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Should the state maintain control or accept a privatisation of payment infrastructure?

@Redaktionen

Cash is disappearing, and private players stand at the ready with digital alternatives. Should the state maintain control or accept a privatisation of payment infrastructure? In Sweden, the introduction of governmental e-currency is being considered. In Denmark, the National Bank rejects the notion that a problem even exists. Tune Revsgaard Nielsen raises the alarm.

Written by Tune Revsgaard Nielsen, Board member at non-profit organisation Gode Penge inspired by Positive Money.

The Nordic countries are frontrunners when it comes to using digital services for making payments. In Denmark and Sweden, cash is on the retreat – and fast. Here in Denmark, the proportion of payments made with cash has fallen from around 55% in 2000 to 20% in 2016. The movement towards a cashless society has been aided by high fees on banks’ handling of cash and the banks’ lobby organisation Finance Denmark’s political efforts. Most recently, the policy has changed to allow shops to refuse cash after hours, while – under the guise of targeting tax evasion – it has been advocated that the 1000 kroner note be repealed.

But why is the matter of whether we use cash or Dankort, not insignificant? Surely, it’s only an advantage that services like Mobilepay are gaining ground and making it easier for us to make payments and transfers? The answer turns out to be more complicated than it would seem at first glance.

On the surface, the development seems to be organic. A natural consequence of the rise of digitalisation. When it comes to our ability to carry out transactions, however, there is considerable cause for vigilance – we have set the course for a total privatisation of our payment infrastructure if things continue on the current path. An infrastructure which, in every way, can be considered just as important and essential as our electricity and road networks.

The issuance of cash is a privilege granted by the government, carried out by Denmark’s National Bank. The issuance of the digital money we use to carry out transactions amongst ourselves via Dankort and Mobilepay, however, is credit. In other words, digital debts which can be converted to cash if desired and which can only circulate on the banks’ own, private digital infrastructure.

If this development continues, and the banks’ lobby gets absolute power, the National Bank’s cash will become a symbolic relic, without any real influence on the distribution of the economy’s power structure. The price of paying with Dankort by Nets, or Mobilepay by banks, will be able to rise in tandem with the march of cash into an early grave. Payment infrastructure will develop into a private monopoly, and the provider will take payment accordingly. Not to mention the processing of our payment data.

A public alternative

A year ago, the cashless movement prompted the Swedish Riksbank to raise the alarm. The Riksbank’s vice president, Cecilia Skingsley, proclaimed that the Swedish Central Bank would delegate a unit to look at the possibility of making so-called digital cash or e-kroner available to Swedish households and companies, to compensate for the declining use of notes and coins.

In a year, the Riksbank will announce whether it wishes to continue with the project, and open the doors for ordinary people to keep payment accounts in the Swedish central bank, as well as utilise its digital infrastructure for payments instead of the banks’.

Cecilia Skingsley and the Riksbank’s rationale is clear: If we get a privatized money infrastructure, the banks will have control over the system and nothing will prevent them from raising fees as they see fit. There will be a risk of private monopolies, and society cannot let that happen. As in Denmark, the payment infrastructure in Sweden is concentrated only on a few private players, and this is seen by the Riksbank as something that can both make society vulnerable and hinder competition.

Denmark’s National Bank stands by

Considerations such as those put forth by the Riksbank, have not at all been taken into account at the Danish central bank. After a long period of dragging their feet, the National Bank announced a blanket rejection of the idea of making its digital infrastructure available for the average Danish household and company. Director Per Callesen at a conference at CBS and Director Hugo Frey Jensen at an event in London. In almost perfectly rehearsed synchronicity, the National Bank’s directors proclaimed that Danish e-kroner would be a solution to a non-existent problem. The payment system works fine. Rather be a bank for banks than a bank for the people.

This rejection came about without any preceding public debate. The decision to say nay to a Swedish initiative here in Denmark was instead denounced by a group of technocrats in an institution, which apparently sees itself as being above the country’s democracy.

With the National Bank’s single-handed decision, it contributes not only to undermine the government’s infrastructural power, but it also compromises fundamental liberal economic principles. Even a liberal night watchman state has to, as a minimum, be able to manage essential infrastructure, as it could otherwise develop into a private monopoly, which risks making the market obsolete.

It doesn’t take much of an imagination to consider what might happen if the Danish road network were to be privatised. Very quickly, a barrier system would be established, and the price of transport on the roads would be set at a level far superseding the costs of running the network. The same will be the case with a privatised payment channel without cash as a real alternative, and the capitalist’s imagination can run wild with the scope for earning on payment infrastructure.

Politicisation of the National Bank’s mandate

The digitalisation of our society has come to stay, but the developments in the payment arena is a clear example of some of the dangers lurking if the state doesn’t think twice about implementing the novel solutions of the future.

There are good arguments for getting rid of cash in terms of large notes, both in terms of tax and monetary policy, whilst one should at any given time maintain the lower denominations – but the circumstances must be in order. If one wants the role of cash in our economy to be minimised, then the National Bank should make a public, digital equivalent available to the public.

No matter how big a state one might want, politicians should never just stand by as private players exploit this development to create private monopolies. At the end of the day, the consequence will be the undermining of democracy, for the benefit of bloated private profits. The government should instead secure its infrastructural relevance, through due diligence and futureproofed digital solutions.

The country’s infrastructure is at risk, and leadership at the National Bank isn’t giving politicians a choice. Its technocracy needs reining in, and its mandate needs politicising.

There are all kinds of reasons to follow Sweden’s lead.

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