UK cash usage rises after decade of decline

Cash usage in the UK grew in 2022 for the first time in a decade, according to the British Retail Consortium (BRC). Cash was used in 19% of transactions last year, according to retailers, up from 15% in 2021. Until 2015, notes and coins were used by British consumers in more than half of transactions.

The consortium said consumers were budgeting carefully to try to cope with cost of living pressures, and there was also a “natural return” for cash after the decline accelerated during the pandemic.

The BRC’s payments policy adviser, Hannah Regan, said: “We are now seeing a return to many of the pre-pandemic trends in payments, including smaller but more frequent purchases, and a slight return of cash payments.

“Unfortunately, what has not changed, is the ever-increasing scale of fees paid by retailers in order to accept card payments.”

In September, banking trade body UK Finance also reported that cash use had risen for the first time in a decade, pointing to the financial impact of rising prices. However, it expects the use of cash to resume its longer-term decline once the current financial squeeze had eased.

UK Finance said nearly 22 million Britons used cash only once a month or not at all last year. However, about five million people still rely on cash and there has been pressure to ensure access is still available as bank branches and cash machines shut.

The figures come as regulator the Financial Conduct Authority (FCA) is set to consult on a plan to help people access cash. The UK government has warned that banks will be fined if money cannot be withdrawn or deposited by businesses and consumers and says that free withdrawals and deposits will need to be available within one mile for people living in urban areas.

The FCA is about to outline how the government's policy could be implemented. Under the new guidance, if a service such as an ATM or branch is withdrawn and a replacement service is needed in the area, then this should be done before the closure takes place. A voluntary arrangement is currently in place which means every UK high street should have free access to cash within one kilometre.

 

Australia and Canada keep interest rates on hold

The central banks of Australia and Canada, which have both introduced a series of interest rate hikes since early 2022 to calm resurgent inflation have decided on no change in their latest rate decisions. on Tuesday held rates steady as expected after a lifting them to a 12-year high last month.

The Reserve Bank of Australia (RBA), which last month increases the cash rate to a 12-year high of 4.35% opted for no change this month inflation fell to 4.9% in October.

“Returning inflation to target within a reasonable timeframe remains the board’s priority,” said RBA governor Michele Bullock.

“Whether further tightening of monetary policy is required to ensure that inflation returns to target in a reasonable timeframe will depend upon the data and the evolving assessment of risks.”

“While there have been encouraging signs on goods inflation abroad, services price inflation has remained persistent and the same could occur in Australia,” she said. “There also remains a high level of uncertainty around the outlook for the Chinese economy and the implications of the conflicts abroad.”

The Bank of Canada (BoC) held its key overnight rate at 5% but indicated that a further hike could follow, saying it was still concerned about inflation while acknowledging an economic slowdown and a general easing of prices. CPI inflation eased to 3.1% in October.

The BoC noted that the global economy continues to slow and inflation has eased further. “In the US, growth has been stronger than expected, led by robust consumer spending, but is likely to weaken in the months ahead as past policy rate increases work their way through the economy. Growth in the euro area has weakened and, combined with lower energy prices, this has reduced inflationary pressures. Oil prices are about US$10-per-barrel lower than was assumed in the October Monetary Policy Report (MPR). Financial conditions have also eased, with long-term interest rates unwinding some of the sharp increases seen earlier in the autumn. The US dollar has weakened against most currencies, including Canada’s.

In Canada, economic growth stalled through the middle quarters of 2023. Real GDP contracted at a rate of 1.1% in the third quarter, following growth of 1.4% in the second quarter. Higher interest rates are clearly restraining spending: consumption growth in the last two quarters was close to zero, and business investment has been volatile but essentially flat over the past year. Exports and inventory adjustment subtracted from GDP growth in the third quarter, while government spending and new home construction provided a boost.

“The labour market continues to ease: job creation has been slower than labour force growth, job vacancies have declined further, and the unemployment rate has risen modestly. Even so, wages are still rising by 4-5%. Overall, these data and indicators for the fourth quarter suggest the economy is no longer in excess demand.”

 

Italy and South Korea to collaborate on CBDC

Italy’s central bank, Banca d'Italia, is to partner with its South Korean counterpart Bank of Korea, through a memorandum of understanding (MoU) aimed at cooperating on IT and payment systems. The MoU centres on the exchange of knowledge and information regarding information and communication technology (ICT) issues.

The MoU specifically highlights ICT issues related to real-time gross settlement (RTGS) systems and central bank digital currencies (CBDCs). The two countries have pursued divergent paths in exploring CBDCs over the past year.

Italy's focus has primarily been on achieving interoperability in settling transactions based on distributed ledger technology (DLT) using hash-linked contracts, departing from the wholesale CBDC approach embraced by other European nations. Banca d’Italia also has a DLT sandbox in which Associazione Bancaria Italiana (ABI), the trade association of Italian banks, is experimenting with using a wholesale CBDC for interbank settlement.

