[Special Release] Why Cash Still Matters in Ghana – Jay Zagorsky [Season 2 | Episode #31]

Shaun Ferrari 00:00:32 Hey everybody! Welcome to the next episode of The P.I.T. Exchange, where we talk about the latest in payments, innovation and technology. And I am your moderator today, your host Shaun Ferrari with Currency Research and today’s special guest. We are thrilled to be joined by Professor Jay ZagorskY from the School of Business at Boston University. And Jay wrote The Power of Cash, his recent his recent book, There It Is, right on cue. Jay. Great to have you with us. Thanks for taking the time.

Jay Zagorsky 00:01:04 Thank you very much for having me on the show, Shaun.

Shaun Ferrari 00:01:07 Oh, love. Lovely to have you. And we you know, we luckily had the privilege of meeting you were you were on stage at our America’s Cash Cycle seminar down in Miami last week.

Shaun Ferrari 00:01:17 So it was great to see you in person. And and the audience loved hearing about the book and the messages that, that were in it. So it was great to see you and meet you. We also, are doing, as you know, and what we’re going to talk about today, we’re doing an event in, in Ghana, with the, the Bank of Ghana talking about the CD and its 60th anniversary. And I was chatting with with Jay on this topic, and we thought it was a great idea to have a little podcast here where we could talk about Ghana specifically and cash use in Ghana and why that’s important. And maybe some things about the the CD as well. so we thought let’s bring Jay on, let’s talk about the experience in Ghana and and cash and cash there so so J. Love to get some of your thoughts initially on why cash. What’s specific about Ghana? And we’ll just have a conversation in that realm that that works for you.

Jay Zagorsky 00:02:15 Sounds great Shaun. Shaun, let me be honest.

Jay Zagorsky 00:02:17 I’ve been to many parts of Africa, but I have yet to visit Ghana. So I’m approaching this as a professor from basically looking up data and comparing it to the many of the countries that I do know. And what I see is that it’s really important for people in Ghana to think about six things, six things as you rush headlong into this electronic age. And my point is very simple. It’s okay to have mobile money. It’s okay to have things like the OECD, but you need to keep cash around. Keeping cash around will help Ghanaian society and Ghanaian individuals. It’s very important not to say we’re going to go like Sweden or like China, completely electronic. Because when you do that, the six things I’m going to talk about and all of these are mentioned in my book, are going to be big problems. Let’s talk about the first. In my mind, one of the biggest problems. It’s literacy in Ghana. The world Bank and the data for the world Bank are a little bit old.

Jay Zagorsky 00:03:22 They come from 2021 and I realize right now that’s for or when you listen to it, maybe five years old data see that only about three quarters of Ghanaians are literate, according to the world Bank definition, that means one quarter of the people in Ghana have problems reading and writing, and in order to use mobile money, in order to use a mobile phone application or to use some other type of electronic payments, you need to be literate. You don’t have to go to college, you don’t have to necessarily have a higher degree, but you need to be able to basically have familiarity with words and familiarity with numbers. I was in Tanzania a couple of years ago, and the Tanzanian government had decided to switch all their payments to people like retirees to little ATM cards. So instead of handing out cash, the government said, we’re going to simplify this. We’re going to give everybody a pre-loaded ATM or debit card. And I was near an ATM and this old man came up to me. I guess I didn’t I wasn’t viewed as very threatening.

Jay Zagorsky 00:04:34 And he said the government has given me money, but I don’t know how to use this machine. I can’t read, I can’t write. So together we went up to the machine. He stuck his card in and I said, well, you need a Pin number in order to get money out of the machine. And he was like totally flummoxed. And he said, they handed me this piece of paper with my secret code on it, and he showed me the secret code. I said, okay, we’re going to type the numbers in. And he needed help even typing the numbers in, right? It’s sort of recognition. And I was convinced at that moment that electronic payments work, but they don’t work for everybody. And the larger your population that’s not literate. The more you need paper money, because everybody recognizes different colors and different sizes and shapes of money, whether you’re literate or not. So you need to keep that around. Paper money around for those people who are not literate.

