Australia and Argentina: Cash and Chaos
Cash “in circulation” in the Southern Hemisphere.
Dateline: Berlin, 14th March 2024.
The Reserve Bank of Australia's Consumer Payment Survey showed that in the past three years the percentage of Australians paying with cash has halved from around a quarter of total payments to just one eighth. A great many Aussies never use cash from one month’s end to the next: for example Ellysha Gillespie, who received thousands of dollars in cash when she got married: She quickly banked all the money, saying the only time she uses cash is when the POS machine at her nail salon has stopped working.
(If I was running a nail salon I wouldn’t bother with a POS at all, I’d just use a softPOS on my phone, but that’s for another day.)
With cash payments vanishing you would think the amount of cash out there would be collapsing. Indeed, in a speech last year, the Reserve Bank Governor Philip Lowe noted that while the value of cash withdrawals was down by 17 per cent from where it was three years ago, during which time nominal spending in the economy had risen by 27 per cent. So cash is vanishing? Well, no. According to the Reserve Bank’s own data. there are now more than two billion Australian Dollar out there, around A$4,000 per Aussie.
Show me the Money
It’s the same in many other countries where people are beginning to question what all this cash is being used for, when it is being used less and less for transactions. Luke Raven, senior anti-money laundering compliance manager at Cabital, notes while many of the banknotes being hoarded will be legitimate, when police and tax authorities do raids on organised crime groups, they often find stashes of $100 notes and $50 notes.
(I am sure that some customers have wholly innocent reasons for wanting to hoard high value banks: Taryn Comptyn, for example, who had gone to her bank to withdraw $3,500 to pay for renovations and was “stunned” to discover that her ANZ branch did not have enough cash to meet her request and closed her account immediately.)
These anecdotes and statistics from Down Under come from Richard Holden’s new book “Money in the Twenty-First Century: Cheap, Mobile and Digital” (University of California Press: 2024). Richard is a Professor of Economics at the University of New South Wales (UNSW) in Sydney and is the President of the Academy of the Social Sciences in Australia, so he comes at the topic from a perspective different from my more technology-focused one.
In his book he sets out a three point plan for moving to a cashless Australia, beginning with one years’ notice for the abolition of the $100 bill. But what I found particularly interesting was his discussion of private currencies. Writing about this in IEEE Spectrum, he points out that there is a challenge for America in that maintaining the status quo looks difficult in the face of technological revolution and so the U.S. Government might need to make a preemptive move to a central-bank digital currency (CBDC) to prevent the establishment of a private digital currency that competes with the dollar. He goes on to say "one way or the other, you’ll likely be seeing such a currency arriving soon”, using the hypothetical example of Bezos Bucks, a stablecoin provided by Amazon, something that I have also speculated about before.
(You’ll enjoy Richard’s book, by the way. He explores the emerging landscape of new payments, new money and new technologies through the stories of individuals including Janet Yellen, Vitalik Buterin and Raghuran Rajam from the Reserve Bank of India.)
Richard thinks that a U.S. “govcoin” would push other stablecoins out of the market, and I don’t see that as a bad thing. Whether a U.S. government retail “fedcoin” is needed alongside a wholesale fedcoin makes for an interesting discussion (and I think a retail CBDC would be unlikely to be implemented using blockchains, smart contracts or ledgers, so my view is plain), but it is certainly time to begin thinking rationally about what is best for the U.S. national interest given that there are millions, in fact billions, of people all around the world who want to hold dollars.
Interesting Interest
Note that the rest of the world holds a huge amount of U.S. currency in the form of cash. Although the amount can’t be precisely tracked, the Federal Reserve Board of Governors recently estimated that foreigners held $950 billion in U.S. banknotes at the end of the first quarter of 2021, or about 45% of all Federal Reserve notes outstanding, including two-thirds of all $100 bills. Overall holdings of U.S. currency have grown rapidly since then, so overseas holdings of Federal Reserve notes are probably closer to $1.1 trillion if such holdings are still half of all U.S. currency.
Foreign holdings of U.S. cash benefit Americans because those foreign users must get that currency by selling U.S. residents’ labour, goods or services. If the foreigner eventually uses the cash to buy goods and services from an American in the future—say in 10 years—then the foreigner has given America an interest-free loan for 10 years. If the cash never comes back to the U.S., then Americans have just exchanged pieces of green paper—which cost almost nothing to print—for valuable goods. This is a good deal for Americans.
Who do they sell this paper to? Well, take a look at Argentina, for example, which is in the news because the new President was advocating dollarisation as one of his policies during his election campaign (along with allowing people to sell their organs and a free market in babies).
There are already a lot of dollars down there, by the way. Argentina’s central bank might lack dollars, but Argentine citizens and companies do not. Private sector actors try to shield themselves from the country’s frequent bank runs by holding dollars in other jurisdictions or under their mattresses. At the end of 2022, Argentines held over $246 billion in foreign bank accounts, safe deposit boxes, and mostly undeclared cash, according to Argentina’s National Institute of Statistics and Census. This amounts to over 50 percent of Argentina’s GDP in current dollars for 2021 ($487 billion). The undeclared cash is a one-tenth of all U.S. currency in circulation (roughly $200 billion, more than in any other country outside the United States) and works out as an average of about $4,400 in cash for every Argentine, compared to $3,100 for every American!.
Interest-Free And More Interesting
Colleen Sullivan wrote in her (absolutely brilliant) essay “It’s All a Game”, that US dollar- backed stablecoins will eventually become a widely adopted form of in-game stable currencies. This means that as gaming shifts to include web3, such stablecoins could potentially, eventually reach more than three billon (that is, non-American gamers) people. Colleen speculates for these people, their game wallets could stand in for a bank account and allow them to save and spend in US dollars, which is highly desired in many countries.
Earlier this year I saw a TwiX from someone who had just sent money to friend in Argentina using a stablecoin, USDT (Tether). It was the recipient's preferred method of payment. The TwiXxer pointed out that the recipient had access to Bitcoin, but did not want it. What this suggested to me is that in many places, people want cryptocurrency only as a second-best way of getting fiat currency. They don’t want Dogecoin, they want Dollars, and so do millions and millions of other people around the world.
I agree with Colleen wholeheartedly that it has been surprising to see the US government fail to embrace and enact reasonable federal legislation with respect to digital dollars. As she says, surely the US government should do everything it can to get digital dollars into the hands of as many global citizens as possible (while regulated under US federal law).
The billions of dollars in U.S. Federal Reserve banknotes held outside America are a massive interest free loan from the rest of the world to Uncle Sam. Now imagine that people in Argentina and elsewhere could hold Federal Reserve digital dollars in their phones, USB sticks, cars or computers. The demand could be colossal.
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