According to the latest, spring 2022, edition of the "Payment Radar" of Latvijas Banka, the idea of withdrawal of small denomination (1 and 2 cent) coins from circulation has been supported by the majority of Latvia's population for the first time in the measurement history.
The "Payment Radar" contains the latest information on money usage habits of Latvia's households, businesses and the public at large. This information has also been obtained from the results of the population survey conducted by a market and social research agency SIA Latvijas Fakti.
The "Payment Radar" is published semi-annually and available on Latvijas Banka's website (https://www.bank.lv/en/tasks/payment-systems/payment-radar). Development of the proportion and interaction between non-cash and cash payments (as at February 2022) is the central measurement of the overview supplemented by more detailed numerical information and experts' commentaries.
February 2022 saw an increase in the share of non-cash payments and a decrease in the number of payments made by one inhabitant within a week compared with the measurement carried out at the end of summer 2021. The population has made on average 9.5 non-cash and 3.3 cash payments within a week (9.7 and 4.1 payments a week respectively in August 2021). Thus, the proportion of non-cash and cash payments is 74% to 26% (70% to 30% in August 2021) which is the highest share of non-cash payments attained ever before (by way of comparison: the proportion of non-cash and cash payments was 58% to 42% in February 2017).
The measurements of people's attitude towards small denomination euro coins have also reached historical levels. In February 2022, 51% of those surveyed expressed the view that 1 and 2 cent coins should be withdrawn from circulation, 43% said that they should remain in circulation, while 6% of the respondents were unable to form their opinion. In August 2021, the withdrawal of small denomination coins from circulation was supported by 43% of the population, 50% of the respondents pointed out that these coins should be retained in circulation, but 7% of those surveyed found it difficult to express their views.
Latvijas Banka would like to note that practical and tangible steps towards reducing the number of 1 and 2 coins in circulation have already been taken: 1) Latvijas Banka has not been minting 1 and 2 cent coins for several years now, and it obtains the amount necessary for circulation through exchanging other denomination coins with other euro area countries; 2) measures have been implemented within the cash cycle in cooperation with partners (banks and their agents, cash collection companies); 3) the population and public benefit organisations are welcome to the central bank to credit the amount equivalent to the value of coins to their bank accounts; 4) work on automation of the euro coin exchange is also underway.
The latest "Payment Radar" of spring 2022 shows that:
– the proportion of cash and non-cash payments executed by one inhabitant of Latvia constitutes 26% and 74% respectively (30% and 70% respectively in August 2021);
– the use and share of instant payments in interbank payments continue to follow an upward path. The volume and value of instant payments made in the second half of 2021 stood at 10.18 million and 4.04 billion euro respectively, reaching more than 104 thousand instant payments on certain days (the volume and value of instant payments executed in the first half of 2021 represented 8.0 million and 2.16 billion euro respectively, with approximately 76 thousand instant payments made on particular days);
– overall, 52.1 million payments worth 84.6 billion euro were executed in the instant payment service and the clearing service of the electronic clearing system (EKS) maintained by Latvijas Banka in the second half of 2021 (48.9 million payments worth 75.1 billion euro were made in the first half of 2021). The share of instant payments in the EKS payments executed between Latvian credit institutions climbed to 26.11% in the second half of 2021 (22.41% in the first half of 2021).
