Trade and settlement




It would seem that the question asked in the headline is a rhetorical one. After all, who does not want to have cash? In the 21st century, however, upon reflection not everyone is willing to enthusiastically give the obvious answer. So what is the problem? The problem is the widespread belief that money as we know it - i.e. cash (banknotes, coins) - will soon be swept off from the face of the earth by electronic money and non-cash transactions performed over the Internet. Will that happen? Let us try to look for an explanation while answering another question:


Is the new Internet era going to change the traditional forms of trade and the physical currency in use (banknotes, coins)?


Conventional trade, i.e. one where the customer can touch the merchandise and usually pays for it on the spot has been in place for thousands of years and developed in all circles of civilization. As part of the evolution of forms of sales in recent years, new Internet stores have been and continue to be established; these are taking over part of clientele of the traditional stores. Despite this, we would put a bold thesis bordering on certainty that the rumors about the disappearance of traditional trading methods are premature and heavily exaggerated. The correctness of the thesis wagered in the previous sentence has its deep justification in human nature. That nature is directed by the rights resulting from the most basic human needs. These include: the Need for Security - after all, a product that we can touch, see its authentic color, unrendered by an LCD, or simply smell, prevents the client from buying a pig in a poke and being fooled after the package sent by the online store is unpacked? The need for interaction (communication) with other human beings will never be replaced by even the lowest price in an online store. Let's move on to the Need to Mark ones social status (value​​), the hard-earned, often for generations, which will never be satisfied when you shop anonymously by clicking a mouse on your computer! Or finally, the need for straight Entertainment (Relaxation), which, no matter what we say, many of us find while visiting shop or, more broadly a shopping center - the modern temple of Commerce. One can criticize it and mock it in a manner appropriate for the Internet neophyte, but sooner or later it simply turns out irresistible! As Homo Sapiens, or rather its more advanced cousin Homo Consumensis, we would still make most of our purchases in person and in a real store, because this way is just NATURAL for us!


If so, what will happen to physical money as we know it? The end of "cash" and replacing it with electronic or plastic money (credit cards) has been preached for 30-40 years now. As proof of this thesis, information about the booming amount of commercial transactions in the context of credit cards or Internet transfers is brought up. Yes, it's true but it is a paradox, too; although plastic/electronic money is becoming more and more common and is increasing its turnover volume, at the same time the Central Banks emit more and more paper money and coins. Impossible? On the contrary, it is both possible and logical!


The volume of cash turnover in circulation has been increasing rapidly for decades, which results from two major processes : wealthier societies, which in economy is measured by the growth level of the Gross Domestic Product (GDP) and the creation of the so-called virtual money (fiat money) emitted by the governments of many countries, e.g. in order to stimulate economic growth or operate the internal debt. Recently, this second method of creating virtual money was completed in an atmosphere of numerous scandals and spectacular failures of entire banks, by creative ways to create money using the so-called bank derivatives (options, futures transactions, forwarding contracts, etc.). All of these instruments have a speculative element deeply rooted into them and therefore are not involved in the production of specific goods; they only participate in the creation of virtual value, which through new instruments produce a cascade of further non-monetary value but are paradoxically expressed in money and recorded in the statistics. These huge masses of money then "circulate" in a normal economy, up until reaching a financial meltdown (the last one in 2008) causing a realignment of values ​​and through inflation baring the amount of real money in circulation. The history of recent years shows that even if the volume of "fiat" money falls only momentarily, as the governments of many countries have learned to immediately respond to such phenomena by emitting additional fiat money, which in turn causes re-inflation, and hence calls for another issuance of banknotes losing their nominal value. The above phenomena and the mechanisms activating them clearly show that the amount of money (real and virtual) in circulation will be growing steadily. An increasing amount of electronic money is also a result of the lack of profitability of printing banknotes as equivalent to money, which is not actually present in the economy, apart from the accounting records on servers. In conclusion, with the increase in the quantity of money in circulation, including that generated by the increase in GDP, or speculative and inflation growth, created in the accounting records of investment banks as well as emissions, the amount of physical money in the world is still growing and there is no indication that it should stop or decrease. To lay it on the line, we should only add that despite the high cost of production of banknotes and coins, countries that do not rely on the value of its currency bullion (such as the Euro-zone) must have something "hard" to rely on; and the records in a computer program like are not even close, and will never be. In some reasonable degree, they must always be a reflection of the real, physical money sunk into economic circulation and that ensures that the emission printing presses will still work. The whole production will sooner or later hit the millstones of commerce that will mill it around until the last man on earth would want to buy a can of Coca Cola a store around the corner.

Did you know that e-commerce in the U.S. is only 5.6% of total trade turnover?


Check the data of the U.S. Ministry of Commerce for the 2nd quarter of 2013



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