“Contrary to what many people think, there are costs
associated with cash. From direct costs, like production and transportation of
bills and coins, to indirect costs such as corruption, social insecurity,
financial exclusion, timely state aid payments and tax collection
complications. These are all absorbed by the Jamaicans”
MasterCard
senior vice-president and general manager for the Caribbean, Gabriel Zuliani
commenting on the Dr Friedrich Schneider entitled Evaluating the Social Cost of
Cash
Jamaica needs to grow its usage of electronic
payments.
So says Dr Friedrich Schneider in a study entitled
Evaluating the Social Cost of Cash on the type of transactions in several
countries including Jamaica as reported in the article “Cash
Is Costly, Says Study By Card Company”, published Wednesday June 1, 2016 by
Steven Jackson, The Jamaica Gleaner.
The Mastercard commissioned study was carried out by
Dr Friedrich Schneider, Professor of Economics at the Johannes Kepler
University of Linz in Austria. The study was conducted in several countries
around the world including:
1. Jamaica
2. Trinidad
and Tobago
3. Dominican
Republic
The study came to the following conclusions:
1. 9
in 10 transactions in Jamaica is done via cash or cheques
2. 1
in 10 transactions in Jamaica is done via electronic transactions
Electronic Transactions mainly refer to:
1. Debit
Cards
2. Credit
Cards
3. Wire
Transfers
So how does Jamaica's use of cash affect economic
growth?
Electronic
Cash transactions and Jamaica - Tapping into the informal economy of the
Unbanked
According to the study, if these countries reduced
cash transactions by 30% per cent over four (4) years:
1. 0.7%
per annum additional growth in Jamaica
2. 1.1%
per annum additional growth in Dominican Republic
3. 3.6%
per annum additional growth in Trinidad and Tobago
It was the connection to growth in these countries
that caught my eye. According to the Evaluating the Social Cost of Cash, the
cost of cash suggest that:
1. 30%
of the overall economy is informal i.e. untaxed cash transactions
2. 70%
of the overall economy is formal i.e. electronic transactions that pass through
a bank
These users of cash, many of whom are unbanked, are
potential future customers of Jamaicans banks, to quote Gabriel Zuliani: “The
use of cash in Jamaica is super big. So opportunities include credit, debit,
prepaid and remittances”.
Clearly with 90% of transaction still done using
cash, this represents a huge growth potential for banks and other financial
institutions for the introduction of Mobile money as argued in my Geezam blog article entitled “How Quisk Mobile
Wallet impressed at inaugural NCB Digital Tech Symposium”, especially as
these people may represent the unbanked in Jamaica.
According to research done by University of the West
Indies as mentioned in the article “BOJ
Developing Agent Banking System To Reach The Unbanked”, published Friday
October 11, 2013 by Avia Collinder, Business Reporter, The Jamaica Gleaner.
The UWI Research into the Unbanked was conducted by
Associate professor, Department of Economics at Texas Christian University Dr
Dawn Elliott and a team of statisticians from UWI as mentioned in the article “Jamaica
Counting On its Unbanked”, published Friday, September 30, 2011, the Jamaica Observer.
The figures are as follows:
1. 34%
of persons above 18 years old in Jamaica do not own Bank accounts i.e.
Unbanked
2. 66%
of persons above 18 years old in Jamaica own Bank accounts i.e. Banked
3. 12%
of Banked have transactional accounts that they use to conduct business i.e.
Highly Banked
4. 80%
of persons above 18 years old in Jamaica have limited access to a low-cost,
efficient and easily accessible payment channels
This study is so important, it was cited twice by
State Minister in the Ministry of Science, Technology, Energy and Mining Julian
Robinson in a Tuesday
May 28th, 2013 Sectoral Debate and later in a Wednesday
June 11th, 2014 Sectoral
Debate.
So are electronic transactions cheaper than cash
transactions?
Cash
vs Electronic transactions - Cashless society in Jamaica by the year 2020
Part of the problem is the perception that cash is
free when compared to electronic transactions.
It's generally perceived that there is an added cost
to businesses to set up POS (Point of Sale) terminals and bank accounts to
handle electronic transactions. However, using cash incurs the following costs:
1. Production
of cash
2. Distribution
of cash
3. Collection
of Cash
4. Security
and counterfeit prevention
According to MasterCard senior vice-president and
general manager for the Caribbean, Gabriel Zuliani, this unseen cost of using
cash affect the society, which are borne by Jamaicans, quote: “There is the perception that cash doesn't
bear any cost. But there is a huge cost for the society. Often times, the
consumer doesn't see that cost [of cash] and doesn't carry that cost, but the
society feels it”.
The shift towards electronic transactions such as
Mobile Money as described in my blog article
entitled “How
NCB Mobile Money by AIS and Quisk heralds Mobile phone ATM Withdrawals by
December 2016”, possibly via legislation for the Government of Jamaica and
banks, would benefit Jamaicans. This as by making every transaction electronic,
it would not only eliminate the production, distribution and collection costs
of cash but also:
1. Reduce
corruption
2. Make
it easier to trace cash transactions
3. Make
money laundering difficult
4. Uncover
hidden incomes within the society
5. Increased
compliance with the IRS and FATCA
Legislation therefore need to be enacted to
eliminate cash transactions, with the Government of Jamaica leading the way by
making all transactions electronic, possibly even introducing bitcoins as
explained in my blog
article entitled “Microsoft
accepts Bitcoins for Purchases - Napster of Cryptocurrency set to explode in
Jamaica in 2015 Year of the Sheep”.
This could pave the way for a Cashless society in
Jamaica by the year 2020
So how can a switch to a Cashless society benefit
Jamaica?
The
Jamaican Cashless Society - How Universal Consumption Taxation eliminates the
Hidden Economy
Electronic transactions could potentially make
Jamaica a cashless society. This could be possible by passing legislation
making cash accepting or doing cash transactions illegal.
This would eliminate the informal economy and grow
the formal economy, to quote Gabriel Zuliani: “A greater financial inclusion
and greater use of storage of electronic values and electronic payments are key
drivers of economic development and the reduction of indirect costs, such as
the informal economy”.
It could potentially open the way to introducing GCT
and Income Tax to every Jamaican once they receive remittances, or do
transactions via their Credit and Debit Card. This as if transactions are
electronic, they can make every transaction traceable; GCT and Income tax would
be easier to collect, costing less n terms of paperwork, as it would only be a
matter of checking the banks.
Jamaica,
Taxation and Electronic transactions – How Education, Housing, Transportation
and Healthcare can be free by 2020
Electronic transactions would eliminate situations
where Companies and wealthy individuals use taxation loopholes to dodge paying
taxes.
It would also help Jamaica to be compliant with the
IRS in terms of catching Americans dodge paying over monies to IRS (Internal
Revenue Service) via FATCA (Foreign Account Tax Compliance Act) and spend it on
vehicles as described in my blog article entitled “How
Increase Motor Vehicle Importation related to Americans dodging FATCA”.
This increased collection of taxation can not only
eliminate the need for income tax but the level of taxation generated could
potentially be used to do the following:
1. Free
Education up to University level
2. Free
Housing
3. Free
Transportation
4. Free
Healthcare
This is how growth could potentially be achieved.
Using electronic transactions, the GOJ could make taxation universal and harder
to avoid, eliminating the hidden economy and making social amenities free in
Jamaica.
Here's the link:
Evaluating the Social Cost of Cash
Here's the link:
Evaluating the Social Cost of Cash
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