– the use of instant links also continues to grow, and the Proxy Registry "Instant Links" contained 609 thousand instant links in late 2021. 20.57 million requests for more user-friendly initiation of payments were made in the second half of 2021, reaching more than 150 thousand requests on certain days;
– the next step is the launching of the instant payment request service to make payments even more user friendly. Latvijas Banka has completed the development of the instant payment request service, which is now available to banks and other providers of such payment services for testing and offering to their customers. Instant payment requests will be applicable in virtually any field, particularly when making more user-friendly and safer (also faster) e-bill payments, likewise in e-commerce and other areas;
– public satisfaction with the availability of cash is growing further. In February 2022, 84% of Latvia's population (by 2 percentage points more than in August 2021 and by 6 percentage points more than a year ago) were satisfied with the opportunities to withdraw cash from their bank accounts. At the initiative of Latvijas Banka, an agreement on preserving access to cash across Latvia was reached with the leading representatives of the financial sector in 2021;
– the number of people who have heard about the potential introduction of the digital euro in the future has climbed (to 39%; 29% in August 2021);
– the number of those who have heard about cryptocurrencies is also following an upward path (89% in February 2022; 77% in August 2021). The number of people who have acquired or purchased cryptocurrencies has doubled (to 8% in February 2022; 4% six months ago). This points to growing risks associated with the use of cryptocurrencies. These risks are highlighted in the commentary by Emīls Dārziņš, Head of the Payment Systems Policy Division of the Payments Systems Department, Latvijas Banka (see below);
– new positive records have been hit in the field of cash security. The number of counterfeit euro banknotes and coins detected in circulation in the euro area overall was at the historically lowest level, i.e. 12 counterfeit euro banknotes per 1 million genuine notes in circulation (by way of comparison: there were 17 counterfeit banknotes per 1 million genuine notes in 2020, whereas in 2014, when Latvia joined the euro area – 48 counterfeit banknotes per 1 million genuine notes). The downward trend in the number of confirmed counterfeits has also been observed in Latvia. In 2021, 703 counterfeit banknotes and coins were detected in circulation, i.e. 25% less than in 2020, and the financial losses caused by counterfeits totalled 27 282 euro (12% less than in 2020).
Aigars Freimanis, Director of SIA Latvijas Fakti, Harijs Ozols, Head of Information Systems Department and ZibLab++ of Latvijas Banka, Ģirts Jansons, Deputy Head of the Cash Department of Latvijas Banka and Aleksandrs Antiņš, Head of the Cash Technology Division of the Cash Department of Latvijas Banka have also commented on the recent trends observed in development of the use of cashless money and cash.
COMMENTARY SECTION
Aigars Freimanis, Director, SIA Latvijas Fakti: the population increasingly opts for cashless and modern payments
The survey conducted in February 2021 reaffirms the trend already seen in the surveys carried out in 2017, i.e. the number of cash payments is gradually but steadily declining. The average inhabitant of Latvia pays cash only in 26% of cases out of the total number of payments made within a week.
The number of the respondents effecting payments via smartphones has somewhat increased. The February survey revealed that 13% of its respondents use their smartphones for making payments. For the greatest part, they are respondents aged 15–35. It should be understood that a smartphone competes with the ordinary payment card in the minds of consumers, since the card use has also been simplified.
The results of the February survey suggest that it is the first time that a slight majority of Latvia's population (51%) agrees that small denomination coins or the so-called "brown coins" might be withdrawn from cash circulation. The surveys conducted so far show that the vast majority of respondents opposed to such a step. This is where interaction between several factors certainly occurs, i.e. inflation reduces the need for small denomination coins, they are not very user-friendly due to their small size. Most payments are made using non-cash money, and the small denomination cents are starting to look archaic.
Ģirts Jansons, Deputy Head of the Cash Department, Latvijas Banka: 1 and 2 cent coins – time to take action!
The survey conducted in February 2022 by a market and social research agency SIA Latvijas Fakti shows that it is the first time the number of population supporting the withdrawal of 1 and 2 euro cent coins from circulation has exceeded that of people who want to continue using small change when making day-to-day payments. Moreover, the difference is substantial – 8 percentage points (51% of those surveyed have expressed the view that 1 and 2 cent coins should be withdrawn from circulation, but 43% – that they should remain in circulation; 6% of the respondents were not able to form their opinion).
The discussion on the future of the small denomination euro coins has been ongoing for some years now. It has been facilitated by:
- experience of other countries limiting the use of 1 and 2 cents via sales rules (Finland, Ireland, the Netherlands, Belgium, Slovakia (to be introduced));
- similar discussions in our neighbouring countries Estonia and Lithuania;
- the pan-European initiative whereby the assessment of the usefulness of small denomination coins has been commenced;
- the initiative My Voice; the society of Latvia has launched a debate on the future of these coins.
