tag:blogger.com,1999:blog-6704573462403312459.post2964163801021741461..comments2024-03-28T06:53:23.473-04:00Comments on Moneyness: How the pandemic has clogged the global economy with paper currencyJP Koninghttp://www.blogger.com/profile/02559687323828006535noreply@blogger.comBlogger21125tag:blogger.com,1999:blog-6704573462403312459.post-32054022257268020822021-05-21T14:13:24.441-04:002021-05-21T14:13:24.441-04:00Good question. It's a possibility I've con...Good question. It's a possibility I've considered. Unfortunately I have no way to prove it. In general, I suspect that as cash payments becomes less common, criminals will be forced to develop substitute laundering routes, of which cryptocurrencies will be key.JP Koninghttps://www.blogger.com/profile/02559687323828006535noreply@blogger.comtag:blogger.com,1999:blog-6704573462403312459.post-46823440764364280642021-05-21T02:21:10.727-04:002021-05-21T02:21:10.727-04:00I like your argument. I wonder if the lack of acce...I like your argument. I wonder if the lack of access to the normal money laundering outlets might also have contributed to the strength of cryptocurrencies through the pandemic? Adrian Schmidtnoreply@blogger.comtag:blogger.com,1999:blog-6704573462403312459.post-68154027120814377882021-05-21T01:46:43.830-04:002021-05-21T01:46:43.830-04:00This increase in banknotes did not happen in Swede...This increase in banknotes did not happen in Sweden, see https://www.riksbank.se/en-gb/statistics/statistics-on-payments-banknotes-and-coins/notes-and-coins/. Bank notes in circualtion peaked in 2009, then declined by 50% until 2017, and has been increasing very slowly since then. <br /><br />THe kind of person-to-person payments you mention, in Sweden they are done using Swish (like Venmo, except the money goes bank account to bank account).<br /><br />Swish launched in 2012, so it is not solely responsible for the decline, but it might explain why the increase in bank notes did not happen here. Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-6704573462403312459.post-86160816343031004872020-10-13T05:46:48.682-04:002020-10-13T05:46:48.682-04:00Hi anon,
Thanks for chiming in.
"...but I ...Hi anon,<br /><br />Thanks for chiming in. <br /><br />"...but I have to take issue with your stereotyping of drug dealers."<br /><br />Fair enough. Unfortunately my only anecdotes come from shows like the Sopranos, The Wire, Breaking Bad, and a few others. I enjoyed your comment. It provides a lot of useful details that I didn't know about. It sure would be interesting to hear some anecdotes about how you laundered your funds. <br />JP Koninghttps://www.blogger.com/profile/02559687323828006535noreply@blogger.comtag:blogger.com,1999:blog-6704573462403312459.post-44736334975938101542020-10-11T14:32:59.664-04:002020-10-11T14:32:59.664-04:00Your theory of a money-laundering bottleneck as a ...Your theory of a money-laundering bottleneck as a major factor seems plausible enough to me, but I have to take issue with your stereotyping of drug dealers.<br /><br />I was a major player in the Montreal marijuana market in the late 90s and early Oughts, with revenues in the low millions/year. The culture in the industry and the character of the players in it were very different from what's portrayed in the mainstream media and fiction.<br /><br />Some of the factors that determined this culture were the following:<br /><br />1) The severity of legal penalties * the probability of getting caught. <br /><br />Sub-markets with higher penalties and more eager enforcement by authorities attracted individuals with higher risk tolerances and weaker morals. As penalties tend to be roughly proportional to the potential harm done by the drug in question, harder drugs like crack and heroin were sold by comparatively more callous individuals with higher time preference/lower understanding of the reality of the future and the costs of violence. But softer substances like marijuana attracted little attention from law enforcement and did no harm to customers. Participants in these markets were generally upstanding people.<br /><br />2) The social cost of the profession. <br /><br />Then, as now, there was a serious social stigma associated with selling drugs that could kill customers, or ruin their lives. Marijuana had become generally understood to be benign, and sellers/growers suffered no loss of social status for their involvement; it was a more or less respectable profession. <br /><br />3) The ease of production.