M-Pesa: The Beginning of the End for the Black Economy

Generali

http://www.businessweek.com/articles/2014-06-05/safaricoms-m-pesa-turns-kenya-into-a-mobile-payment-paradise

A very interesting piece. Perhaps it's the beginning of the beginning of the end for the cash economy. Once it becomes very unusual to use any cash at all, someone taking out £5,000 to pay for a kitchen or heating system in cash is going to be investigated I would imagine.

That mightalso explain why there's a wave of decriminalisation of marijuana going on across the world: if you can start to control the black economy, perhaps you need to make some tougher choices about what you really want to control. Proper enforcement of drug laws in the US means sending middle class white students to prison as well as young black working class men.

System

[QUOTE=Generali;65822060_someone_taking_out_£5,000_.[/QUOTE]


That's the key point. In the real cash economy perhaps no one ever "takes out" cash or pays it in?
It is earned as cash and spent as cash, and just keeps circulating independently and unregulated and unrecorded.

Generali

Clifford_Pope wrote: »

That's the key point. In the real cash economy perhaps no one ever "takes out" cash or pays it in?
It is earned as cash and spent as cash, and just keeps circulating independently and unregulated and unrecorded.

Ah but there need to be cash inputs and outputs. If I'm going to 'get the VAT off' for paying cash then I need to get hold of the cash somehow. I get paid into my bank account and in this Brave New World will never take any cash out of the bank, let alone a few grand.

At the moment, the Government tries to force banks to catch out black economy workers when the money comes back into the legal system, for example when they buy a house. Things become much more interesting if there is a way to catch both the buyer and the seller.

At the moment, if I pay a tradesman in cash I can be pretty sure I'm going to get away with it and not even face any awkward questions. If I know I'm likely to get a call from the bank or even PC Plod asking me what I was doing with five grand then perhaps I'll just pay the VAT due instead.

CLAPTON

I'ld say more the end of the beginning, than the beginning of the end

dryhat

M-pesa has been operating for years and is very successful.

Kenya's mobile phone system is among the most advanced in the world and with help from the chinese, they are developing new and interesting ways to configure their networks and power their phones.

They have also recognised that M-pesa and Bitcoin are a perfect match, so there is no surprise that the latest developments are around coupling these two exciting new technologies...

https://www.bitpesa.co/

http://www.bloomberg.com/news/2013-11-28/bitcoin-service-targets-kenya-remittances-with-cut-rate-fees-1-.html

Generali

dryhat wrote: »

M-pesa has been operating for years and is very successful.

Kenya's mobile phone system is among the most advanced in the world and with help from the chinese, they are developing new and interesting ways to configure their networks and power their phones.

They have also recognised that M-pesa and Bitcoin are a perfect match, so there is no surprise that the latest developments are around coupling these two exciting new technologies...

https://www.bitpesa.co/

http://www.bloomberg.com/news/2013-11-28/bitcoin-service-targets-kenya-remittances-with-cut-rate-fees-1-.html

Ah, now I see a genuine advantage to Bitcoin. 3% cost to send money to Kenya vs 5-8.5% using Western Union.

Having said that, I can buy USD on a 1pt spread so there's a long way to go still. What I really want is either to use GBPBitcoins in the UK and KESBitcoins at the other so as to keep the advantages of a floating exchange rate while keeping costs low or to find a way to use Bitcoin or M-Pesa-style architecture to allow me an aggregation of all GBP-KES and KES-GBP transactions so I can offer USD-GBP pricing in almost all currencies.

Long term, Bitcoin perhaps removes a niche from the market whereby poor people get screwed on FX rates. I can see how banks could improve the system and force Bitcoin back out of that system. After all, an exchange of USD-KES is simpler than USD-BTC-KES and simpler is generally cheaper.

dryhat

BTC to BTC is even simpler.
It's still early days, but as more and more people (particularly merchants) begin to see the benefits a whole new financial system is emerging whereby exchange rates are a thing of the past.

Western Union and their ilk are likely to be the first major casualties of Bitcoin and banks in general are very afraid of Bitcoin.

Generali

dryhat wrote: »

BTC to BTC is even simpler.

Yes it is, however as we've seen from the EUR, the Gold Standard and even the North-South Divide there are broader problems with currencies shared across borders

dryhat wrote: »

It's still early days, but as more and more people (particularly merchants) begin to see the benefits a whole new financial system is emerging whereby exchange rates are a thing of the past.

That only really works when productivity changes are uniform between economies. It's easier to enforce deflation through a change in the FX rate than via a cut in nominal wages. Ask Greeks and Irish people.

dryhat wrote: »

Western Union and their ilk are likely to be the first major casualties of Bitcoin and banks in general are very afraid of Bitcoin.

I would happily wave Western Union and also those Bureaux de Change with their 10% spreads down the river.

Banks make good money from FX but not that much. IIRC, $1tn changes hands each day. Even if they make 1bp on that (doubtful) then that's $25bn across all banks in revenue before costs.

I don't think BTC is a real threat to banks, if it was then they'd be lobbying hard to make it illegal to use BTC. Post-Silk Road that should be relatively simple.

dryhat

You have to remember that Bitcoin is not just about bitcoins as a payment system - that's just the first "app", if you like.

It is the "blockchain" technology behind the payment system which is the true innovation and it allows for so much more than payment transfer.

Understanding this new technology and what it can do is the key to understanding the potential for change in all sectors of the economy.

Generali

dryhat wrote: »

You have to remember that Bitcoin is not just about bitcoins as a payment system - that's just the first "app", if you like.

It is the "blockchain" technology behind the payment system which is the true innovation and it allows for so much more than payment transfer.

Understanding this new technology and what it can do is the key to understanding the potential for change in all sectors of the economy.

I suspect so and I don't truly understand it.

I've followed the FT Alphaville posts about BTC and Issy is really good on monetary theory. She's pretty down on BTC and, as far as I understand her posts, I can see why.

But she could be wrong of course. It happens to us all. Without a proper understanding I do have an instinctive distrust of private fiat money.

tomterm8

Generali wrote: »

A very interesting piece. Perhaps it's the beginning of the beginning of the end for the cash economy. Once it becomes very unusual to use any cash at all, someone taking out £5,000 to pay for a kitchen or heating system in cash is going to be investigated I would imagine.
.

You're underestimating the intelligence of the criminal fraternity. A basic rule of nature is that if the government makes it impossible to commit crimes via the standard currency, people will invent new currencies.

For example, people used to use stamps as currency when it wasn't easy to get a bank account... hence all the adverts at the back of newspapers saying send 4 stamps for your astrological chart.

I don't know what the currency will be, I just know that people aren't going to let electronic currency stop them diddling the system