Shaun Ferrari 00:05:24 Yeah.

Shaun Ferrari 00:05:25 No, I mean, that’s a great point. And I think even back to my parents, my, my father using technology like that. And it’s something that as folks age, right, it gets harder to use the technology that they may have been able to use because they feel a lot of people also say, well, yeah, but this next generation, when, when they get when they become elderly, it’ll be fine. They’ll just, you know, they’ll be able to use the smartphones and I’ve but I’ve seen it. I’ve seen it. Where in my own experience where just because you can use a smartphone when you’re 50, 60, 70 does not mean you can still use that when you’re 8090 plus, right? It’s just a different skill set. have to go back to the flip phones with buttons and all that sort of stuff too. It’s just the way it works. So I think it’s a great point.

Jay Zagorsky 00:06:09 Even flip flops with buttons don’t necessarily work. My mother has a boyfriend. Unfortunately, my father died and he has tremors in his hands, so even trying to push buttons on a phone, on a dial phone is almost impossible for him because he’s constantly making mistakes in order to type in, say, a number like ten.

Jay Zagorsky 00:06:29 It could take him a long time to actually get the one in the zero press correctly.

Shaun Ferrari 00:06:34 Yeah. No, exactly, exactly. And that’s where and even your your example of well, here’s what my code is. And he shares the, you know, the, the ATM code with you to put in there. it is nice that you’re so trusting. that’s look so trusting. Anyway, you’re trustworthy, but, you know, at least with cash, there’s a there’s a limit to the risk there, right? In terms of like, okay, well, even if you need help in terms of picking out the correct cash to use, your risk is at least bound by the money you’re holding in your hand. Whereas if you’re sharing an ATM code, that could be a lot more risk.

Jay Zagorsky 00:07:08 So let’s talk about a second point, which is that theft. And that was one of the most important points I was going to make. When you’re dealing with electronic money, when you’re dealing with something like the OECD and somebody gets access to your account unwittingly to yourself, your entire account is at risk.

Jay Zagorsky 00:07:25 However, with cash, it’s only the amount of cash on hand. Now, I’m not saying that cash doesn’t get stolen. I’ve had my pocket picked. A lot of cash got stolen at that moment. But I’ve only had pickpockets hit me once. I’ve had people attacked my bank account in the last year three times. Now they haven’t gotten any money away. The bank called up and things like that. But much more money was at risk using electronic money than carrying around cash on you. So I’m not saying that people don’t steal cash, but there’s a much higher example of fraud that is enabled by electronic payments than there is with paper.

Shaun Ferrari 00:08:04 Yeah. No, I think that’s I think that’s true. I always like to look at the, the counterfeit stats. I’ve spent a lot of time at the Federal Reserve. I worked at the Federal Reserve Board for many years, and we we looked at, oh, how our how our notes counterfeited and how many. And then, you know, you get that I don’t know what the numbers are now, but 70 million, $80 million.

Shaun Ferrari 00:08:23 You know, it’s these these numbers aren’t aren’t huge when you come out. They’re they’re tiny when you compare it to electronic fraud cases.

Jay Zagorsky 00:08:32 One of the things that people in Ghana should think about is the experience in Brazil. Brazil’s central bank created basically an instant payment system called Pix. And Pix has had two major attacks on it in the last six months, back in June and one in September. And if you add those two attacks together, it was a quarter of 1 billion USD. And this basically says that, yes, electronic payments are wonderful for many things, but when bad actors get into the system, large sums can be stolen very quickly because that’s what an instant payment system is. It instantly moves money from one person to another, or from one entity to another. And not always. Are those two entities legal or moral, right?

Shaun Ferrari 00:09:22 For sure. and I think maybe that kind of transitions us to one of the other points. I know you want to you want to make too, in talking about bad actors, but there are certain risks with how data moves and accessibility to data or to use systems.

Shaun Ferrari 00:09:36 Right. Particularly in the Ghanaian context.

