What's the future of money? Paperless and coinless, say leading finance experts

Electronic currency could improve the economy, according to experts at a conference organised by the Business School last month.

The conference was organised by the Brevan Howard Centre for Financial Analysis at Imperial College Business School, together with the Centre for Economic Policy Research and the Swiss National Bank. Leading figures from the world of finance gathered in central London to discuss the challenges posed by negative interest rates, which have been introduced by some central banks following the global financial crisis.

We asked Franklin Allen, Executive Director of the Brevan Howard Centre, for his reflections on some of the key points raised during the event. 

What were you hoping to achieve with this conference?

We wanted to provide a forum to debate the issues surrounding negative interest rates and the impact on consumers and the economy. 
Some banks, such as the Swiss National Bank and Denmark’s central bank, have purposely set negative interest rates to prevent their exchange rate rising too much.  Other organisations such as the Swedish Riksbank, are trying to prevent deflation. 

However, as long as paper money exists there is a limit as to how negative rates can become.  As cash holds its value, consumers could respond by withdrawing and storing large amounts of cash (perhaps stuffing it under their mattresses) – making them feel better off than if they had left the money in the bank. If this was taken to the extreme then banks would stop being able to raise funds and would go out of business. 

What were the most important issues raised at the event?

In order to let banks impose even more negative rates to help stimulate economic growth, one solution would be to eliminate paper money altogether. In the era of debit cards and rapidly evolving digital technology, it’s possible that in future people could live entirely without paper cash. The idea of gradually phasing out currency, starting with small notes and coins, could work for smaller countries, but may prove a greater challenge for larger nations such as the United States. 

We also discussed the issues posed by a cash-free society, such as the impact on the elderly and lower income groups, as well as crime rates and privacy issues. It was agreed that the biggest change would be people adapting to the idea of paying for all their services, no matter how big or small, electronically. 

Describe the atmosphere at the conference

The daytime part of the conference was attended by around 100 members of the global financial community and there was an incredible atmosphere in the room and eager anticipation for the keynote speeches by Kenneth Rogoff from Harvard University and Willem Buiter from Citigroup. The speeches generated lots of questions and ongoing discussion throughout the day. 

Were there any surprise topics raised? 

There was a discussion about banking in Renaissance Europe when an idea was floated about the possibility of countries having a separate currency in addition to the Euro.  In 15th century Florence the city operated successfully with two currencies called the picciolo and fiorentino.  It is often suggested that Greece may need to do this in order to prevent default on its debt.

How do conferences of this nature support the work of the Brevan Howard Centre?

One of our main objectives is to create a bridge between the Business School and business practitioners, policy-makers and the wider public by providing a forum in which people can express their views on the latest financial challenges affecting the global economy.