By contrast South Korea initiated a pilot program for its CBDC infrastructure technology in October, involving both private banks and public institutions. The Bank for International Settlements (BIS) is providing technical support for this initiative. South Korea also plans to invite 100,000 citizens to participate in CBDC testing beginning in 2024.

Despite the progress made by governments worldwide in CBDC development, significant opposition to digital currencies remains. German politician Joana Cotar, a member of the German federal parliament the Bundestag, recently expressed strong opposition to the European Union’s digital euro, viewing CBDCs as an encroachment on privacy. In the United States, several public figures, including podcast host Joe Rogan, have voiced scepticism and concerns about the country’s own CBDC

 

World economy in new era of greater volatility, says BlackRock

The world is in a new era of low growth and high interest rates, according to BlackRock, the world's largest asset manager.

In its outlook for 2024, the BlackRock Investment Institute t warns that inflation will be far more volatile than it has been in recent years – and economies can no longer grow as quickly as they have in the past without stoking price rises. With the world economy entering a new era of volatility, investors need to “switch off the autopilot” and adopt more active management in their portfolios.

“The new regime of greater macro and market volatility has resulted in greater uncertainty and dispersion of returns,’ the institute said. This will make 2024 a time to “grab the investing wheel”.

“There’s a lot of discussion, as we speak, about looking at this environment about whether we’re going to get a soft landing or not,” said Jean Boivin managing director and head of the BlackRock Investment Institute. “As if the economy is flying, and we need to land it.”

He suggested that a look back over the past 18 months makes it feel like the market is “flying and needs to land,” But one of the keys of the BlackRock report is that “context is everything” and that analysts need to zoom out to see the “complete picture.”

“If we look since the start of the pandemic, the story is somewhat different. The story is that we’ve been coming out of a huge pandemic hole. This is something that we have never experienced before: A massive drop in activity, and then we’ve been since climbing out. There’s no clear benchmark on how climbing out of a pandemic whole should play out.

“If you go back to, like, January 2020 and what we thought 2023 would have looked like back then, it looks like what we’ve managed to climb out at is back to what would have been on the very low range of the forecast at the time.” That led BlackRock’s analysts to be more sceptical of an impending recession.

“Nothing is flying in our view. So we’re just back to ground level. We haven’t, like, started to fly,” Boivin added. “The good news is that it’s not clear something has to crash.”

BlackRock has suggested three main focuses in 2024 for investors:

• The need to manage macro risks due to high uncertainty.
• Recognition that becoming active in your investment portfolio can be rewarding, given the current climate.
• The benefits of harnessing the firm’s “mega forces”: demographic divergence, digital disruption and AI, a fragmenting world, the future of finance, and low-carbon transition.

 

Japan’s manufacturers more optimistic

Sentiment among major Japanese manufacturers has improved for a second successive month as the country’s auto sector continued to recover from last year’s semiconductor shortage and supply chain woes, a monthly Reuters Tankan survey indicates.

Based on responses from 240 firms to the survey of 501 large companies on condition of anonymity, the sentiment index for manufacturers stood at plus 12 in December compared with plus 6 the previous month, according to the survey which was conducted between 21 November and 1 December1.

“As chip shortages eased, car production grew. But on the other hand, the worsening state of China’s economy and sluggish sales of Japanese vehicles in the Chinese market remain sources of concern,” a manager at a textile manufacturer wrote in the comment section of the survey.

The result is likely to reinforce expectations that Japan’s economy is bottoming out after contracting by a preliminary annualised rate of 2.1% in the July-September quarter. Economists believe the economy will show moderate growth in the current quarter, also helped by a pick-up in capital expenditure.

The poll also showed the service sector index at plus 26, down from plus 27 in November.

The index readings are calculated by subtracting the percentage of pessimistic respondents from optimistic ones, with a positive figure indicating optimists outnumber pessimists.

Compared with three months earlier, the manufacturers’ index was 8 points higher and the service sector index was up 3 points, the Reuters poll showed. But looking ahead to the next quarter, the mood was not as upbeat and the manufacturers’ index for March was seen falling to plus 8 while the service sector index was seen at plus 24.

 

Italy to exit China’s Belt and Road initiative

Italy’s government has confirmed that it is withdrawing from China’s massive Belt and Road (BRI) trade and infrastructure investment programme at the end of this year. The country’s BRI membership would otherwise have automatically renewed in March 2024.

Prime minister Giorgia Meloni’s administration has now notified Beijing that it will cease participating in the BRI ahead of the deadline. Italy was the only major Western nation to have signed up to the initiative, joining the project in 2019 in a move that was heavily criticised by the US and others at the time.

Launched by Chinese President Xi Jinping in 2013, the BRI aims to invest an estimated US$1 trillion across Asia and Europe. Projects including new and upgraded railways and ports aim to connect China with Europe and other parts of Asia.

