Starting with the barter economy, the tangible component for the processing of transactions between human beings has been the standard for thousands of years. Even when divisible objects were used as expressions of prices (cowrie shells, cattle, salt, metals etc.), the culture of physical experience continued. The introduction of coins without significant metal value, paper money, and cheques started to reduce the tactile element.
The existence of banks that execute orders given in writing, and today mostly digitally, to transfer money from one account to the other resulted in more and more abstraction. In recent years, we have moved towards triggering even everyday small transactions only with signatures or combinations of numbers. Increasingly, we proceed with a short electronic contact between our card or a phone and a reader. Transactions that are only set in motion by the provision of biometric data may soon become prevalent. All this means that evolving electronics will continue to melt the physical ingredients of payments like butter in a hot pan.
Technology accelerates abstraction
Payment transactions require reliability, speed and low transaction costs. The robust legacy systems, which have been built up over decades and are protected by regulatory authorities, are delivering that, but there is still much room for improvement. Numerous interdependencies of old and new systems make it difficult to incorporate something new into well-functioning old systems.
Under these conditions, it is easier for outsiders, who initially operate without dependence on existing systems, to innovate. They begin their work at the doorstep of existing systems, not within them.
Many newcomers from outside the established banking industry were able to focus their development work strictly on practical needs. They have not reinvented the wheel, but have instead come up with many valuable innovations to meet the needs of consumers:
Real-time electronic transfers (national or international), initiated from a mobile phone or by card, are executed instantly. Other services include immediate notifications of completion, analyses of spending behaviour, swift currency exchange, easy securities transactions, balance notifications, budget statements, crystal clear savings plans, and even programmes to introduce children to the use of money. These packages are valuable innovations. The consumer pays very little for them.
The Second Payment Services Directive of 2016 (“PSD2”) acknowledges the value of the new payment services providers’ contribution and paves the way to a more open architecture by giving third party providers access to information which used to be held exclusively by banking institutions.
Traditional financial services providers were initially sceptical of the hype surrounding the new offers, especially from "young people". Now they no longer think these are sandbox games and they give in to the trend. The new entrants have gained the respect of the established top dogs and are entering into partnerships with them, in particular with credit card companies.
The result is that the move away from cash seems irreversible, even in those countries that had a traditional preference for it.
The Covid pandemic has accelerated this tendency because non-physical payment is expected to reduce the risk of infection.
Abstraction impacts behaviour
Through Behavioural Economics, we learn more and more that economic behaviour is not solely controlled by mental accounting. Emotions, cultural standards, ethics, habits and the history of human development play an essential role. It is not necessary to identify the reasons for a particular form of behaviour. It is sufficient to identify and statistically evaluate regularities.
The replacement of physical money in the form of coins and notes by electronic bookings has a significant impact on spending behaviour.
Uncle Scrooge loved to bathe in gold coins, and he was thrifty. A Behavioural Economist would confirm this combination as slightly exaggerated, but in line with human nature. The use of physical money makes people act more sparingly, and the use of abstract money triggers higher spending.
In fairness, we should acknowledge that the transparency provided by the new technologies outlined above will somewhat level the differences between handling cash and abstract money. Nevertheless, we should be aware that physical payment prompts greater prudence/thriftiness.
Culture, public interest, civil rights
There are areas of life where culture demands physical payments:
- A beggar who needs help expects cash.
- The collection of money in a religious context maintains its proper dignity only through coins and banknotes.
- Our children’s piggy banks must take on weight so that the impulse to save can develop. The best way to convince children is and will always be through physical experience.
The protection of the self-determined highly private sphere of life is one of the civil liberties protected by constitutions. We wish to decide for ourselves where Big Brother may look over our shoulder and where not. In some very personal areas of life, we do not want it to be technically possible to track our spending. Cash does not leave a trace.
There are indeed areas of life in which the state authorities need to have insight. However, the conflict that tends to exist between legitimate civil liberties and the state's duty to prevent criminal activity is not the topic of this article.
The state also has an interest in optimising collection procedures in order to capture more taxes. If the tax authorities really can see all money flows and can analyse them in detail in the future with the help of Artificial Intelligence, more money will be channelled into the public coffers. This would bring us close to George Orwell's “Big Brother” regime.
The citizens of states that have never experienced a real dictatorship in their history, such as the Scandinavians, have no fears in this area. Their neighbours further south have good reasons to be more sensitive.
At this point I would like to draw the interim conclusion that the arguments for the complete abolition of physical cash are understandable but not compelling.
