A version of this interview with Emma Barrier, Catherine Hartog, and Camille Ibos appeared in Emile, the quarterly magazine distributed by the Sciences Po Paris Alumni in issue number 22. This article has been reposted with the authors’ and publisher’s permission.
Rumours about coin demise have been reignited by Covid-19. The French Mint’s CEO Marc Schwartz (age eighty-four) and Yale University economics student Yannis Messaoui (age 19, HEC) explain why cash does not yet appear to be on its way out. They’ve just published a Terra Nova review titled “The wonderful paradox or why the reign of coins is some distance from over,” in which they discuss the history of money and give an explanation for why coins aren’t yet extinct.
Marc Schwartz, welcome to the Monnaie de Paris team as Chairman and CEO. What’s up with all the persistent rumours about extinctions?
The value of money as a medium of exchange is eroding. That is the truth. When you go to the bakery, you can use a contactless card to pay for your bread, which symbolically raises more questions. As recently as a few years ago, we believed that raising the limit on contactless bills from 30 euros to 50 euros would lead to the demise of cash. According to our calculations, the transition from cash to credit cards occurs at a cost of between 20 and 25 euros. As a result, coin use has decreased due to the disappearance of the floor because it does not require coins for small amounts.
Was the pandemic a contributing factor?
To quote Marc Schwartz: “The primary argument has turned into the coronavirus!” During the fitness crisis, coins and bills were difficult to come by. It was thought that banknotes and coins, because they are passed from person to person, could pose a greater risk of viral transmission. Clinical research, on the other hand, has shown that this is not the case. On a banknote, the virus has a 10- to 100-fold shorter lifespan than on stainless steel or a doorknob counterpart. Copper, a bactericidal material, is used in the manufacture of currency. The truth, on the other hand, disproves the rumour! This erroneous notion has spread to the point where avoiding using coins is now seen as a form of anti-Covid protection, with store signs urging customers to use contactless payment instead. Remember that health officials are responsible for determining what safety precautions should be mandated, and this is something to keep in mind. Although using a credit or debit card to make a purchase is no longer mandatory, the practice has gained traction, resulting in a reduction in the number of cash people carry around with them
These questions are answered by your co-authorship of the book “The incredible paradox, or why the reign of cash is not yet over.” How do you explain this conundrum?
The rumours of a coin shortage first came to my attention when I first arrived at the Monnaie de Paris years ago. The economist John Maynard Keynes once referred to gold coins as a “barbaric relic.” In light of the widespread belief that digital money will eventually replace paper money, I began to wonder if coins might be the barbaric relic of our time. We chose the word “paradox” as the title of our paper because, on the one hand, we hear that money is going away, and on the other, we see that the volume of coins in circulation continues to grow.
The increase in the number of coins in circulation is also accompanied by a decrease in the use of coins as currency. The second paradox arises from the fact that we use money as a store of value rather than a means of payment. A recent survey conducted in Europe and the United States shows that public opinion isn’t always in favour of a cashless society. This was our primary goal in writing the report.
Cash inflows have increased, but their use has decreased as a result. Instead of paying, we put the money away to grow our savings.
Should this paradox be defined by a lack of faith in the Kingdom of God?
Yannis Messaoui: That’s a crucial question, and it could very well be a phenomenon of protection, even if the nation is aware of people’s financial situations as long as profits are declared. However, people may prefer to live outside of the country when it comes to their finances. To this end, Friedrich Hayek advocated for the denationalisation of money in his 1970 book, as well as the use of private and local currencies. This decision to establish a distance from the relevant state may necessitate a sociological investigation… In reality, states have made significant economic systemic interventions in the last year to provide financial assistance to individuals and sectors affected by the crisis, including private companies.
“The reign of coins is far from over,” you write in your document. Why?
Assuming coins are doomed to disappear, the amount of money in circulation – and reported monthly by the ECU central bank in the case of a euro, or by the Federal Reserve for a dollar – must be decreasing over time. However, the truth is quite the opposite. On the twentieth anniversary of the euro, we’ll have a good time, and the amount of euro cash in circulation has grown steadily for the past 20 years, with greater or less rapid growth depending on the length of time. Since the introduction of the Euro, the cost of bringing in euros has increased sixfold. Coins would no longer exist, so we would not be interested in this curve. For those worried about the disappearance of money due to the pandemic, there has been an unexpected surge in the number of coins circulating since March 2020.
