The Taylor report is right: we should get cash out of the “gig economy”

The Taylor Report was released today. It’s a report about the “gig economy” and contains a number of proposals for reform in the labour market to modernise the various systems (e.g., tax and benefits) and improve the lot of workers. I don’t propose to comment on any of those proposals, also having recently entered the gig economy myself, I can attest to both benefits and annoyances, but I do want to comment on one point made by the report that was picked up in the media. 

Cash-in-hand payments to builders, window cleaners, plumbers and other trades people should be discouraged through a technology revolution to collect up to £6 billion more in tax, a Government-commissioned review urged today.

From Abolishing cash-in-hand jobs ‘would raise £6bn in tax and benefit workers’ | London Evening Standard

The report notes, entirely correctly, that allowing people to exist in a cash-in-hand economy is not only bad for them (because law-abiding employers get undercut) but that it is bad for the rest of us too. Here’s a short extract from my new book Before Babylon, Beyond Bitcoin on this point:

Professor Charles Goodhart (London School of Economics) and Jonathan Ashworth (UK economist at Morgan Stanley) have studied the subject in some detail. They note that the ratio of currency to GDP in the UK has been rising (as you will recall from Figure 7) and argue that the rapid growth in the shadow economy has been a key cause. In their detailed examination of the statistics, the authors make a clear distinction between the “black economy” (e.g., drug dealing and money laundering) and the “grey economy” of activities that are legal but unreported in order to evade taxation. When your builder offers you a discount for cash and you pay him, you are participating in the grey economy. When your builder offers you crystal meth and you pay him, you are participating in the black economy. They define a total “shadow economy” as the sum of the black and grey economies.

…Two rather obvious factors that do seem to support the shape of the Sterling cash curve are the increase in VAT to 20% and the continuing rise in self-employment, both of which serve to reinforce the contribution of cash to the shadow economy. The Bank say that there is “limited research to confirm the extent of cash held for use in the shadow economy”, but Charles and Jonathan make a reasonable estimate that the shadow economy in the UK could have expanded by around 3% of UK GDP since the beginning of the current financial crisis.

…According to Tax Justice UK, that expansion means that there were £100 billion in sales not declared to UK tax authorities that meant a tax loss of £40 billion in 2011/12 and that will rise to more than £47 billion this year. The IMF have noted that while Her Majesty’s Revenue and Customs (HMRC) is not good at estimating losses outside the declared tax system, which is why their latest estimates for the tax gap are low at £33 billion for 2011/12. And while we all read about Starbucks and Google and other large corporates engaging in (entirely legal) tax avoidance, half of all tax evasion is down to SMEs and a further quarter down to individuals (according to HMRC).  There are an awful lot of people not paying tax and simple calculations will show that the tax gap that can be attributed to cash is vastly greater than the seigniorage earned by the Bank on the note issue. Cash makes the government (i.e. us) considerably worse off.

The suggestion made in the Taylor report should be uncontroversial. However, there are people out there who think that forcing law-abiding persons such as myself to subsidise money launderers, drug dealers and corrupt politicians is a reasonable price to pay because the alternative is unpalatable.

In a world without cash, every payment you make will be traceable.

From Why we should fear a cashless world | Dominic Frisby | Opinion | The Guardian

My old friend Dominic Frisby is of course, completely mistaken about this.  Whether the electronic money in your pocket is completely traceable, completely untraceable, or somewhere in between, is a design decision. As I point out in my new book (did I mention that I had a new book out?) where exactly that dial is set between anarchy and totalitarianism is something that our elected representatives should decide and then ask technologists to deliver. This is subject that I know a rather a lot about and so I can assure you that the technology that we already have is perfectly capable of delivering electronic money anywhere on that spectrum.

My own prediction is based on William Gibson’s prediction in the pages of Count Zero. There, one of the characters in this future fiction notes in passing that “it wasn’t actually illegal to have [cash], it was just that nobody ever did anything legitimate with it”. Therefore I expect to see a variety of different kinds of anonymous electronic value transfer systems that are used to deliver pseudonymous electronic money systems and I expect some of those pseudonymous electronic money systems to be used by banks and others to deliver the special case of wholly traceable payment systems.

That, however, isn’t the point of this post. The point that I want to make is that we need an intelligent and informed debate on what we want to replace cash, since it’s going to happen. It should be society that determines how it wants electronic money to work. Whether cash is going to burn out or fade away, we should be planning its 21st-century replacement now. It’s an interesting question to ask whether that means Bank of England Bitcoins or not!