All systems, even the best Swiss watches, can stop. The critical question is not whether this will happen, but when.
And if the unlikely happens, is there an immediate replacement system? Or would a very quick repair possible?
Not long ago, all virologists were aware of the great damage a pandemic could cause. Yet the statistical probability was judged by the decision-makers (not the experts) to be so low that it was difficult to allocate resources to deal with the risk.
In modern societies the functioning of almost everything depends on an adequate and uninterrupted supply of electricity. When this is interrupted because of faults at power stations, damage to electric transmission, cascading failure, severe weather or strong solar storms, emergency generators are switched on in some essential areas (e.g. hospitals). There are well thought-out analyses which describe what happens to an affected society.
At this point, we are only interested in payment transactions: if no more electricity flows, we can no longer pay anything. When we go to supermarkets, the cash registers do not work. No single system that deals with money and needs electricity will work. The POS systems will not recognise any card and will not react to those nor to mobile phones whose batteries are still sufficiently charged.
A few people believe that they should prepare for such situations. They collect gold and silver coins to be able to obtain food when the technology fails. These people will most likely not get food because the vendors' systems cannot process Double Eagle or Krugerrand coins. The vendors will also not be able to check whether the coins are genuine.
If a power cut were to last for several days, modern civilisation, which treats electronic payment as the standard, would return to barter in a few days to obtain food. Many people would also revert to uncivilised behaviour when they are hungry and cannot pay.
Marc Elsberg's novel "Blackout" is not only thrilling. It is also based on a careful and realistic analysis of the implications of prolonged blackouts. He comes to the very clear conclusion that we can only get enough to eat if we have enough cash in small denominations with us. Shops will work slowly, but they will sell food for cash. If you don't have cash, you are in dire straits.
In reality, however, there is an increasing number of cases of deliberate interference by experts, which are supposed to last for long periods of time. Smart attackers can anticipate the actions of repairers and make it more difficult for them to get the systems working again.
An effective cyberattack on power grids or power plants with the aim of paralysing societies over long periods of time requires a great deal of technical expertise. Among the crazy and fanatical people of this world there are enough specialists who are capable of carrying out such attacks. Whatever drives them to such actions, they are a reality. And these people have already begun to flex their muscles.
Solar flares and coronal mass ejections (“CMEs”) have brought electricity grids to a standstill in the past. “If they're directed at Earth, such flares and associated CMEs can create long lasting radiation storms that can harm satellites, communications systems, and even ground-based technologies and power grids.”
The implication of a grid standstill, possibly over days, will be a standstill of electronic payments.
Low-tech protection against high-tech risks
If we admit, against our inclination, that our modern networked world is easily vulnerable and can become quite uncomfortable in a short period of time, we should insist on a simple protection and always keep enough cash in small denominations. We should vote with our wallets and oppose all initiatives aimed at abolishing physical money. We should pay in cash as often as possible to keep the physical system alive.
The stumbling block
The issue of immigration is stirring up emotions all over Europe, but in order to consider the appropriate rational response, we need to first distinguish between the different forms of migrations. In fact, only one of the four categories of immigration distinguished below is to be classified as a challenge:
Migration of High-Net-Worth Individuals (HNWI)
Let's start with the probably smallest group of migrants, which is also the least debated: very wealthy people who are able to move from one country to another with ease. Members of this group seldom encounter rejection and in some cases are actively sought after by countries.
HNWI can weigh up their motives and choose their targets according to their criteria. These include, for example,
security for personal life and wealth
quality of life
quality of the healthcare system
landscape or climatic preferences
quality of schools and universities.
Protection of wealth is frequently a major motivation for migration among the super wealthy and countries with low or no income tax are popular in this regard. On the other hand, while certain countries encourage HNWI to migrate to them, the benefits are not always as great as they might expect, especially when the migrant’s assets do not always accompany them to the country they are settling in. Furthermore, with laws that say an individual faces taxation if they spend more than 182 days in a country, those wishing to avoid this, simply rotate through different countries each year thus avoiding paying any income tax at all.
The number of migrants from this group is increasing, and the countries concerned are well known.
This group of migrants does not pose major challenges to European states.