However, the BRI was criticised from the outset by the US as an example of “debt-trap diplomacy” Washington says China's plans involve unsustainably large projects countries are unable to finance, giving Beijing leverage for its own aims.

Italy was the largest of the 18 European Union (EU) members, particularly in the east and south of the continent, to have signed up to the BRI.

Ms Meloni had previously called the decision in March 2019 by her predecessor Giuseppe Conte to join "a serious mistake" and indicated that she was minded to withdraw. But her government emphasised that it was seeking to maintain good relations with China despite the exit.

 

Travel group Tui may shift listing from London to Frankfurt

Tui Travel, Europe’s biggest package holiday operator, Tui, is considering moving its stock exchange listing from the FTSE250 to Frankfurt, in a further threat to London’s status as a global finance centre.

The company said it had been approached recently by shareholders asking whether the current listing was “optimal and advantageous”. It suggested the shift to Germany could lower costs and yield “potential benefits to European Union airline ownership and control requirements”.

The potential transfer the latest in a series of setbacks for the London Stock Exchange (LSE) in recent years, with companies opting to either delist or choose to debut in other markets, most notably in New York.

“Around three quarters of TUI’s shares are now traded in Germany, adding weight to the idea that a move would make sense,” commented Sophie Lund-Yates, lead equity analyst at financial services group Hargreaves Lansdown.

“Since Brexit, keeping hold of trading liquidity in non-local names has become a tough task. The added costs and complexities of maintaining London listings simply aren’t worth it in some cases, and that’s a tough PR headache to cure for UK plc.”

 

Mastercard signs multi-year embedded finance pact with Neem in Pakistan

Mastercard is joining forces with the embedded finance platform Neem in “a pioneering partnership marking the embedded finance revolution in Pakistan and the wider MENA region.”

The companies said that their “strategic multi-year collaboration will help the company enable financial wellness for Pakistan’s underserved communities and strengthen Neem’s offerings – from card issuance to product-driven initiatives like remittances, loyalty reward programs, and much more in the future.”

Neem is developing “a robust technology stack that can empower digital businesses in Pakistan to offer a wide range of financial services to their customers. Its banking-as-a-service platform covers everything from full payment infrastructure to embedded lending and insurance.”

Vladimira Briestenska, Co-founder of Neem said, “The partnership with Mastercard is a major milestone for Neem and the embedded finance movement in Pakistan. Also, sustainability is at the heart of this collaboration, and we are committed to inspiring the industry to join us in this movement.”

 

TrueLayer partners with Lunar for Nordic payments

Denmark’s challenger bank Lunar has teamed up with TrueLayer, an open banking payments network and aims “to revolutionise the payments landscape across Denmark, Sweden, and Norway.

“By leveraging Lunar’s Nordic payment infrastructure and TrueLayer’s expertise in open banking payments, this collaboration aims to enhance instant payment capabilities in the Nordics and introduce innovative financial solutions in the region,” the companies stated in a release,

The partnership marks a significant milestone, with TrueLayer becoming the inaugural major partner to leverage Lunar’s Banking Services. This collaboration is set to unlock a highly complex banking environment, allowing more banks and FinTechs to operate in the Nordics. The joint effort is expected to foster innovation, competition, and access in the Nordic financial sector.

Lunar CEO Ken Villum Klausen commented: “In many ways the Nordics is a difficult region to enter for international banks and fintechs. By opening our infrastructure to partners we unlock a highly complex banking environment and enable more banks and fintechs to do business in the Nordics.”

 

Pidgin and Modern Banking Systems to bring real-time payments to US small banks

Payments-platform Pidgin announced plans to work with Modern Banking Systems, a provider of core bank-processing technology, in bringing real-time payments capability to US community banks. Pidgin’s platform supports real-time processing through multiple payment rails, including FedNow and The Clearing House Payments Co’ s Real-Time Payments network.

The deal was driven largely by Modern Banking’s strategy of helping small banks get more out of their core-processing solutions and generate new growth opportunities, said Modern Banking Systems chief executive Michael Cronin. “Instant payments are gaining traction among consumers and businesses across the US, and by partnering with Pidgin, we can provide our clients with the tools they need to give their customers the payment options they now expect,” he added.

Modern Banking and parent company, Interstate Business Equipment, support core installations for financial institutions with between US$8 million to US$2 billion-plus in assets.

Pidgin serves as a central connection point to the Federal Reserve’s FedNow real-time payments service, which launched in July, as well as other faster-payments networks, allowing financial institutions to offer instant payment options. In addition, Pidgin’s platform facilitates the exchange of data between a bank’s core processing system, such as Modern Banking’s Essentia platform, and relevant third-party apps, including digital-banking platforms, the bank’s staff and account holders, and payment networks, for the routing and processing of payments.