Csfi jun audience

On which topic I was invited along to take part in the CSFI roundtable on “‘Formal’ digital cash: The currencies of the future?” with Ben Dyson from the Bank of England and Hugh Halford-Thompson of BTL Group last month. The event, held at the London Capital Club, was hugely oversubscribed, which I took to be evidence of renewed City interest in the general topic of digital cash and the specific topic of digital currency.

My good friend Andrew Hilton, long-standing captain of the good ship CSFI, framed the discussion in his invitation ask the basic “what if”. “What if some central bank issued a digital coin that was as widely accepted as a bank note? Or, if not a central bank, what if a group of banks or payments operators issued a similar digital coin?”.

For me, the roundtable was both an opportunity to plug my new book (did I mention that I have a new book out by the way?) and an opportunity to learn in the best possible way: by answering hard questions from smart people. I won’t attempt to summarise the discussion here except to say that there seems to be a lot of confusion about what form a central bank currency might take and it wasn’t limited to the people in the room.

“Such risks could be reduced if central banks offer digital national currencies, which the IMF defines as a ‘widely available DLT-based representation of fiat money’.”

IMF urges central banks to study digital currencies |

Now, why the IMF would define digital national currencies this way is unclear. A national digital currency, or e-fiat for short, may be implemented in any number of different ways. A “widely-available DLT-based representation” would be only one such option and even then it is not entirely clear what “DLT-based” actually means in this context. For that matter, it is not entirely clear what “DLT” means in this context either.

It’s important to separate the topics to move the conversation along: do we need e-fiat and if we do, then how should it work? To the first point I think the answer is probably yes. To the second point, the answer is “well, it depends”. It depends on what we want the e-fiat to do. Should it deliver anonymity or privacy, for example. Should it work like M-PESA or Bitcoin? That’s a fun discussion. How much would it cost to set up “Bank of England PESA”? It wouldn’t even have 100m accounts and Facebook has a couple of billion. If they were to look at some form of shared ledger solution, where copies of the “national ledger” are maintain by regulated financial institutions (e.g., banks – whereby taking part in the consensus-forming process would be a condition of a banking licence) and the entries in those ledgers related to transfers between pseudonymous accounts (i.e., your bank would know who you are but the central bank, other banks and auditors would not) then it would be a permissioned ledger (without proof of work) that could work pretty efficiently. Either way, my point is that it’s doable, so we ought to do it. 


After the euro, the digital euro

Hello. It looks as if the number of currencies in the world is set to go up again. Across the English Channel, satisfaction with supra-national monetary arrangements is waning.

[Marine le Pen] said she could see the EU setting up another currency like the ECU, or European Currency Unit, which the bloc used for internal accounting purposes before the euro was introduced in 1999.

From China Media Warn Trump of ‘Big Sticks’ If He Seeks Trade War

Now, younger readers may be unfamiliar with the ECU, but I’ve written about it more than once on this blog. The idea of restoring the Franc while simultaneously creating a new pan-European currency actually makes sense and I’m rather in favour of it. Which makes we wonder how she got hold of the draft manuscript for my forthcoming book “Before Babylon, Beyond Bitcoin: From Money We Understand to Money That Understands Us” that the good people at the London Publishing Partnership have agreed to publish in June? Oh well, since the cat is out of the bag, I may as well give you a sneak preview…

I remember hearing the Chancellor of the Exchequer talking on the radio during the great financial crisis. He referred to the difficulties of currency union and spoke about the problems in Ireland, Greece, Portugal and Cyprus. He spoke about the problems of maintaining monetary policy across currency unions between economies with different fundamentals. All true. But he didn’t explain why this is different for the UK. How is the insanity of trying to maintain a currency union between Germany, Luxembourg and Greece any different to the insanity of trying to maintain a currency union between England, Wales and Scotland? The fact that they are in a political union does not alter the facts on the ground: they have fundamentally different economies. The Chancellor was arguing that if Scotland opted for independence, it would be impossible to maintain a currency union between England and Scotland. But surely that is true now! The best monetary policy for England is not necessarily the best monetary policy for Scotland, and technology means that what was optimal for commerce at the time of the Napoleonic Wars may no longer best for the modern economy.