It should be borne in mind that the present-day challenges faced in the fields of sustainability and climate involve not only considerable resources necessary for minting 1 and 2 cent coins but also the additional effects on nature caused by transportation and handling of these coins. A large part of the above coins gets lost, leading to inefficient use of resources.
Just for information: even though Latvia introduced the euro already in 2014, 1 and 2 santim coins totalling approximately 4.7 million euro have not been exchanged at Latvijas Banka yet. People have irretrievably lost this money, which in turn pollutes nature. It is highly likely that these coins will never be exchanged to euro. 1 and 2 euro coins follow a similar pattern, i.e. only around 10% of these coins return to Latvijas Banka. Imants Ziedonis said that there is no great happiness, there are only bits and pieces of happiness. The situation with climate challenges is similar, i.e. the overall impact on nature is composed of a mixture of many different seemingly small factors, but their combination has a significant effect. The withdrawal of 1 and 2 cent coins opens a small but vital window of opportunity for the public to lead a more nature-friendly life.
This turning point in public mood was no surprise to Latvijas Banka. We have taken the first practical and tangible steps towards reducing the number of 1 and 2 cent coins in circulation. First, in the cash cycle, cooperation with our partners (banks and their agents, cash collection companies) aims at minimising, as far as possible, the amount of small change in circulation. Second, we encourage people to take their piggy banks to Latvijas Banka and credit the amount equivalent to the value of coins to their bank accounts (for exchange conditions, see https://www.bank.lv/en/services/exchange-currency-denominations). Public benefit organisations are particularly invited to do so. They can exchange an unlimited number of coins following registration at Latvijas Banka. Third, the near future will see the modernisation of the euro coin exchange process, which will involve automation of the Cashier's Office of Latvijas Banka and will allow people to exchange coins via automated machines.
To save resources and optimise the provision of euro coins, Latvijas Banka has not been minting 1 and 2 cent coins for several years now; instead it obtains the amount necessary for circulation through exchanging other denomination coins with other euro area countries that have already withdrawn 1 and 2 cent coins from circulation.
These measures are far from being the only ones aimed at reducing the number of 1 and 2 cent coins in circulation. The idea of rounding the total amount of purchases when paying cash remains vital. This would not mean that shops increase prices by rounding them to the closest multiple of five. The total amount of the purchase would be rounded, i.e. if it ends in 1, 2, 6 or 7, it would be rounded down, whereas a sum ending in 3, 4, 8 or 9 would be rounded up.
With public support following an upward path, we hope that it will not escape the notice of traders. Our ability to follow suit of other euro area countries by introducing rounding of the total amount of purchase and thus saving public resources and respecting nature depends on traders' position most directly.
Latvijas Banka is ready to sit down at the negotiating table to discuss further steps, but in the meantime we will continue looking after the public good, i.e. we will not waste resources on minting new coins, but will facilitate their return to Latvijas Banka.
Harijs Ozols, Head of the Information Technology Department and ZibLab++, Latvijas Banka: innovations – the new normal in the payment area of Latvia
This summer will mark five years since Latvia pioneered the introduction of instant payments in the euro area through the instant payment service developed by Latvijas Banka. They are interbank payments that are based on uniform euro area standards and executed within a matter of seconds 24/7/365 also at weekends and on public holidays. I remember that in those days we were concerned about whether the Latvian financial sector and customers would be interested and ready to adopt new technologies in the traditionally conservative banking sector and, more generally, how all this will function in practice. Expectations have been more than fully met, and today various innovations (not only instant payments and the products of the infrastructure maintained by Latvijas Banka) are the new normal (the new standard) in the payment area of Latvia.
The number of instant payments and their share in the total volume of payments continue to follow a dynamic upward trend. In 2021, the volume and value of instant payments processed via the instant payment service increased 1.6 and 2.5 times respectively (the volume and value of the processed instant payments were 18.4 million and 6.3 billion euro respectively), with up to 100 thousand instant payments processed on certain days.