Jay Zagorsky 00:09:39 So connectivity is the third point I’d really like to point out. And connectivity is really important. There is problems that in Ghana not everybody has mobile access or mobile access all the time, right? Especially in some of the rural areas, some of the areas closer to the borders. Electricity doesn’t work all the time. Right. That the electrical net. The mobile network isn’t always available. And this is not just necessarily a Ghanaian problem. When I travel around the United States, those parts of the country where my cell phone doesn’t work. I was in parts of Montana. Recently, Montana is a large western state and in half the state. I had no cell signal, no cell signal at all because there’s relatively few people there. So the cell companies didn’t put up enough towers. So first is that infrastructure problem for connectivity. But second, not everyone can afford cell phones all the time, right? So many people pay, say, to get data on their cell phones.

Jay Zagorsky 00:10:41 And when they run out of money, they can’t afford to add more minutes or more data to their cell phones. And if you’re using mobile money and you don’t have any money, it’s very hard to get any more. Last but not least, what I’d like to talk about is my own experience. Just before I got on the plane to visit Yushan in Miami. Me. And this. It was my cell phone and my cell phone. I don’t know if I can bring it up. I don’t know if you can see it, Shawn. No. I was about to get on the plane two hours before the plane, my cell phone decided to break big black line. And this means I can’t touch anything on my cell phone. So if my money was mobile money and many of my students. I am a professor. I teach in the University of Men and my students. They don’t carry cash. They don’t even carry credit cards or ATM cards. They just carry their phones. My phone just broke.

Jay Zagorsky 00:11:29 I have no idea why I turned it on, and there was this big black line in the top half of the screen. Doesn’t work. If my mobile money was on my phone and I had a flight to catch, I have a train to catch. I had a bus to catch. I can’t pay. So cell phones, they don’t necessarily work all the time. So we had these connectivity issues from the network power down to paying for your minutes or your data not actually having your cell phone work. Yeah, that brings me right into my second point, which is natural disasters. Ghana, like everybody else in the world, is seeing an increasing number of natural disasters. The world seems to be warming up and as the world warms up, there’s more things like floods and other big problems. And one of the things that I’ve been noticing about West Africa is that the temperature has been rising, and the temperature rising is a problem because cell phones shut off at a particular temperature. Let me tell you a quick story, and then I’ll tell you some numbers.

Jay Zagorsky 00:12:29 I like to bicycle a lot, and I was off bicycling one summer day, not this summer, but the one summer earlier. And my wife said, I want to know where you are. And she went off to the beach and I was done with my bicycling. It was around lunchtime, I got off, I called her and I said, I’m okay. And she said about two words and then suddenly, total silence. I was like, well, that’s strange. I called somebody else on my phone. My phone was working fine. Turned out she was at the beach and she had an iPhone and An iPhone shut off when they get too hot. As a matter of fact, they shut off anything above 35 C 35 Celsius, so around 36 or 37 they shut off to protect themselves. If you have mobile money on your phone and your phone shuts off because it’s getting too hot. Well, you have a problem. And Ghana has seen temperatures up to 40 C up to 40 Celsius, which means some people their cell phones are not going to work.

Jay Zagorsky 00:13:29 Or if you need to buy something or hop on a minibus or something like that, you have to walk into a store, find something and like cool it down with a can of soda. I mean, that sounds kind of ridiculous. Cash. Cash works at pretty much every temperature humans work at, so we have to worry about things like natural disasters in Ghana and keeping paper money around. Paper money works on a natural disaster, hits like high temperatures or even, say, a flood which washes away, say, mobile towers.

Shaun Ferrari 00:13:58 Yep. No. For sure. And I think, you know, you’re it’s not only when phones get too hot, I ski and I know if if it’s a really cold day, it kills the battery. Or at least it used to I’d seen in a few years. But. But the way the batteries used to work, if I had it in my pocket and after skiing for a couple hours, if it was really cold out, batteries just dead.

Jay Zagorsky 00:14:19 I would agree with you, but I’m not sure that skiing and extreme cold has anything to do with Gaia.

Shaun Ferrari 00:14:25 Well, not not about Ghana, but just temperature fluctuations in in general and how it can affect a phone.

Jay Zagorsky 00:14:32 It can indeed. And basically you’re creating, you know, a single point and failure. And paper money works in many circumstances where electronics do not.