If the argument for currency union is only about transaction costs within economic zones, then former Chancellor of the Exchequer John Major set out a potential way forward in 1990 (although the idea dates from 1983) with his alternative to the euro, which was at the time was labelled the “hard ECU”. The ECU was the “European Currency Unit”, a unit of account set using a basket of currencies, that was intended to help international business by minimising foreign exchange fluctuations. Major’s idea for the hard ECU was a fully-fledged currency with a “no devaluation” guarantee (Hasse and Koch 1991). Whereas the ECU reflected the weighted average of inflation rates in the countries concerned, the hard ECU would be linked to the strongest currency (which would have been the Deutschmark, of course). This guarantee would be backed by a commitment from participating central to buy back their own currency or make good exchange losses in the event of devaluations.

Imagine what that kind of parallel currency might look like today. It would be an electronic currency that would never exist in physical form but still be legal tender (put to one side what that means in practice) in all EU member states. Thus, businesses could keep accounts in hard ECUs, even in a post-EU England, and trade them cross-border with minimal transaction costs. Tourists could have hard ECU payment cards that they could use through the Union without penalty and so on. But each state would continue with its own national currency (you would still able use Sterling notes and coins in British shops) and the cost of replacing them would have been saved.

The reason for doing this is to minimise the costs of doing business across Europe while giving each country control over its own currency. But the more general point that I want to make is that the advance of technology gives us new choices in the way that money works. The way that money works now is not a law of physics: it is a set of institutional arrangements that could be changed at any time. Thus, if anything, Ms. le Pen is not being radical at all. Why have nation-state control over money? Why not allow regions to have their own currencies? Why not use Google Money? Or Islamic e-Dinars?

I’m not the only one who thinks this, by the way. Check this out from “The Futurist Magazine” in September 2012, where as part of a compilation of pieces envisioning life in 2100, the article asks if we will still have money in 2100, and speculates on what form it may take if we do:

It is quite likely that we will still have money in 2100, but it may not be issued by governments any longer.

[From European Futures Observatory]

I couldn’t agree more. But if not governments, then who? One of the things I discuss in my book is my “5Cs” model for thinking about future issuers: central banks, commercial banks, companies, cryptography and communities. My good friend Rob Allen from PwC was kind enough to use this model in Sydney this week and, frankly, if people like Rob are taking it seriously then I know I’m on the right track.

It’s time to start thinking about the future of money and not just because I have a book about it coming out in June (did I mention that before?) but because the current industrial age monetary arrangements do not support the post-industrial economy.

Book review: Demystifying communications risk

Demystifying Communications Risk: A guide to revenue risk management in the communications sector.
Mark Johnson (Gower: 2012).

In telecommunications, just as in banking and retailing and most other businesses as far as I can tell, fraud is an ever present cost of staying in business and managing that fraud down to acceptable levels is one of the most important roles of operational management. That’s easy to say, but hard to execute. I picked up Mark Johnson’s “Demystifying Communications Risk” (recently published by our friends at Gower) by Mark Johnson from The Risk Management Group hoping for a few ideas on this front and I wasn’t disappointed. I’m not an expert on the operational management side of telecommuncations, but I think for someone entering the field Mark’s layout, examples and checklists combine to make the book a very useful starting point.

The overall message of the book, for me, was (as always) isn’t hackers who are the problem, but the staff. Here I found Chapter Four the most relevant. It is fascinating discussion on managing insider fraud, written by Nick Mann of Nick Mann Associates, which shows just how hard this is, partly because of the variety of the frauds and partly because of the statistics. Basically, most employees are potential fraudsters! He gives a case study of an internal fraud that was uncovered after $6 million in losses, yet not a penny was recovered., highlight the point that prevention is better than cure. Actually, I thought Michael’s use of specific case studies was very helpful throughout the book and in some cases very surprising (for example, the clock drift on a switch leading to incorrect rating). I found his discussion of prepaid frauds especially interesting, partly because they are so simple and partly because I think the growth in prepaid will continue over the coming years.

I rather liked Michael suggestion of a risk management “dashboard” of relevant key performance indicators. We do a lot of risk management work in the digital money and digital identity fields, and help clients to devise and implement appropriate countermeasures, and I will be certainly using the dashboard idea in the future.

Mark covers many of the areas that will be familiar to risk management practitioners including computer and communications security, countermeasure return on investment and revenue assurance control points but he also introduces management techniques that strike me as being pretty helpful to newcomers (looking at risk strategy as the interconnection between risk management cycles, for example). I think he will open many people’s eyes to some wholly new categories of risk that will need managing in the modern communications service provider. He gives over a whole chapter to the specific headache of dealing with anti-money-laundering and anti corruption controls that are unfortunately part of the customer billing and management world now: a very valuable summary.