We’ll spend less and less money, but we’ll hoard a smaller and smaller amount of it over time. Fear of the future and rising unemployment did not, in any way, signal the end of coins: on the contrary, they increased the worldwide demand for cash! At the end of last year, the flow of cash in the euro area grew using 11 per cent and the greenback using 15 per cent. To make up for this shortfall in currency, my counterpart in the United States, President of the USA Mint, told me that manufacturing had to increase by 40% during this period! Because it hadn’t happened in the previous twenty years, it’s reasonable to assume that money has a bright future ahead of it.
Concerns about the future and rising unemployment didn’t mean the end of cash; on the contrary, they increased the demand for coins around the world. ”
Are coins better than scriptural money?
Y. M.: according to the European Central Bank, coins will eventually be replaced by a public currency. Using this payment method is free, well-known, and easy to use. Additionally, about 20% of the French population does not feel at ease with digital technology, making it difficult to implement virtual invoices. My mind goes to the elderly, but also to the economically vulnerable, such as migrants and the homeless, for whom coins are the most convenient means of obtaining necessities like food and clothing. When a power outage, cyberattacks, or other threats to the virtual payment infrastructure occur, coins can be used to continue their existence. This possibility may seem far-fetched in France, but it has come to pass in Porto Rico, where a hurricane in 2017 knocked out ATMs and charge terminals.
Additionally, coins protect private information. M. S.: That’s right. Paying cash doesn’t have a history that can be traced. Coins are also criticised for promoting illegal sports because of this argument. This is by no means the most effective method of charging that could be exploited for fraud, however
“Cash is also a resilient form of price: you can keep using it in the event of a power failure or a cyberattack.”
Exactly, the idea that money is a synonym for illegality is well established in the psyche. Are we still able to defend the French currency in the face of this?
“It’s not smooth.” Y. M. French businesses are required to accept cash, but we are also the first country to limit the number of coins that can be withdrawn from ATMs. Until recently, coins could not be sold for more than 1,000 euros. It all stems from the belief that money illegally received must be transferred by cash as if it couldn’t be transferred electronically! After being included in CAP22 in 2017, where it was requested by the Minister of Finance, the idea of cash restrictions was dropped. The term “cash fanatics” has been coined in some countries, such as Germany and Austria.
There’s a common belief in France that money is the medium of choice for illegal activities, but look at what’s going on with bank accounts! By enforcing tighter regulations on cryptocurrencies in winter 2020, Bruno Le Maire [French Minister of Economy] hoped to limit money laundering. The Panama Papers, for example, no longer monitored any illegal transfers of cash; instead, it became a database of all approximate cash transfers between individuals and banks. Coins are no longer used by the general public as a form of currency for illicit transactions.
You alluded to Friedrich Hayek’s theory of personal foreign money in your previous remarks.
M. S.: this is the most pressing question regarding the future of cash and digital cash. We’ve all heard a lot about cryptocurrencies like bitcoin in the last few years. In our view, which is shared by major banks and governments, those don’t count as money in the above definition. As a result, the term “crypto-asset” is one we like. Using Bitcoin as an example, it’s possible that it’s extremely risky and doesn’t provide the same level of value stability as more traditional currencies.
Stablecoins like Libra [now renamed Diem] may be interesting to keep an eye on via Facebook, however. To serve the three billion Facebook users, the organisation aims to create an international foreign currency that is truly one-of-a-kind. This could pose a serious threat to the financial stability of relevant banks, whose job is to control the money supply and manipulate it. They advocated on behalf of governments for cryptocurrency regulation and warned Facebook that to create money, one must first become a bank.
Therefore, would major financial institutions be motivated to develop their cryptocurrency?
These virtual currencies can even combine all the benefits of cash, which isn’t a good thing. Twelve months ago, the Banque de France successfully conducted its first experiments, which it is currently pursuing. The “virtual yuan” was implemented by China’s central bank. It is expected that the ECB will vote on this digital euro problem undertaking this summer, after conducting numerous exploratory works.
For major banks, whose role is to control the available money supply and monitor monetary balance, “the introduction of solid cash through private businesses would be an actual risk.”
One final question for the CEO of the Monnaie de Paris: can you let us know where we stand about the mission of a five-euro coin?
As far as I know, there isn’t a mission. For years, The Monnaie de Paris has been debating whether or not the 5 euro note, the lowest denomination, should be favoured over its larger counterparts. This coin will continue to be produced if and when the European primary financial institution and the ECU Council decide to stop producing it altogether. Some of the 7,000 tonnes of metal we buy every year at the markets to make cash, medals, and decorations, we also deal with collector coins of 5, 10, 20, and one hundred euros in Paris’s Monnaie de Paris. We’ve gone up to 5,000 euros with kilo-weight gold coins… I guarantee you that they are far more reliable as a means of payment than bitcoin!