Shaun Ferrari 00:14:42 Yeah. No for sure. And I think that’s one of the interesting things that the fed, as you know, does their diary study of, of payment choice. And they presented on some of the findings while they were in Miami. And one of the things that they noted, as they have in previous, previous studies as well, is that when your primary method of payment fails, your people go to cash. So whether or not it’s failing for these reasons or any other reason, and not just not just mobile money in this case, but credit card, debit card, whatever, whatever your primary way of of spending goes down or doesn’t work or whatever. They put a hold on your credit card because you’re in Miami when they think you’re in Boston and you know you’re it doesn’t it doesn’t work to protect you.

Shaun Ferrari 00:15:29 Very rarely do people try another electronic form of payment. They usually, if they have cash on them to your one of your other points to always have have some cash available. They take cash and pay with with cash which is interesting. I know I would do that as well. I don’t know if there’s an embarrassment factor there, or you just want to complete the transaction and, you know, cash work, you just want to move on. But it’s always, always interesting. Okay. So what’s another I think we’ve talked about what four four of the points. I think we’ve got maybe two more if my my tally is correct here.

Jay Zagorsky 00:16:00 Two more, two more. Let’s chat a little bit more and we can talk about many things beyond my number five, since we’ve already done four is security, so guardians make a lot of international payments. I know a number of people from Ghana and you know, they send money back and forth from the United States and other countries back home. I have a good friend.

Jay Zagorsky 00:16:22 I went to graduate school with him and he would send money back to his parents. How does that money transfer? Most people think it goes via satellite, but it really doesn’t. Almost all the internet, almost all the connections go via undersea cables. And Ghana has right now six major undersea cables that connected to the rest of the world. And by the way, this is not related to Ghana. For example, Finland, Fiji Islands, pretty much every country in the world. Taiwan. I was at Taiwan not too long ago and almost all their internet is connected not via satellite but instead by undersea cables. So this is the way the whole world works right now. Ghana has six undersea cables, and those undersea cables all come to little small buildings in Accra. And those buildings. You can Google them. You can do a search on the internet and see the exact location exactly where they are. So there’s just six small points that connect the Ghana to the rest of the world. There are other ways of connecting to the world, but basically it’s called choke points.

Jay Zagorsky 00:17:27 Choke points or, you know, little points where if you cut that off, you choke somebody or a country. And the security situation in West Africa is not the most stable. there’s a number of groups that are vying for power in West Africa that are outside the government. And if those groups decide to basically bomb six small buildings, no one can get hurt. The ability for Ghana to make easy international instant payments can disappear. But if you have cash as a backup, you can always move somebody over a border. You can always send them on a plane. You can always send them with some money in order to affect those international payments. So it’s really important to think that cash provides a backup when we’ll be honest with it, when terrorists decide to attack. And let’s talk a little bit more about security and mobile payments. Nigeria is a wonderful case. Nigeria has had a number of cases of kidnapping, especially of school children and especially of schoolgirls. And typically what happens when some of these terrorists capture the schoolgirls as they immediately grab the schoolgirls cell phones? Right? They want the cell phones.

Jay Zagorsky 00:18:41 Why do they want the cell phones? Because after the attack happens, they use the cell phones to call the parents and say, we demand ransom in order to fund their activities. And the way the Nigerian security forces have dealt with this problem is they shut down the mobile network by shutting down the mobile network that prevents any ransom attacks, any ransom calls from happening to the parents. Well, if your entire society is based on mobile payments, based on your cell phone, your ability to do these kind of thing, and the mobile network goes down, no matter how wealthy you are, you’re poor. You’ll have no money. By keeping cash around, you can continue to do things like buy food in the market, to buy medicine, to go visit somebody else by getting on, say, a bus, minibus or a train or something like that. So using cash in addition to having mobile payments is very important. And the point I’ve been trying to make for all of this discussion is I’m not saying don’t have mobile payments, don’t have the ECD.