Until the end of 2021, the volume and value of instant payments made in the instant payment service totalled 38.77 million and 10.38 billion euro respectively.
The share of instant payments made between Latvian credit institutions via the payment systems maintained by Latvijas Banka increased to 26.11% in the second half of 2021 (22.41% in the first half of 2021).
In late 2021, the Proxy Registry "Instant Links" contained 609 thousand instant links, and 20.57 million requests for more user-friendly initiation of payments were made in the second half of 2021, reaching more than 150 thousand requests on certain days (compared with 484 thousand instant links registered at the end of the first half of 2021 and 12.53 million requests made in the first half of 2021).
Particularly noteworthy is the successful joining of the Treasury (as of late January 2022) to the instant payment infrastructure provided by Latvijas Banka. The public sector is also receptive to innovations and cares about public comfort.
As regards the future plans, Latvijas Banka has completed the development of the instant payment request service, which is now available to banks and other providers of such payment services for testing and offering to their customers. Initially, instant payment requests might be used for making more user-friendly payments between customers of different banks, but overall instant payment requests should be used in virtually any field, particularly when making more user-friendly and safer (also faster) e-bill payments, likewise in e-commerce and other areas.
The instant payment request service is the third element of the comprehensive and modern payment solution set (together with instant payments and instant links) provided by Latvijas Banka. Innovative payment solutions are increasingly entering everyone's life, making it more comfortable. What matters is that they also help businesses develop new products and services.
Emīls Dārziņš, Head of the Payment Systems Policy Division of the Payments Systems Department, Latvijas Banka: interest in cryptocurrencies is increasing (and so are the risks)
We regularly hear about cryptocurrencies (bitcoin, ethereum, ripple, dogecoin, etc.) in a wide variety of situations. Phone fraudsters call people and "catch" the credulous ones, promising them massive profits if they entrust money to the callers for investment in cryptocurrencies; in the shadow of global distress, investors look for a safe haven for their investment, and the value of cryptocurrencies is more volatile than before; Russia mentions cryptocurrencies as a possible option to circumvent the sanctions imposed by Western countries on its financial system in response to the barbaric attack on Ukraine. Moreover, the platforms selling cryptoassets try, on their own initiative, to combat this practice (e.g. the platform Coinbase froze accounts of 25 000 users from Russia).
The survey conducted by SIA Latvijas Fakti in February 2022 also confirms that awareness of Latvia's population of cryptocurrencies is rising, i.e. 89% of the population have heard about such currencies (77% a year ago), but 8%, which is twice as much as in 2021, have acquired or purchased them.
Awareness does not necessarily mean literacy. One question is still open – how many of those who have started, or intend, to deal with cryptocurrencies understand that a cryptocurrency is not money by nature but a volatile and risky asset. This is a crucial aspect, and the survey by SIA Latvijas Fakti confirms that cryptocurrencies are increasingly used for investment rather than payments. In February 2022, only 12% of those surveyed dealing with cryptocurrencies said they had used them for payments, but 80% of the respondents had not used cryptocurrencies for this purpose. Just a year ago, cryptocurrencies were employed by 19% of the users but in 2020 – by 24%.
What should one know when dealing with cryptocurrencies? Here are some suggestions to be considered.
- First of all, one should understand the nature of cryptocurrencies and the principles of their purchase, bearing in mind that they cannot be purchased simply by making a phone call. By learning simple fundamental principles we expose ourselves to a substantially lower risk of being cheated.
- There are different types of cryptocurrencies, and the principles of their acquisition may vary considerably. Therefore, if you decide to invest in one of the cryptoassets, it has to be scrutinised. Historical evidence suggests that the pyramid or Ponzi schemes have been referred to as cryptoassets, and architects of these schemes have vanished together with investors' funds.
- A very wide range of factors can affect the price of cryptocurrencies therefore their value is highly volatile. National political decisions, announcements by large firms and public personalities can significantly and rapidly affect the value of cryptocurrencies (e.g. in 2021, Elon Musk came up with several contradictory announcements concerning the acceptance of cryptocurrencies when paying for a Tesla electric car, and each such case triggered significant market fluctuations).
