South Korea Aims to Become Coinless by 2020

Started by Bimat, April 16, 2016, 05:16:07 PM

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Bimat

Korea going coinless by 2020

Park Han-na | The Korea Herald/Asia News Network | Saturday, Apr 16, 2016

Korea is officially going cashless by dumping coins first.

In the country that boasts high smartphone adoption and credit card ownership, the way people pay for everything is changing, with more digital transactions than ever before.

To spur the trend, the Bank of Korea is seeking a digital way to replace coins for transactions with its aim to make Korea a "coinless society" by 2020.

"The most important goals are resolving inconvenience that consumers and shops feel while carrying and storing coins and reducing the cost of minting coins," said Kim Jung-hyeok, head of the Electronic Banking team at the BOK and head of the project.

The central bank already has started to phase out the coins by cutting the volume of coin production from 137.8 billion won ($120.2 million) in 2005 to 103.2 billion won last year.

But it still spends more than 50 billion won a year minting coins.

Under the plan, people who pay cash at retailers such as convenience stores and discount chains will receive change not in coins, but in noncash payment instruments like transportation cards, credit cards or to mobile bank account.

"Consumers show different preferences for the options to transfer the coin change into their cards, but we will begin with public transportation cards first. By next year, the system is expected to run after completing a model development and pilot test this year," Kim said.

The scheme aims to gradually scrap cash altogether, but not entirely make it extinct, he added.

For instance, if a consumer gives 10,000 won for a 8,500-won item, vendors would directly deposit 500 won to a card and give back 1,000 won in cash, or the entire 1,500 won to an account of their choice.

Experts said that the central bank-driven initiative is unlikely to have a major impact on the country's society and economy.

"While the demise of cash needs a social consensus, the coinless society is more like a technical issue in which the success of the scheme depends on the realisation of infrastructure," said Kang Im-ho, a professor at Hanyang University and a member of advisory panel for the BOK's plan.

"It's a coordination game among the government, financial firms, retailers and consumers."

Kang said that the country's high credit card ownership -- citizens own an average of 1.9 credit cards -- provides conditions favourable to spur cashless payments.

Then, why not go completely cashless from the outset?

Unlike European countries such as Denmark, Sweden and Norway -- global leaders of the electronic money trend -- where ordinary consumers rarely use high-value notes, Korea still has comparably high demand for cash.

Statistics from the Bank of Korea show that cash makes up the second-largest share of consumer transaction activity at 36 per cent in 2015, following credit cards at 39.7 per cent. Scandinavians rely on cash for less than 6 per cent of all payments made.

"In some Asian countries including Korea and China, people give large sums of cash as gifts at weddings or funerals. Such a cultural backdrop shows that Korea needs a different approach toward a cashless economy," said Moon jong-jin, an economy professor at Myongji University.

With a rapidly aging population, the demographic composition is drawing concern about how well elderly people will adopt the new electronic payment options.

"I don't think it's possible to establish an absolute cash-free world here. It will be better to give seniors options like we did for smartphones. Not everyone uses smartphone, but it's their choice," Moon said.

To bring the underground economy out in the open, however, ditching notes and coins is a crucial task for Korean society.

"It is important for countries like Korea which suffer a severe polarisation of wealth due to the shadow economy to pursue more transparency," he said.

Source: Asia One Business
It is our choices...that show what we truly are, far more than our abilities. -J. K. Rowling.

FosseWay

The other day I was waiting for a ferry at the back of beyond. The waiting room incorporated three public conveniences, for which you have to pay (as with virtually all public toilets in Sweden) - indeed in this case the charge was a whopping 10 kronor, which I think is daylight robbery. But anyway.

Of the three, only the disabled one had a coin slot; the others were activated by using an app to receive a PIN code that you then punched into the keypad by the door. I don't have a smartphone, so the choice was made for me. But in the time I sat and waited for the ferry, three other people used the loos, two of whom chose to use the electronic payment method. One of those already had the app installed; it took her about 30 seconds to acquire the code and enter it into the pad. The other person had to get the app and then do the same. It took him about 3 minutes. It took me about 5 seconds to fish a 10kr coin out of my pocket and insert it into the slot.