2. Migration within the European Union: everyone with an EU passport
Article 45 of the Treaty on the Functioning of the European Union and Regulation (EU) No 492/2011 on freedom of movement for workers within the Union guarantee the freedom of every EU citizen to take up a job in any other state of the Union and to settle there with their family. This freedom of choice is a cornerstone of the European Union. It has led to significant migratory movements, which, due to the enlargement of the Union into Central Europe, have been accelerating gradually since the 1990s. In most cases, families put down roots in their new place of residence and do not move back to their countries of origin, although they maintain ties there.
The disadvantage of this migration is that citizens whose education took place at the expense of their home states now move to member states with higher wage levels and better career prospects, in effect creating what is known as an internal ‘brain drain’ scenario, where talented workers move out of the country of origin, depleting the national workforce. The receiving states thus strengthen their national economies at almost zero cost to them and at the expense of domestic countries responsible for their education and socialization.
These implications were clear from the outset, but the net benefits from a large economic area with free movement of people, capital and goods outweigh the drawbacks. Free movement has had a predominantly positive impact on the prosperity of citizens. Changing this structure and enacting new restrictions on internal migration would have a negative impact on the powerful new industrial structures that have emerged over the years.
Traditionalists should be very careful when they argue against free migration within the Union as there is a long-standing practice of it within the continent. The last two centuries have seen massive migrations within the area that now makes up the European Union: the countries of origin were mainly Italy, Poland and Greece. These movements are themselves a valuable component of European identity and increased wealth.
3. Migration from outside the European Union: skilled labour
While the world population is still increasing, a simultaneous decline in birth rates has been evident worldwide for many years. The trend is more pronounced in Europe, where population numbers are increasingly moving towards shrinkage.
Clearly it is not possible to fill the gaps in the labour market out of the continent's existing population. This would not change even if Europeans could be persuaded to sharply increase the current birth rate. In that unlikely case it would take at least two decades for a generation to become visible in the labour market.
Many industrial processes and services can be designed through additional automation in such a way that even fewer human resources are needed than now. This may mitigate the bottleneck somewhat, but would not eliminate it.
If there is no quick turnaround, Europe’s economies will inevitably enter a shrinking process.
The only possible countermeasure is to enter the global competition and attract talent for the known gaps in the labour market. This has been crystal clear for a long time, but fear of traditionalist and conservative voters’ sensitivities has led to most governments to only address the issue in the abstract and try to cook the necessary debates on a low flame. Slogans like "We are not a country of immigration" earn significantly more public applause in Europe than "We urgently need lots of immigrants". Yet everyone knows from their own experience that when a tooth hurts, it is better to go straight to the dentist. Postponing the treatment makes the pain worse.
The fight for human talents is not much different from the struggle for other scarce resources such as raw materials or technical components. The difference is that the competition for material things is rarely a source of cultural friction. Imported goods and commodities don’t arouse sensitivities among traditionalist voters. When it comes to human migration however, public decision makers tend to tread more cautiously and thus do not give the issue the visibility which corresponds to its actual relevance.
The Europeans are now operating a "Blue Card" system, which allows people from outside the Union to take jobs offered to them and apply for nationality after five years. This is a relatively arduous path for applicants. The “Blue Card” approach is less attractive than the more successful American "Green Card" system in which holders are granted permanent residency from the outset, and after five years they can apply for US citizenship.
Under the present circumstances the winners in the competition for talent are likely to be those countries that have a tradition of continuous immigration, have a long history of selective immigration and have the lowest bureaucratic barriers for immigrants who fit into their labour markets. These would be, for example, Canada, the USA and Australia.
4. Migration from outside the European Union: refugees, skilled or unskilled
The right to be granted asylum is not only enshrined in national constitutions and laws, it is also based on:
The right to asylum protects people irrespective of their origin who are exposed to political, racial or religious persecution in their home country. These rules, born out of painful historical experiences that includes the societies of Europe itself, are more than set in stone. All European national states are firmly bound by them. Debates about their abolition are as pointless as those about the abolition of gravity. Yet they are common.
The legal criteria do not extend to refugees who seek to migrate to another country for economic or climatic reasons and who are therefore unlikely to be regarded as refugees from a legal perspective. In order not to be classified unfavourably, refugees may exaggerate or embellish stories of persecution in their country of origin. It is difficult for the authorities of the receiving countries to properly verify the truth of such statements.
The examination procedures are complicated and take a long time. Even if an application is rejected, expulsion to the country of origin tends to be the exception. Suffice it to say that the length of procedures creates new social realities as applicants more or less take root, children are born and are shaped by the national school system.
