Archive for August 4th, 2022

Guaranteeing freedom of payment choice: access to cash in the euro area

August 4, 2022

Alejandro Zamora-Pérez in this ECB Bulletin Article says cash is still the dominant form of payment in the Euroarea. Hence, Eurosystem (ECB plus national central banks) is ensuring that they continue to provide cash as a freedom of payment choice:

The Eurosystem is committed to the principle that every individual in the euro area should be able to decide how to make day-to-day payments, regardless of their individual payment preference, geographical location or technological savviness. On the basis of the ECB’s most recent data, despite the gradual decline in cash transactions, cash is the most popular payment instrument among euro area citizens for day-to-day transactions at the point of sale or person-to-person payments. In addition, cash is used for savings and liquidity, especially in times of crisis or uncertainty.

Satisfying demand for cash requires a sophisticated physical infrastructure involving central banks and private intermediaries in the distribution of banknotes and coins to both citizens and businesses. However, as seen in other economies, a decline in the use of cash for payments may lead to a reduction in the cash services provided by credit institutions. This can in turn make it more difficult or costly to withdraw cash, especially for vulnerable groups or those living in geographically remote areas, who sometimes have no access to other means of payment.

To help prevent this situation, the Eurosystem carefully monitors the development and extent of cash services in the euro area and analyses current measures to counter any deterioration in cash services in a timely manner. The Eurosystem does this as part of its responsibility to ensure freedom of payment choice and access to cash for all citizens. This article looks at the issue of access to cash (Section 1), recent trends in cash access points (Section 2), ways to measure access to cash (Section 3) and initiatives to guarantee access to cash (Section 4).


Welcome to the world of general disequilibrium

August 4, 2022

Brian Reading in this OMFIF post:

Official forecasters use econometric models which assume all markets return simultaneously to general equilibrium in the medium term. Cost-push inflationary surges are transitory and subdued by equally transitory higher unemployment. Financial markets never upset the applecart. History and theory demonstrate that disequilibrium rotates between product, labour, financial and traded goods markets. Some are always out of kilter at any one time. When one market corrects it distorts others. Forecasters must explain what is happening in terms of general disequilibrium. Here is a crude attempt to do so. The key message is income and wealth distribution matter.

Market equilibrium is illustrated graphically by curves. Movement along and shifts in curves are the vital ingredients, best explained by the labour market Phillips curve. This plots wages against unemployment. The more unemployment, the weaker wages. Fiscal and monetary policy cause movements along this curve. Tax cuts stimulate demand, reduce unemployment and raise wages, fuelling demand-pull inflation. Shocks, such as oil price explosions, shift the Phillips curve with more inflation at all levels of unemployment. This is cost-push inflation. Reducing inflation to its equilibrium moves unemployment above its equilibrium and vice-versa.

He says IS-LM model does not help understand today’s problems. Explains how the events since China’s opening up led to lower inflation and lower output followed my multiple crises of 2008, 2020 and 2022.

In the end:

The intensity of the 2020s wage-price spiral is potentially as great as in the 1970s because of inequitable income and wealth distribution. The danger of depression is much greater thanks to financial market disequilibrium. Higher interest rates are inevitable because of the Bank of England’s policy obligations. Recession and brutal strikes mean indexation, especially of linked bonds, will deny the public purse an inflation bonus. A dramatic financial market asset price correction must follow and not from increased real incomes.

Income and wealth distributions are at the heart of the matter. They are totally neglected in official forecasts and policy planning. The Office for Budget Responsibility should be required to report on the distribution consequences of fiscal policy and the Chancellor of the Exchequer should aim to reduce Gini coefficients.


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