All in all, this book distills a great many years of practical experience in a presentable and practical form and is sure to be useful to those entering the realm of revenue management.

In the future, everyone will be famous for fifteen megabytes


Barclays have started a new service whereby you can upload your own image and get a personalised debit card. This sounded like a really fun idea, so I thought I’d give it a try. Unfortunately, Barclays rejected my chosen image because it “has not met our image guidelines”. So I thought I’d better read them before I send another image. The guidelines are that the image must not contain any of the following:

  • Trademarks or company names (e.g., images marked with ® or ™ signs);
  • Images or text protected by copyright (e.g., images marked with © or other watermarks or notations);
  • Slogans, tag lines, branding, marketing or promotional products, services or images of companies;
  • Images of, or the name or nickname of, celebrities, musicians, sportspersons, entertainers, public-figures, film stars, cartoon characters, members of the Royal Family or other famous people;
  • Contact information (e.g., telephone numbers, online usernames, account numbers, addresses or e-mail addresses);
  • Political statements, or images relating to ethnicity or religion;
  • Images of flags;
  • Images, signs, symbols or text relating to money, currency, drugs, tobacco, alcohol, gangs, hatred, graffiti, betting, gambling, or financial products or services;
  • Provocative, lewd or sexual images or content;
  • Nudity;
  • Offensive material (e.g., images, signs, symbols or text relating to violence, death, injury, racism, cruelty, profanity, obscenity, weapons, firearms, ammunition or terrorism);
  • Anti-social or obscene behaviour, or socially unacceptable groups;
  • Content where drinking (or being drunk), smoking or gambling is the focus;
  • Text unless benign and in the English language;
  • Any image that might reflect poorly or might engender hostility toward company brands (including MasterCard®, Visa® or Barclays);
  • Any reference to the Olympic Games, World Cup or any other international branded event;
  • Reference to any bank, building society or other monetary institution;
  • Any inappropriate content;
  • Weapons may only be included if they are being shown in a ceremonial context.

Having scoured the contents of my hard disk I’ve been unable to locate a single image that doesn’t fall foul of these guidelines, so I’ve had to abandon the experiment.

Interestingly, my existing Barclays debit card appears to fall foul of these guidelines because it makes reference to a bank and shows my account number. I will call the help desk to warn them.


In the future, everyone will be famous for fifteen megabytes

Mobile data paradox

My chum Tony Poulos interviewed an analyst from Ovum about mobile data pricing recently. I was listening to this, and it reminded me about a huge telecommunications conference that I attended a couple of months ago. There were hundreds of people and operators from all around the world. At one point during the event, the wifi went down. At this point, not only did people stop blogging, twittering and otherwise recording what was going on but actually stopped looking at and listening to the speaker. Basically, at an event full of people from telcos, no-one had data roaming turned on.

The mobile operators have priced mobile data roaming so insanely that they are encouraging their customers and their own employees to seek alternatives. Instead of making a reasonable amount of money from them, they make none, and are actively training the customers to reduce future revenues. I don’t need my e-mail every second – it’s not like I’m a heart surgeon waiting to hear about a transplant – and people can text me if there’s anything urgent. So I leave roaming turned off and wait until I walk part Starbucks or wherever.

If they keep this up, they may be able to persuade to turn off mobile data completely.


In the future, everyone will be famous for fifteen megabytes

Which emergency service? Digital Champion please.

Yet more speed camera misery in our house. 50 in a 40 at 12.30pm on a deserted stretch of well-lit road near Guildford. But hurrah! A form arrives saying that as a means to rachet up middle-class motoring taxation a notch further, my good lady wife can opt to go to on speed awareness course and thus get off of the points. We fill out the form — name, address, driving licence number and so on (every single field on the form was something that they already knew) — and send it back.

A couple of weeks later, we get another letter, saying that they have not yet heard from us and that if they don’t hear from us then my good lady wife will be fined and “pointed”. So I set about filling in the same form yet again. Why can’t I do this online? The missive from the “Safety Camera Partnership” has a unique reference number, after all. There’s no phone number on either the form or the covering letter, so they clearly don’t want us to phone up, but there is a URL at the bottom of the letter so, hurrah, I assume I can deal with the issue online.