Growing influx of refugees
The number of refugees is considerable and on average it has been increasing strongly over the years. According to Eurostat's findings, the number of asylum seekers in the Union in 2022 was 881,220 persons, up by 64% compared with 2021. Once individuals have been recognised as eligible for asylum, a second wave of immigration begins when family members are allowed to join them.
Some member states of the Union pursue a restrictive policy by enforcing the legal requirements very strictly or selectively, or even by infringing them. This leads to greater refugee flows to those countries that comply more closely with the rules.
As the authorities of the countries with the highest numbers of refugees become increasingly overloaded with examination procedures, processing times are getting longer. The accommodation of asylum seekers in camps is pushing municipal administrations to the limits of their capacity.
Xenophobic currents in the public debate are gaining support. Surprisingly, part of the growing opposition consists of former refugees and their descendants born or raised in the country who have obtained citizenship and successfully achieved social status in their new homeland.
When frightened or even traumatised people from a different cultural background enter a European country for the first time, their first impressions have a powerful influence on how they think and feel. In the case of many refugees, their first experiences are often crowded refugee camps, questioning, long waiting times, further questioning, etc. Bureaucracy weighs them down, and there is no end in sight.
While they are in limbo for a long time, the idea that dealing with bureaucracy is the way to a better life is imprinted in the immigrants' minds. This puts people on the wrong mental tracks and impairs their chances to settle in an industrial society. While they may become adept at filling out forms, they are missing essential cultural impulses and opportunities to learn and improve on valuable skillsets for an industrial economy.
The material interests of the immigration countries
If the member states want to maintain their prosperity, a proper discussion on immigration would mean that all four categories need to be considered.
The first two categories (HNWIs and citizens of other EU countries) do not pose major problems.
The third category ("Blue Card programme") is presently far too small. So a more thorough approach is needed.
This thorough approach could involve giving priority to pre-skilled immigrants from outside the European Union. Labour offices and companies know exactly which human resources are needed. This can be done with low bureaucratic barriers, high-quality language courses to introduce immigrants to the national mentality, help in finding accommodation and schools for children, advice on access to banks and tax advisors, and perhaps even tax holidays for a few years. The threshold before obtaining citizenship should be low for people who prove to be valuable contributors. Employers can be involved in the process of accelerating integration as they themselves have a legitimate interest of their own and will be supportive.
The approach to dealing with the fourth category (asylum seekers) can be to abandon the illusory goal of carefully assessing at the outset whether an asylum seeker has a legal right to stay. Any person whose identity has been verified, who has not already applied for asylum in another member state of the Union and against whom there are no security concerns, should immediately be offered a language course and a first job determined by the labour authorities. This is inconvenient for the applicants, but it provides them with a primary orientation and momentum. It is also more beneficial to their human dignity than the endless dependency on bureaucratic processes. If they prove themselves within a year, for example, they should be given a residence permit and the right to choose a job. This would also give a chance to people who would not be entitled to asylum but who fit into the labour market.
Formal procedures for asylum applications would be resumed only for applicants who cannot be integrated into the country's labour market. Applicants who do not meet the criteria for asylum should be included. Delinquent applicants should be excluded.
For the labour market, the reason for entering the country is not relevant. What counts is a committed and reliable workforce. So the primary responsibility here should lie with labour ministries and administration, while the overburdened immigration authorities are given some air to breathe.
War-disabled, traumatised and seriously ill people should continue to be given special protection and attention. Unfortunately, their number is not small.
Canada, a country with not quite 39 million inhabitants, is an example of a country that derives and updates its demographic needs very accurately from the labour market. There are numerous national and regional programmes that make it easy for needed immigrants to quickly gain a foothold in the country. And the country additionally uses the pool of asylum seekers to enrich the labour market.
“ . . . the Government of Canada is maintaining its target of 485,000 permanent residents for 2024 and completing the final step to reach 500,000 in 2025. Starting in 2026, the government will stabilize permanent resident levels at 500,000, allowing time for successful integration, while continuing to augment Canada’s labour market.”
The demographic gap in European countries is a well-documented fact. The EU's population is ageing and shrinking, and there are not enough people to replace the working population.
This demographic contraction will lead to a decline in economic performance and prosperity. The only way to avoid this is through well-managed immigration.
Traditionalists and xenophobes are against immigration, but they have no realistic solutions to the demographic gap. If we give in to them, we will condemn our economies to decline.
To develop a successful immigration programme, we should look to countries with a long history of immigration . These countries have shown that it is possible to manage immigration in a way that benefits both the host country and the immigrants.