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22 Oct, 2014 10:06

Cashing out: ‘Electronic payments taking over, banks to abandon paper money soon’

Cashing out: ‘Electronic payments taking over, banks to abandon paper money soon’

More and more countries are using electronic payments instead of physical as they’re much cheaper, easily traceable and help to combat terrorism financing, money laundering, tax evasion and the black market, economist Konstantin Gurdgiev told RT.

Denmark’s Central Bank Nationalbanken plans to stop printing banknotes and minting coins by the end of 2016. It claims that people increasingly prefer to use credit cards and electronic money in transactions rather than cash.

RT:The Danish Central Bank says it's stopping printing new money because demand for banknotes is falling. Is this a global trend or one peculiar to Denmark?

Konstantin Gurdgiev: It is a global trend. It’s a global trend in the sense the Central Banks around the world, especially in Europe, not just in Denmark, but also in Ireland, for example, Austria, Belgium have been trying for a number of years to shift the economies or convert the economies away from using physical cash in transactions and using paper in transactions to electronic payments. For example, several European monetary authorities, Central Banks have carried out a series of local experiments in reducing the circulation of coins in recent months and years. Irish Central Bank recently did an experiment eliminating from local circulation in one of the towns one of the banknotes as well. Central Banks have actively lobbied the governments also with the recent Chairs to increase duties and taxes on checks and other non-electronic payments.

So there is a number of official reasons for it and there is a number of unofficial reasons for why they want to do it. The official rational for this is that electronic payments are much cheaper than the physical transactions. And also there is an obvious reason for this, which is also officially acknowledged, that electronic payments are perfectly traceable. In other words, they usually say that it helps to combat terrorism financing, money laundering and tax evasion. But it also helps to combat the black market, for example, which is quite rampant in Europe, across the EU overall.

RT:The Danish Central Bank also says that the printing of any new notes will be outsourced to save on costs. How will that work in practice?

KG: In reality nobody knows how it will work all in practice simply because we are all familiar with the fact that we do use electronic payments, we use the credit cards, online payment systems and the increasingly use of dollars means as well. But at the same time we are still reliant on cash in operations, day-to-day shopping - we are still doing it in cash. We also rely on cash as a fullback in case of security breakdown in terms of electronic payments, such as for example, theft of data or technological glitches. We also believe that in cash [there] is the disembodied nature of money. It’s easier to store value in disembodied cash, we are much safer in holding that cash rather that in giving this cash electronically to somebody else to store for us.

One of the big issues that came during the global financial crisis is the issue of the bailouts, when the banks are failing electronic money can be taken away and repossessed as happened in the case of the deposits in Cyprus. Physical money can’t be as easily repossessed as a result of that.

The statements, views and opinions expressed in this column are solely those of the author and do not necessarily represent those of RT.