Quite apart from the inequality inherent in a system that requires the use of a gadget that itself costs money to obtain and run, requires the acquisition of skills that not everyone necessarily wants or is able to acquire, and whose use is often limited by where you are and what country you're a citizen of; apart from all that, I seriously doubt that it is actually better value for the world at large to get everyone to pay for toilets using a smartphone app. The same applies to small purchases at grocery stores - it takes longer to mess with the card reader and PIN keypad than it does to hand over a single coin for a kanelbulle.

Beyond that, the infrastructure needed for coin handling is simple and fairly maintenance free. The set-up costs for electronic payment systems are far higher, and I suspect the maintenance costs are too. The latter makes sense when you have people spending large amounts of money regularly, but not where you get a wide range of people who each may only ever make one visit to a particular toilet in their lives, spending a whole 10 kronor.

I can't help thinking that this drive to coinlessness is simply another attempt to put the burden for paying for basic infrastructure onto the user directly to save government authorities time and money. In the toilet example, the government saves money by - in the longer term - not having to mint coins. The toilet company then has to pay for all the electronic gadgetry as well as the toilet itself, and they then transfer the cost to the user who has to pay the toilet fee, the subscription to a telecoms provider and for the phone itself. It wouldn't surprise me if the reason these particular toilets cost 10 kronor rather than the more normal 5 kronor is precisely because the exhorbitant cost of all this unnecessarily complicated equipment has been transferred to the end user, who to make matters worse does not experience a better service as a result.

The whole thing stinks, quite frankly. (Metaphorically - the toilets in question were actually well maintained and cleaned.)

Pabitra

Then how come, Sweden plans to issue a new series of coins later this year, including a 2 Kronor coin for the first time after many years?

Figleaf

Another example: I have an invalid parking card which is valid in the whole EU, except in Amsterdam, where you need to get a local invalid parking card as well. The European card is European because it conveys prestige, not because European validity is better. The Amsterdam requirements are simply because Amsterdam insists that a) all parking payments are made electronically and b) you state your license number and their funny software doesn't accept foreign license plates. I try my best to avoid the city as if the plague has returned.

It is all rational. Governments are run on two things: budgets and policy. A budget is the amount you must spend, rationally or not, and must increase in order to become more important. A policy is what politicians use to show how useful they are. Neither efficiency, nor customer satisfaction plays a role as it affects neither budget (determined by bureaucratic infighting with a political gloss over the result) nor policy (determined by politicians and enhanced with a bureaucratic gloss.)

If there is a budget to make coins, they will make coins (think of US dollar coins.) If there is a policy to do away with coins, they will make less coins. Damn the consequences, full speed ahead. Don't get me wrong. Bureaucrats are not evil. They just live in a world warped by the rules made by us, the voters. We maintain the budget system and do not insist on measuring efficiency. We take any policy they feel like dishing out with little or (mostly) no complaint. We allow the ones who use the system best to be promoted and the ones who want to be fair and rational instead to be chucked out.

Peter
An unidentified coin is a piece of metal. An identified coin is a piece of history.

FosseWay

I'm sure that Sweden will eventually follow in South Korea's footsteps, and will be one of the first EU states to do so, but even the most rabidly technophilic (or miserly) government apparatchik recognises that we're not there yet. In fact, the demographic situation in many European countries, where there are large numbers of transient non-citizens with very low financial resources, no credit history and so forth, will put a brake on this development. I'm not familiar with South Korea but my guess is that they don't have a similar influx of people from outside.

The forthcoming change in Sweden's coins will be interesting in this respect. How many kommuner and private owners of services that are currently paid for by coin meters will not bother changing their machines for the new coins and instead go over to electronic payments for very small items like toilets?

FosseWay

QuoteI have an invalid parking card which is valid

Don't you just love the English language!  ;D

onecenter

Coinless, perhaps, but I would imagine that precious metal coinage for collectors will continue to be minted.  If the people in North Korea are ever liberated from their dynastic communist dictatorship, coins will most likely re-emerge in daily commerce.