But, of course, there is nothing remotely transactional about the site. You can’t fill out the form online (and I’ll bet a pound to a penny that on the twentieth anniversary of the founding of Netscape on 4th April 2014, you still won’t be able to) although you can, in a nod to the 21st century, download the forms to fill out. Digital Britain at its finest: a pretty web site that cost zillions to build and but unable to execute any useful work at all. Isn’t this the sort of thing our Digital Champion is supposed to be doing when she’s finished teaching a fifth of the population to read so that they can use websites?


In the future, everyone will be famous for fifteen megabytes

Business banking

[Dave Birch] I see that Essex council has abandoned its plans to start its own bank to fund local businesses and the First Bank of Billericay, or whatever they were going to call it, will now never get off the drawing board. How this insane plan ever got to the drawing board in the first place is a complete mystery. Or, at least, it was until I read that the council spent £372,000 on management consultants

In the future, everyone will be famous for fifteen megabytes

Extra shots

[Dave Birch] The number of times I’ve found myself enraged by the expense of wifi — in a hotel, at a train station, wherever — is huge, but I think becoming slightly rarer. Apart from hotels, where the wifi charges are absolutely ridiculous, the situation is improving. I’m still curious, though, why free wifi isn’t more widespread.

I usually go to Starbucks because the company offers free, unlimited Wi-Fi

[From Tech Leaders: Google, Apple, and…Starbucks? —]

I tend to do this too. I think I prefer Caffe Nero coffee at the moment, and they have contactless payment terminals too (which ought to work faster than cash, but don’t, because of the way they are configured), but because I have a Starbucks card I can sit and get some work done using the free wifi. I really don’t understand why all coffee shops don’t just provide free wifi and be done with it and then get back to competing on coffee. Although I suppose there are other things to compete on still.

At my own local Starbucks, they’ve recently remodeled the store to add more and bigger desks, and dozens of outlets. Rather than encourage people to pay and leave, as have many big chains, Starbucks clearly encourages loitering

[From Tech Leaders: Google, Apple, and…Starbucks? —]

The theory, presumably, is that other than at peak times there is always room to sell another cup, a piece of cake, a biscuit for people who want to stop and work/read/relax. The next logical step would be to have iPads built in to the tables for people who want to read the news and browse around. Presumably it would be cheaper to negotiate a global deal with News International instead of messing about printing, delivering and returning copies of the The Times. (Like many people, I’m sure, I pick up my copy to read in the queue and while I’m waiting for my coffee, but I never buy it and leave it at the pick-up point.).

In the future, everyone will be famous for fifteen megabytes

Music and business

[Dave Birch] Here’s an example. I just paid £17.38 for “Bernie Plays Rory” by Bernie Marsden. Why? Because I wanted it and couldn’t find it on iTunes. There was no need to try and find a pirate version to see if I played it a few times because I already knew that I wanted it. Why? Because there’s a track on there that I love and often play in the car. Why? Because I have it on a recording of the Paul Jones show on BBC Radio 2 that I downloaded. Why? Because I often listen to Paul Jones to find new music, but I listen to him when I’m cycling to work or in the car. If you subscribe to the BBC podcast of the show, it doesn’t have the music in (hilariously). I assume this is something to do with Big Content. So instead I found a piece of shareware that lets you download from iPlayer instead of having to listen on the computer. For months I have been using this to download the Paul Jones show to my iPhone. But now it doesn’t work any more, presumably because the BBC have changed iPlayer in some way.

Well, there we are. I won’t be buying any more CDs from musicians like Bernie because I can’t listen to the Paul Jones show any more. Who does this benefit, exactly?

In the future, everyone will be famous for fifteen megabytes

A bunch of bankers

[Dave Birch] A fascinating research paper shows that

male chess players choose significantly riskier strategies when playing against an attractive female opponent, even though this does not improve their performance. Women’s strategies are not affected by the attractiveness of the opponent.

This seems to me to be as reasonable explanation as any as to why the banksters (bankster = banker who works for a privately-held bank that is “too big to fail”) took such absurd risks with other people’s money. As soon as women began appearing on trading floors, the male bankers were unable to control themselves and began putting ever-larger bets on ever-more absurd propositions that they didn’t really understand, confident in the knowledge that they had no downside. In the old days, when bankers were generally rather dull (but rather rich) men, the risks they took were proportionate. Now that bankers include attractive women, it’s all gone pear-shaped. I suggest that it is only a matter of time before the first lawsuit is filed by an out-of-pocket customer against a bank for employing women who are too attractive: perhaps this is what UBS has in mind with its new dress code that prohibits tight blouses, short skirts and black underwear.

In the future, everyone will be famous for fifteen megabytes