<br /><br />I've never yet heard of anyone in Quebec cultivating opium poppies or coca plants, but everyone and his uncle had marijuana grow ops even then. Many of my suppliers were retired Boomer couples with a side hustle to supplement their pensions.<br /><br />4) The absence of third-party dispute adjudication.<br /><br />With no courts or arbitrators to decide on conflicts, or breaches of contract, reputation was of paramount importance. Loose communication networks ensured that anyone who tried to pull a fast one soon found no one returning their calls. Cash on the barrelhead was the rule, and the use of credit was minimized. These factors continuously weeded out the irresponsible, shady and undercapitalized players. Over time, the industry became dominated by people who well understood the "discipline of continued dealings."<br /><br />All of these factors, together with the larger size of the pot market, increased the pool of high-quality competitors, and competition is the health of any market. It led not only to drastic reductions in the use of violence (I never saw any in my ~7 years of involvement), but also to significant improvements in price, quality and service for retail customers. A gram of retail hashish cost $10 in 1980, and a gram of pot cost the same in 2003. It's even less now. This means that the real price has been declining by _at least_ the rate of inflation across the entire period.<br /><br />What's striking about this whole business is that all the theoretical benefits of the free market have manifested even in the absence of "helpful" state regulation, and despite all the friction of illegality. Market sceptics should take note.Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-6704573462403312459.post-79603043401674312992020-08-20T05:30:31.870-04:002020-08-20T05:30:31.870-04:00Nice enough idea, but I simply just have to agree ...Nice enough idea, but I simply just have to agree with JKH, Vinny and at least one of the Anons above.<br /><br />Our experience in the UK, mirrors JKH's. The banks simply shut the counter service at branches (or those branches that are still left, anyway). Additionally, in the UK, the overnight deposit boxes have also been steadily removed over the years, even if the branch itself has not (yet) been closed.<br /><br />Again, businesses became averse to handling cash almost before the lockdown began, urging card payments where possible.<br /><br />Further, our experience is that where we've helped out with odd bits of shopping for neighbours, friends and relatives, they have paid us in cash. Which we've simply not been able to get rid of, up until about mid-June or so.<br /><br />As an aside, I'm fairly certain that the BoE does maintain a data series of notes and coins held at financial institutions.Anomalous Cowshedhttps://www.blogger.com/profile/06128613687139232168noreply@blogger.comtag:blogger.com,1999:blog-6704573462403312459.post-89630576079117788032020-08-13T06:14:44.568-04:002020-08-13T06:14:44.568-04:00Thanks for the links, anon. I'll check them ou...Thanks for the links, anon. I'll check them out.JP Koninghttps://www.blogger.com/profile/02559687323828006535noreply@blogger.comtag:blogger.com,1999:blog-6704573462403312459.post-19696699271780932222020-08-11T07:20:53.214-04:002020-08-11T07:20:53.214-04:00Note that the BIS finds a negative relationship be...Note that the BIS finds a negative relationship between the use of digital payments and the estimated size of the informal economy: https://www.bis.org/publ/arpdf/ar2020e3.htm. anonymoushttps://www.blogger.com/profile/17109245897074937419noreply@blogger.comtag:blogger.com,1999:blog-6704573462403312459.post-34302330062233339062020-08-11T07:19:49.302-04:002020-08-11T07:19:49.302-04:00You may appreciate the estimates of the shadow eco...You may appreciate the estimates of the shadow economy by Medina and Schneider: https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3502028. They estimate that the shadow (or informal, or cash) economy was 12% of GDP in Canada in 2017. (That is a relatively low value compared to other countries, but it is higher than the United States or UK). Note that the authors use various methods to exclude criminal activities from their estimates. What is left are activities that are primarily conducted in cash, and may not be reported for regulatory or tax reasons. That is a slightly less nefarious angle.anonymoushttps://www.blogger.com/profile/17109245897074937419noreply@blogger.comtag:blogger.com,1999:blog-6704573462403312459.post-25663505395497364172020-08-04T07:01:06.013-04:002020-08-04T07:01:06.013-04:00Some good points.
