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Section 6. Finance, money circulation and credit
Nikoleishvili Davit, PhD, Candidate of Economics Akaki Tsereteli State University, Georgia E-mail: [email protected]
ELECTRONIC MONEY, AS ECONOMIC GROWTH FACTOR
Abstract: The increase of electronic payments contributes to the country's economic activity and also provides the reducing of shadow economy. It is generally recognized that switching from cash to electronic payment methods facilitates economic growth.
Keywords: Electronic money, dematerialization, legal means of payment, shadow economy, economic growth, public safety.
The main basis of economic life, as mains of exchange, value measurement and accumulation is money, without it the economy and society's existence is impossible.
Today there are two basic forms of money: fiat money, which consists of coins and bank-notes and scriptural money placed on bank accounts. The fiat money does not have a real value, its value is expressed in the consumer's trust towards the issuer.
The goal of the presented research is dematerial-ization of fiat money, computerization issue of currency issue and transfer. It does not mean creating or transferring bank accounts, but using digital money, issued by the Central Bank, as a legal means ofpayment.
In order to make digital money a suitable alternative for the physical money, it must meet consumer confidence, as it happens in case of paper money. Besides, it must have the similar properties. Therefore, it must be properly protected. In order to promote widespread consumption, digital money should be flexible and universally accepted, it should be easy to use, effective and reliable as well. This goal should be achieved step by step, in the long- term period. First of all, it must be developed and increased the current electronic payment systems (card payments, inter-
net banking, mobile banking) and the share of cash should be gradually reduced in circulation, to the total money gross, only then we can think of digital money, as create a monetary unit.
There are studies that indicate the importance of electronic payments in the economy. In particular, the studies confirm that the increase of electronic payments contributes to the country's economic activity and also provides reducing the shadow economy. It is generally recognized that switching from cash to electronic payment methods facilitates economic growth.
It is interesting to know what attitudes are toward this issue in foreign countries.
Nowadays, cash - banknotes and coins are only 3% of Swedish total money gross. The Swedish Bankers Association noted that the pressure on the cash-based economy has also reduced the crime.
In Sweden, significant shifts are seen in the direction of nullification. Many bars do not get cash; Tickets are sold by means of a text message or non-contact technical software; The growing number of business receives only the card payments; 530 branches out of 780 branches of the three big banks do not run operations with cash. In the 4th
largest city of the country - Uppsala, the trade objects are taught how to avoid using cash, this is a part of the general program - how to nullify of cash in the city. Reducing the use of cash is noticeable in those places like public transport, where it is almost impossible to buy a ticket with cash, even some churches get donations electronically. This country was the first in Europe, that introduced the concept of banknote in the market in 1661.
Unlike Sweden's 3% showing, the share of cash in Georgia's economy is more than 40%, however it is characterized by a downward trend.
In 2010, in Poland, it was planned the doubling of Poland card receiving devices by the initiative of the Visa-Poland Executive Committee. This project was financed by Visa-Poland members and was focused on the expansion of Visa and card receiving network of the other systems in medium-sized retail service/trade objects in small towns and villages. After the implementation of this program (since 2010 to 2013), the shadow economy in Poland has decreased from 26% to 23.8%.
In Colombia and Argentina, tax exemption was established on retail purchases made by the cards. In particular, VAT decreased for the goods sold by card to 5 percentage points (by 21%) in Argentina (since 2002), and to 2 percentage points in Colombia (by 16%, since 2004).
In Italy, Bulgaria, Denmark, France, Greece, Romania, Slovakia and Spain is set up limit on allowable operation with cash. It is significantly distinguished by countries and ranges between 1000 Euros to 15,000 Euros per operation.
According to the Brazilian Central Bank research, the total annual expenditure paid by all types of payment instruments, is about 3% of the country's GDP. The total migration from paper payment instruments to electronic payment instruments will lead to savings 1% of GDP.
According to South East Asian countries estimation, cash management costs approximately amount from 0.29% to 2.23% of GDP.
The Netherlands Central Bank (DNB) research has shown that electronic payments are less costly way than use cash for payments and replacement of cash for the period: 1990-2004 with paying cards reduced the total expenditure of retail payments to 6%.
Moody's Analytics has studied the four-year data (from 2011 to 2015) of the 70 countries (their total GDP is 95% of the world GDP). It was found that extensive use of electronic payments resulted in additional $ 296 billion in GDP, that is $ 74 billion in GDP per year; Use of cards grew consumption at an average of 2.3% in these periods, that means that in the years 2011-2015 the average employment increased by 2.6 million. It also noted, that the use of cards makes a great contribution to GDP of the developing countries; In particular, an additional 0.8%, while in the developed countries this index is 0.3%.
The research by Professor Friedrich Schneider (Friedrich Schneider, PhD, University of Linz, Austria) has found that electronic payments annual growth by 10% during at least four years in a row, can
cause reduction of the shadow economy index by 5%. As a result of reviewing the measures taken by countries for reducing the shadow transactions, significant results have been found both in developing and developed countries, following the steps taken to encourage electronic payments. These «steps» are known as "Cash Replacement" measures that include:
1) Demotivation of cash use - free access to cash, in particular, cash withdrawal through ATMs (without bank commission), slows down the switchover process to electronic payments. No ATM commission causes the uninterrupted cash withdrawal through ATM, and therefore, cash payments in trade/service centers.