One of the world's more important fabricators of coinage blanks is a South Korean company.  I wonder if they will move any South Korean domestic production overseas.
Mark

Pabitra

#7
South Korean and Japanese mints have been aggressively pursuing international businesses, after significant decline in domestic orders.
With Thai mint emerging as a big producer, these mints may soon share the fate of Nordic mints.

Verify-12

Quote from: FosseWay on April 16, 2016, 07:09:48 PM
Don't you just love the English language!  ;D

In the USA we would call it "Handicapped" parking.   "Invalid" seems to have a negative, even derogatory, connotation.

Figleaf

It's the other way around in France. Napoleon's grave is the "Dome des Invalides" and the nearest métro stop is Invalides. The official term is Grand Invalide de Guerre - Grand Invalide Civil or GIG - GIC, but that's pompouspeak only. "Grand" means that you don't need to apply if you have a broken fingernail. I suspect handicapé is used mostly for golfers. ;)

Peter
An unidentified coin is a piece of metal. An identified coin is a piece of history.

Verify-12

I don't like the idea of "Cashless" myself.   Coin-less makes sense, as minting fees and the constant loss of coinage is very inefficient.

But for cashless, I don't like the idea of having every single cent I earn and spend(!) "tracked and taxed."

It seems this is a capitulation to the reality now that it is totally up to the defenseless (i.e., not wealthy) of society to pay the taxes, since corporations and wealthy individuals have gotten so good at avoiding paying theirs.

How would a Korean citizen sell an old television to a neighbor?   Bank transfer?  That would be tracked as "income" for the seller, and he will be taxed for it.   What, for centuries was "off the books" for average people, is now "in the books!"

Every activity that you engage in that requires money can be tracked. 
Loss of privacy and sovereignty.   
Totally cashless?  BAD IDEA.

Verify-12

Quote from: Figleaf on April 24, 2016, 11:33:26 PM
It's the other way around in France. Napoleon's grave is the "Dome des Invalides" and the nearest métro stop is Invalides. The official term is Grand Invalide de Guerre - Grand Invalide Civil or GIG - GIC, but that's pompouspeak only. "Grand" means that you don't need to apply if you have a broken fingernail. I suspect handicapé is used mostly for golfers. ;)

Peter
So good to hear from you, Peter!
-Mark

Pabitra

Quote from: Verify-12 on April 24, 2016, 11:35:45 PM
  Coin-less makes sense, as minting fees and the constant loss of coinage is very inefficient.


How would a Korean citizen sell an old television to a neighbor?   Bank transfer?  That would be tracked as "income" for the seller, and he will be taxed for it. 


Minting fees is recovered as seigniorage and constant loss of coins is beneficial to central banks.
The seigniorage adds to GDP of the nation.

In most countries, sale of personal assets would not attract any capital gains.
Most of the eBay transactions are usually exempt in normal range.

Verify-12

Quote from: Pabitra on April 25, 2016, 04:50:39 AM
Minting fees is recovered as seigniorage and constant loss of coins is beneficial to central banks.
The seigniorage adds to GDP of the nation.

In most countries, sale of personal assets would not attract any capital gains.
Most of the eBay transactions are usually exempt in normal range.

But if the minting fees of coins are recouped by seigniorage, then why are the Koreans complaining about the cost of minting coins and are considering dropping coinage altogether?   

Pabitra

#14
There is no demand for lower value coins.
South Korea stubbornly refuses to coinise higher denominations.
Currently, 500 Won is the highest circulation coin which is worth 38 Eurocents.
On the other hand, rising GDP has made average Korean ( South) as affluent as any West European.

The mint is facing practically no orders from domestic central bank.
They aggressively went around the world in the "year of Monkey" and supplied free samples to many coinless nations but failed to gather any orders.

It is same situation as Netherlands and Belgium have stopped minting 1  and 2 Euro cents but Germany has 5 mints producing the same denominations  in sufficient quantity to meet the demand in neighbouring countries, whatever is left of it.

This is called " economies of scale".

Netherlands was actively thinking of closing down its mint. On the other hand, Belgium mint may never be closed even if it has no orders in hand.

This is called the phenomenon of "coinless" mint.😜