"The ATM is impractical fo...Some good points.<br /><br />"The ATM is impractical for the businesses that need to deposit thousands of dollars, and so actually need the bank branch personnel."<br /><br />Large businesses don't return cash by going to the bank. They use cash-in-transit companies like Brinks. I can't imagine this would have been impaired. But yes, small businesses do bring their cash taking to the bank. <br /><br />As I was discussing with JKH above, are these businesses reliant on going into a bank and dealing with a teller? Or do they tend to drop it in an exterior drop box? If the drop box, I can't imagine there being any reason for a business to accumulate cash.JP Koninghttps://www.blogger.com/profile/02559687323828006535noreply@blogger.comtag:blogger.com,1999:blog-6704573462403312459.post-3612845075056194132020-08-04T06:55:18.316-04:002020-08-04T06:55:18.316-04:00You could be right, JKH. I don't know enough a...You could be right, JKH. I don't know enough about the intricacies of small business cash management. Do most drop off their daily cash takings in the exterior night deposit box or do they prefer to go inside? If inside, then you've got yourself an asymmetry. But if the exterior deposit box, I think an asymmetry is less likely.JP Koninghttps://www.blogger.com/profile/02559687323828006535noreply@blogger.comtag:blogger.com,1999:blog-6704573462403312459.post-66042546567535139862020-08-04T00:43:08.662-04:002020-08-04T00:43:08.662-04:00Thanks for the reply, JP.
Yes, I agree with unkn...Thanks for the reply, JP. <br /><br />Yes, I agree with unknown commenter that withdrawing is necessary, but depositing is not so necessary. Just anecdotally, I see this pattern of behavior among my immediate family members. But more importantly, I think — what’s the point of redepositing if interest rates are very low and asset yields are also low. The risk-reward might not seem so good.<br /><br />Which isnt to say that the underground element isnt a factor. It very well could be, it’s just hard to measure. Thanks! Vinnyhttps://www.blogger.com/profile/14105692725130175906noreply@blogger.comtag:blogger.com,1999:blog-6704573462403312459.post-19460496162449139712020-08-03T14:01:38.162-04:002020-08-03T14:01:38.162-04:00One should consider the utilization of debit isnt ...One should consider the utilization of debit isnt universal. For some, you have to withdraw cash to live, but you dont have to necessarily deposit it again after that. I would argue that a lot of people are seeing an unnecessary trip to a bank as a risk but still see a visit to a bank to get money as necessary.Anonymoushttps://www.blogger.com/profile/10072242434768522796noreply@blogger.comtag:blogger.com,1999:blog-6704573462403312459.post-71686363965954384952020-08-03T13:20:27.730-04:002020-08-03T13:20:27.730-04:00The criminal story makes sense on its own, but I w...The criminal story makes sense on its own, but I wonder if a simpler story suffices. I have a few thoughts - (1) asymmetric effect of not wanting to leave house, (2) bank services, and (3) hidden asset hoarding before bankruptcy.<br /><br />Most people don't want to go outside, but some activities are especially NOT WORTH IT. Physically handling cash is another trip that we have to make - both in order to pick up cash and in order to deposit cash. If I need cash, I will accept the incremental risk to go out and acquire cash. Presumably I value what I receive more than the cash I handed over. However, if I receive cash I am not nearly so willing to accept the incremental risk and deposit it in person. Converting liquid assets into a slightly more convenient form is not worth the incremental risk.<br /><br />Second, cash doesn't tend to circulate evenly through the economy. There are many more buyers than there are sellers, so that sellers (businesses) are generally cash recipients and buyers are cash providers. However, retail banking from an ATM is convenient for the many people who only need a few hundred dollars. The ATM is impractical for the businesses that need to deposit thousands of dollars, and so actually need the bank branch personnel. With Covid-19 affecting the productivity of bank branches (hours, social distancing reducing bandwidth, etc.) it is more costly for the businesses to redeposit cash so they are more likely to accumulate a larger balance than they would have in the past.<br /><br />Third, for businesses that are likely to go bankrupt soon it is probably not a bad idea to literally has cash squirreled away. They are "looting" their cash flow so they can reduce their losses when the business closes and the lenders try to recoup their losses. Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-6704573462403312459.post-27039693939487362842020-08-03T07:18:43.776-04:002020-08-03T07:18:43.776-04:00Interesting theory. Some restaurants and retailers...Interesting theory. Some restaurants and retailers in Europe are only accepting card payments due to concerns that the virus can be transmitted through banknotes and coins. This could also explain the large decline in notes returned to banks.Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-6704573462403312459.post-72347671092226891622020-08-02T15:41:13.343-04:002020-08-02T15:41:13.343-04:00So - with respect to access - perhaps an asymmetry...So - with respect to access - perhaps an asymmetry between retail customers withdrawing nearly as frequently using ATMs, versus retail business redepositing less frequently through less available full branch bankingJKHhttps://www.blogger.com/profile/06322177539880818556noreply@blogger.comtag:blogger.com,1999:blog-6704573462403312459.post-69439821851125255612020-08-02T14:16:51.415-04:002020-08-02T14:16:51.415-04:00I think it’s possible that smaller businesses that...I think it’s possible that smaller businesses that stayed open or re-opened early (e.g. convenience stores) may have reduced the frequency with which they take their surplus cash into the branch for deposit. That might correlate with the fact that so many branches were closed, and that businesses with cash to deposit were inconvenienced as a result.<br /><br />I'm not familiar with procedures where they might use bank drop boxes instead of the branch counter - but I'm guessing such facilities may also have been sealed off, given the lack of branch personnel to service them. Anyway, I'm thinking many of these businesses prefer to use the branch counter to deposit their cash in any event, where they can confirm bookkeeping records etc. with some immediacy.<br /><br />So that’s a possible asymmetry between cash outflow from ATMs / branches and cash returning to branches. Just my speculation. Perhaps one of your readers has greater knowledge of such small business cash management practices.<br /><br />Regarding branch closure – if you’d posted a couple of week ago, I would have suggested googling bank branches for any of the Canadian banks, and you would have seen a Google Map displaying all branches and their open/closure status for any chosen geographic area. I’d guess at least 80 per cent of branches were closed for most of the past 3 months prior to that point. Unfortunately, or fortunately, it appears most have re-opened in staged fashion, so that effect won’t be apparent now.JKHhttps://www.blogger.com/profile/06322177539880818556noreply@blogger.comtag:blogger.com,1999:blog-6704573462403312459.post-11833726935208795352020-08-02T06:54:56.667-04:002020-08-02T06:54:56.667-04:00It's possible, Vinny.
But if the public does...It's possible, Vinny. <br /><br />But if the public doesn't want to go to the bank to deposit cash because of virus concerns, wouldn't they be just as hesitant to go to the bank to withdraw cash? We need a theory for why the public has reduced its rate of redepositing by more than it has reduced its rate of withdrawing.JP Koninghttps://www.blogger.com/profile/02559687323828006535noreply@blogger.comtag:blogger.com,1999:blog-6704573462403312459.post-45373299460523781012020-08-02T06:43:41.978-04:002020-08-02T06:43:41.978-04:00Hi JKH,
I wasn't aware of that, thanks. That...Hi JKH, <br /><br />I wasn't aware of that, thanks. That could have had some impact on reducing returns. I suppose it might have also had an equal impact on reducing withdrawals, too? JP Koninghttps://www.blogger.com/profile/02559687323828006535noreply@blogger.comtag:blogger.com,1999:blog-6704573462403312459.post-35702359748831271452020-08-01T20:20:39.884-04:002020-08-01T20:20:39.884-04:00Nice theory — I agree that the reason might be bec...Nice theory — I agree that the reason might be because of less redeposits.<br /><br />However, can’t it be as simple as bank branches being closed or people not wanting to go to the bank to deposit their cash because of the virus? Vinnyhttps://www.blogger.com/profile/14105692725130175906noreply@blogger.comtag:blogger.com,1999:blog-6704573462403312459.post-52986268420975051512020-08-01T15:03:52.334-04:002020-08-01T15:03:52.334-04:00I’ll think more about your overall thesis, but the...I’ll think more about your overall thesis, but there may be an additional piece that could complement your explanation.<br /><br />Until very recently (a week or two ago), most full service Canadian bank branches have been closed since March. ATM access remained open in many cases, but not in-branch counter service. Select branches remained open for full service – but very few (if my own well banked suburban area is an indicator).<br /><br />Perhaps that’s been an additional constraint on normal behavior in terms of the return flow of bank notes.JKHhttps://www.blogger.com/profile/06322177539880818556noreply@blogger.com