2) Extending the card receiving devices network (POS terminals' network) - free access to payment infrastructure is of great importance in the implementation of electronic payments. The World Bank, on the basis of a survey, names the lack of POS-terminals as one of the reasons for the lack of electronic payments. Projects are created in the
countries, their aim is to extend the network of card receiving devices and it is mainly aimed at equipping small and medium-sized retail facilities with these devices (on Poland's example).
3) Encouraging POS payments - stimulating the use of cards by the user is a simple way to change their habits. According to the practice in the world, different types of drawing/organizing lottery are the ways of stimulating user, it is also known South Korea's example, where the tax authority returned the customer a certain amount of money from the payments made by the card.
Encouraging the trade objects and providers (banks) which provide the extension of POS terminals' network, are mainly implemented by tax privileges. It is assumed, that setting up a commission for consumers on payments through POS terminals, by the trading objects will affect the user's choice in favor of cash, therefore it is a risk for those countries, where card payment transactions are less implemented. In most European countries, when introducing the payment service directive, it has been prohibited to set up commission for the consumers paid by cards.
4) Increase of electronic payments - the state plays an important role in the process of implementing electronic payments, as the largest initiator and payments' receiver. Its switchover to electronic payments will significantly increase the share of electronic payments in the country.
In Georgia, important steps have been taken by the state in this regard. In particular, the basic payments (salaries of public employees, pensions, and other) and also incomes (taxes, etc.) are carried out as electronic payments, and, it is undisputed, that it significantly affected on the e-payments statistic in the country. In Romania, a national system was created, that provides tax payments through POS-terminals and by means ofonline payments by cards, that led to 34% annual growth in tax payments by cards.
In Europe it is widely used to set limits on cash transactions. The limits vary by countries; However,
there is a tendency of reducing of the established upper threshold.
5) Encouraging cash deposit - in some countries (Brazil, Israel), the commission set on deposit to an account, free deposit, deposit through ATMs and attractive interest rate facilitate cash flow into banks. In this regard it should be noted, that the Georgian market is not characterized by the practice of commissioning on cash deposits by consumers.
In order to identify the growth promoting causes of electronic (non-cash) payments in Georgia, it is necessary to conduct fundamental research. However, there is no doubt that the consumer awareness raising in this direction and the events planned to encourage them to the use of electronic instruments, accelerate the growth rate of non-cash payments in the country, as it happened in other countries.
Following the introduction of the above mentioned trends and sharing the experience of different countries, when our society gives preference to the electronic payment means and minimizes the use of cash, it would be appropriate to remove the defunct coins and banknotes from use and switchover only to the digital money, issued by the National Bank, as the only way of legal payment inside the country. This event will lead to a number of positive changes in the country's economy and public safety.
Electronic money with its full opportunity, will enable us to fight effectively against legalization of illegal income, financing terrorism and other nongovernmental actions, different types of fiscal and social fraud, that finally will be reflected in the considerable growth of the state budget, as well as in the reduction of criminal actions.
Also, since there will be no printing costs and cash issue costs will be significantly reduced, dema-terialized, the overhead expenditures on fiat money will have less impact on the income received from seigniorage, than in case of issue paper banknotes. Consequently, the government can get more benefits.
Dematerialized money will be a guarantee of comfort and security for the population, because
the payment will be simple, especially for those who are not able to use banking services in territorial or other terms. The owner will not be afraid of losing, and no one will have desire to seize somebody's money through various criminal ways. The main advantage of dematerialized digital money is payment traceability. Technically to achieve this level, first of all the digital money system should be equipped with modern functions and strictly protected from cyber attacks.
Over the last ten years the number of mobile payment systems have been developed. None of them have the legal means of payment in the form ofdigital money, issued by the Central Bank. None of these systems can turn printed banknotes into digital money, or vice versa. The main thing is to ensure a reliable, secure operation standards for an unified system of payment, based on supervisory and regulatory framework. It is particularly interesting and relevant for the countries, including Georgia where the number of population without bank accounts is large.
References:
1. Kearney A. T. Inc, Friedrich Schneider - 2010. The Shadow Economy in Europe.
2. Kearney A. T. Inc, Friedrich Schneider - 2013. The Shadow Economy in Europe.
3. Kokkola Tom. The Payment System, ECB publication. - 2010.
4. Moody's Analytics "The Impact of Electronic Payments on Economic Growth" - 2016.
5. Schneider Friedrich, Buehn Andreas, Montenegro Claudio E. - 2010. Shadow Economies Allover the World.
6. Summers, Natarajan, Baijal - 2012.
7. National Bank of Georgia, Scientific-Analytical Journal "Economics and Banking", - Volume 2. - No. 3. -2014.
8. National Bank of Georgia, Annual Report, - 2016.
9. National Statistics Office of Georgia, Monetary statistics.