- A large part of cryptocurrency transactions is easily traceable in the blockchain, and anyone who knows the address of the wallet can check its content and see the transactions undertaken. Thus, if somebody tells you that he/she has transferred money to your wallet, you can check it easily.
- Keep your private keys to cryptowallets in as many and different secure places as possible. When the key is lost, you lose access to your wallet and thus your cryptoassets.
- Finally, one should bear in mind that the use of cryptoassets as an investment instrument involves the compliance with the obligation imposed by the State Revenue Service to pay the personal income tax of 20% of the profits made into the central government budget.
In conclusion, I would like to invite you to familiarise yourself with the analysis carried out by Kristīne Petrovska on global trends in supervision of cryptocurrencies, as well as econometric modelling of their spread in Latvia (both articles are available in Latvian only). The main conclusions are as follows:
- overall, Latvia's population shows relatively little interest in cryptoassets, it arises occasionally and in some regions;
- payments made to top up cryptowallets are similar to gambling payments;
- investment by Latvia's population in cryptoassets is closely linked to the bitcoin price;
- on a global scale, capitalisation of the cryptoasset market has increased to 2 trillion euro or about 280 euro per person on Earth since 2020;
- supervisors of financial markets in Europe, the USA and elsewhere do not lag behind these developments: they offer a crypto surveillance framework that will include the same requirements as those applicable to comparable assets at banks.
Aleksandrs Antiņš, Head of the Cash Technology Division of the Cash Department, Latvijas Banka: euro banknote and coin counterfeiting at historical lows
The year 2021 reconfirmed that the euro is the safest global currency. The number of counterfeit euro banknotes and coins identified in circulation was at a historically low level, i.e. 12 counterfeit euro banknotes per 1 million genuine notes in circulation (by way of comparison: there were 17 counterfeit banknotes per 1 million genuine notes in 2020, but in 2014, when Latvia joined the euro area – 48 counterfeit banknotes per 1 million genuine notes).
The downward trend in the number of identified counterfeits was also observed in Latvia, which already ranks among the euro area leading countries in terms of cash security. In 2021, 703 counterfeit banknotes and coins were detected in circulation, including 497 and 206 counterfeit banknotes and coins respectively. This constitutes a decrease of about 25% compared with 2020 when 931 counterfeit euro banknotes and coins were identified (706 banknotes and 225 coins).
The financial losses caused by counterfeits totalled 27 282 euro (including 26 905 euro and 377 euro due to counterfeit banknotes and coins respectively), constituting a drop of approximately 12% compared with 2020 when the financial losses caused by counterfeits stood at 30 818.5 euro (including 30 415 euro and 403.5 euro due to counterfeit banknotes and coins respectively).
In Latvia, 50 euro notes were the most counterfeited banknotes (229 counterfeits in 2021), followed by 2 euro coins (176 counterfeits) and 20 euro banknotes (140 counterfeits).
In the euro area overall, 347 000 counterfeit banknotes were identified in 2021 (a decrease of around 25% compared with 2020 when 460 000 counterfeit banknotes were detected). In the euro area as a whole, 50 euro and 20 euro banknotes continued to be the most counterfeited ones, jointly accounting for about two thirds of all counterfeit euro banknotes.
These data confirm that the introduction of the euro banknotes of the second series, which ended in May 2019, has ensured further improvement of the security of euro banknotes and coins. I would like to praise the individuals and economic operators who take cash security very seriously and are truly at home with the design and security features of euro banknotes and coins. However, one thing I have reiterated year after year and will keep on doing so is the importance of being awake and on the watch when dealing with cash. Although the aggregate statistics suggest that the situation of cash security is very good, each individual case when a counterfeit euro banknote ends up in a wallet hurts the victim of such a crime. Moreover, not only from a financial point of view.
The sociological survey data and detailed information are available at https://www.bank.lv/en/tasks/payment-systems/payment-radar.
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