Jay Zagorsky 00:19:44 What I’m saying is you need to make sure cash stays a viable method. At the same time, you need to run both at the same time. You can’t say, oh, the future is mobile, let’s just kill off cash. Don’t do it because there’s so many downsides. The last downside I love to talk about Sean is a wealth tax, yet particularly the E levy that happened in Ghana, and as pretty much everybody who’s listening to this has known, Ghana had a couple of years ago, attacks on all small, medium and large electronic payments via mobile phone. It was a 1.5% tax, went down to 1%, and then this past March was eliminated because of popular discontent. But my guess is popular discontent might disappear if that tax was only levied on, say, very, very large amounts of money instead of on sort of small and medium amounts of transactions. And when you’re using electronic payments, it gives the governments additional way of taxing people basically without their permission, without them having the ability to say so if everybody uses mobile money and the government puts back on, say, a 2% tax on all mobile payments over some amount, say a thousand CDs, then it’s relatively easy for the government to quickly raise some revenue.

Jay Zagorsky 00:21:05 And governments. They’re always looking for more revenue.

Shaun Ferrari 00:21:08 That is true. for sure. And I think you’re right. I mean, you know, one of the most interesting points that that I’ve gathered from your from your book among all these, all these points, but you were talking in your, your point a second ago about, you know, the importance of, of using cash and having, having people have that ability to, to always use cash to not necessarily get rid of an electronic payment, but be familiar with cash, be able to use cash, have all be part of the payment bucket of things you can you can pay with. And I think you make some excellent points in the book about how to keep it relevant. so so how should a country, a society, think about using cash to make sure it is a viable payment method?

Jay Zagorsky 00:21:50 So I have two recommendations for people in Ghana. The first is a personal I want. The second is for the government. Personal use cash at least once a week.

Jay Zagorsky 00:22:00 You want to use cash more than that, that’s great. but using cash at least once a week keeps it in circulation. It allows shopkeepers, doctors, druggist to understand how to use it to make changes, things like that. It keeps some cash on you. So when a natural disaster happens, when the power goes out, when there’s a other kind of problem, you have cash readily available. So by using it at least once a week, we ensure that the cash ecosystem stays around and stays very healthy. The second point that’s really important is that the government of Ghana can’t say the future is all electronic. Use the OECD instead. What the government needs to do is also encourage people to use both cash and electronic means. So if I was the governor of the Bank of Ghana, I would continue to make speeches about the OECD, which is coming out soon, but also said, but don’t forget to keep using cash. Don’t just focus on the modern electronic methods. Make sure that the speech is evenly balanced and says cash might not be king in our society anymore, but it’s still queen and you still need to use it so that we all get the benefits and you can find out.

Jay Zagorsky 00:23:21 Shawn, and anybody listening to this. Far more methods. It might book The Power of Cash. Hopefully it’s available almost everywhere. I haven’t yet been to a bookstore in Ghana. I look forward to that to see if it’s there. But the power of cash. It has lots and lots of ideas of why you should continue to use paper money, as the world is switching to electronic payments.

Shaun Ferrari 00:23:42 Awesome. Thank you sir. Thank you for taking the time to be with us. I think these are a lot of, a lot of great takeaways in the book in terms of keeping cash relevant and why it’s important to do so. So the power of cash definitely track it down on on your favorite bookselling site. And J thanks for taking the time to talk with us. It’s always a pleasure seeing you and talking with you, and I hope we get to see each other in person soon, somewhere around the world. I know it won’t be in Ghana, but perhaps somewhere else in the coming months. Hearing more about very interesting and relevant topic for everybody.

Shaun Ferrari 00:24:16 So thanks for taking some time to be with us.

Jay Zagorsky 00:24:18 Have a great day, Sean, and have a great day to all the listeners.

Shaun Ferrari 00:24:21 Great. Thank you very much and thanks all of you for listening to this, this episode of The P.I.T. Exchange. Hopefully you enjoyed our discussion with with Professor Jay ZagorskY, and we look forward to coming to you soon with our next special guest. So please like download, subscribe comments wherever you get your podcasts. Thanks for taking the time to be with us, and we look forward to seeing you somewhere and talking with you again soon. Have a great day!