash and that this could be bad for privacy. They ask “how can you stop data thieves, data brokers, and police from snooping on your purchase history?” and suggest that paying with cash is the answer. Personally, I think the using of privacy-enhancing technologies (PETs) in the implementation of electronic payments is a better answer, but that’s a discussion for another day.

The lesson from disasters past, present and future is not that we should keep cash but that what we should have in place is a means to person-to-person (or actually, device-to-device) payments in the absence of mobile networks, electricity and clearing systems. I don’t want to labour the point about the unsuitability of blockchain-based payments for general purpose cash replacement, but this seems to me to reinforce a critical design characteristic for central bank digital currencies: they must be able to work offline.

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If regulators are worried about financial stability, they should have some KYC controls.

From Regulators Helped to Create the Stablecoin Boom | J.P. Koning – CoinDesk:

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For several years now, stablecoins have been providing a financial service that is in high demand, but no other U.S. financial institution is allowed to provide: non-KYC’ed (know your customer) access to digital U.S. dollars.

From Regulators Helped to Create the Stablecoin Boom | J.P. Koning – CoinDesk:

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Cryptocurrencies are described by their fans as a people-powered revolution, digital banking unchained from the interests of the wealthy and powerful.

This may well have been the original intention. But the modern reality is that almost all Bitcoin investors own less than one per cent of one Bitcoin. These “retail” investors make up more than 75 per cent of addresses, but own a tiny fraction – 0.22 per cent – of the market. The top 100 Bitcoin accounts own more of the currency than the bottom 38 million. In the crypto economy, businesses and wealthy individuals control currencies more actively than any central bank. They do so not to maintain the market, but to further their own interests.

From Bitcoin’s gold rush was always an illusion:

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The report also calls for the co-existence of an account-based model of digital euro (similar to current bank money) and a token-based model (digital representation of the euro, closer to the concept of cash) in the same infrastructure.

From Spanish financial sector explores design concepts for digital euro:

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The Brookings Institution “How to keep remittances flowing” makes a similar point, calling for digital technology to meet risk-based KYC requirements to help address “de-risking” practices by correspondent banks (intended to avoid rather than manage risks) that continue to affect access to bank accounts for money transfer businesses operating in smaller and poorer remittance corridors, thus reducing competition.

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The growth of the digital economy means that sharing data between various stakeholders—whether connected or not—has become crucial for driving value in terms of intra-organisational efficiency, inter-organisational standards and practices, and even solving problems and improving living standards for the wider public. But standing in the way of these goals are a number of roadblocks that prevent the free, unencumbered flow of data between parties.

From The Importance of Data Sharing for the Economy of Tomorrow:

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Privacy issues are also front and centre on stakeholders’ minds when sharing data. In the finance industry, for example, data can be hugely important to financial institutions in terms of providing their customers with higher-quality services and enhancing the robustness of their security for preventing fraud and money-laundering activities. But concerns over the privacy and security of data means financial institutions remain reticent to share data that they believe may end up in the wrong hands—perhaps a competitor or even cyber-criminals.

From The Importance of Data Sharing for the Economy of Tomorrow:

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