Reports of the demise of cash are vastly exaggerated. Notes and coins have been with us a long time, and have served a crucial role in the growth of the modern economy. I suspect they will be with us for quite some time more. BIS central bankers’ speeches  1  Three “C”s of a good payment instrument But be it physical cash or electronic payment, the medium of exchange for transactions must satisfy three requirements. I will refer to these as the three “C”s of a preferred payment system – confidence, convenience, and cost-effectiveness. First, confidence. Businesses and consumers must be assured of the security of payment instruments. The widespread circulation of counterfeit notes and coins can impair confidence in a country’s currency. As John Maynard Keynes put it nearly a century ago, quoting Lenin, “There is no subtler, no surer means of overturning the existing basis of society than to debauch the currency.” Keynes was, of course, talking about the deleterious effects of inflation. But it applies just as well to debasing the currency through counterfeiting. Ensuring the fidelity of notes and coins and the soundness of electronic payments is therefore a critical function. Central banks and currency issuing authorities must continually innovate and stay ahead of fraudsters. In electronic fund transfers, we have instituted more end-to-end security measures like two-factor authentication. Modern currency notes come with very advanced security features. I wanted to give some examples, but have been advised that it would be tantamount to giving away our secrets!
The conduits and SIVs are greatly diminished where they are not being wound up altogether. And the money market and other funds that stepped away from these off-balance-sheet vehicles are not willing at least yet to buy ABS directly. Finding new homes for these securities is bound to take time. So long as there are known to be reluctant holders, even long term real money investors will tend to hold back to see whether prices are driven lower in coming months by forced sales. On the other side many issuers are reluctant to accept the prices on offer today since they could become benchmarks for the future. Lessons from the crisis The story is far from over but it is still possible to identify some lessons. The past seven months have taught market participants a lot about the risks and limitations of the new markets and their business models; their responses will be the most powerful force for change. On the official side, a recent consultative document has set out proposed responses by the UK tripartite authorities. 3 Internationally, the Financial Stability Forum (FSF), which draws together central banks, supervisors and finance ministries from the main financial centres, is co-ordinating an action plan for authorities to develop and implement recommendations across a number of areas (Chart 7).