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ACKNOWLEDGMENT
I would like to sincerely thank the Imperial Institute of Higher Education and
University of Wales for providing an opportunity for me to study towards earning this
degree in Master of Business Administration.
I would like to thank the entire administrative staff and academic staff at IIHE for
guidance and support shown right from the start till the very end, especially, to Dr
Tilak Weerakoon, Mrs Mallika Manuratne, Mr Hussain Moosajee, Mr Ajith Colonne,
Mr Dilshan Rodrigo, Mr Prasanna Perera, Mr Trevor Mendis, Mr Mangala Fonseka,
Prof Gamini de Alwis, Mr Parackrama Jayasuriya, and Ms Gayathri Ediriweera.
I would like to thank all my friends and colleagues for the wonderful times and for
enriching me, especially, to Dimantha Mathew, Virajith Basnayake, Samantha
Bombuwalage, and Aysha Riffsy for the fabulous team work.
I would like to thank the librarian and library staff for browsing through all indexes to
provide necessary texts & scripts whenever it was required.
I would like to specially thank Mrs Mallika Manuratne for having confidence in me
and for the guidance given to me towards the completion of this dissertation.
I would like to gratefully and sincerely thank my father for being the tower of light &
the pillar of strength in my life, and to my sister for the strength & courage she
resembles.
Finally, I would like to dedicate this to my mother for the everlasting love she blessed
me with.
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ABSTRACT
The Bill of Monetary Management: Cost of Managing Coins and Notes in Sri Lanka is a
research study intended to bring to light problems faced by the monetary system in Sri
Lanka due to coins and notes.
A Literature Review will revisit ideas and knowledge expressed since 13th
century
perception of ‗embrace the abstraction without worry‘, which invented paper money and
how it is contributing to modernize present day advancements in monetary world across
the globe with its relevance to Sri Lanka.
A qualitative methodology was applied to reveal critical data from in-depth interviews
with crucial decision makers. This was followed by a comprehensive data analysis
bringing out new findings in cost of production, cost of logistics, & cost of managing
coins and notes, and findings on stagnant alternatives to cash, issues with perception
towards money & unwarranted priority given to coins and notes. Importantly to
understand that currently lack of confidence among users of coins and notes in Sri Lanka
is an added burden on the monetary system.
A comprehensive discussion is then followed on having a modern monetary system
capable of sustaining confidence and growth, and a movement towards initiating a less-
cash society for a prosperous economy.
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TABLE OF CONTENTS
1. ACKNOWLEDGMENT…………………………………………... 01
2. ABSTRACT………………………………………………………... 02
3. TABLE OF CONTENT…………………………………………... 03
4. LIST OF TABLES ……………………………………………....... 04
5. LIST OF ABBREVIATIONS…………………………………...... 05
6. CHAPTER 1: INTRODUCTION………………………………... 06
7. CHAPTER 2: LITERATURE REVIEW……………………….. 13
8. CHAPTER 3: RESEARCH DESIGN …………………………... 30
9. CHAPTER 4: DATA ANALYSIS & PRESENTATION …....... 39
10. CHAPTER 5: DISCUSSION……………………………………... 72
11. CHAPTER 6: CONCLUSION & RECOMMENDATIONS…... 77
12. LIST OF REFERENCES ………………………………………... 84
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LIST OF TABLES
Table 2.1: Monetary Aggregates in Sri Lanka - 2008-2012
Table 2.2: Financial Sector Development Indicators
Table 3.1: Operationalization
Table 3.2: Perceived Differences in Quantitative and Qualitative Methodology
Table 4.1: Supply of Coins & Notes in 2012
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ABBREVIATIONS
CBSL/CB – Central Bank of Sri Lanka
FB – Feeder Banks
ATM – Automated Teller Machines
TRC – Telecommunication Regulatory Agency
NTC – National Transport Authority
ICT – Information and Communication Technologies
IFC - International Finance Corporation
Rs. - Sri Lanka Rupees
NFC - Near Field Communication
CCD - Central Cash Department
GDP - Gross Domestic Product
CRD -Currency Department
CCTV - Close Circuit TV
POS - Point of Sale
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CHAPTER 1
INTRODUCTION
1.1 BACKGROUND OF THE STUDY
Man in his long journey in reaching today‘s sophistication has evolved though times with
unending amount of acquiring and satisfying of growing needs and wants. Beginning
from days in caves to animal hunt, as farmers to merchants, by colonization to
industrialization, and entering into virtual space and outer space, unsatisfying nature and
eagerness towards acquisitions have helped him to evolve into modern complexities.
(Rupasinghe, 2010)
He would acquire and satisfy his needs and wants through his own toil, exerting superior
force, or by way of exchange. The growth of means of exchange has come through barter
or swap of goods and services, to use of gold, precious metals & coins, and arrived at
complex financial tools of virtual money of modern age. Hence, transactions are as old as
the man‘s long journey in time and have played an integral part in his transformation over
time. (Rupasinghe, 2010)
In this exchange of value the most frequented invention is coins. Coins have been made
and used for millennia, as each new archeological finding betters the age known use of it.
As coins became costlier in production, heavier in distribution, higher in usage volumes,
and hassle in use, the innovation of notes came to replace the coin. Coins remained for
micro payment, and notes were added on for larger payments. (Rupasinghe, 2010)
As consumerism grew higher, society moved into an era of large volumes of transactions.
The availability of coins and notes for payments from day to day transportation to
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grocery to other merchandise has become one of the most troublesome areas for any
monetary system to deal with. (Rupasinghe, 2010)
Micropayments, or small transactions, which are generally not supported by cheques, or
electronic debit or credit, but needs to be carried out couple of times a day requires a
great deal of coins and notes. As the demand grows the production, distribution, security,
storing, etc adds on, and adds on heavily on specifically the management of this monetary
aspect by the system. The real value of coins and notes are there only when it is
accessible and liquid enough to make a transaction.
‗Accessibility‘ and ‗Liquidity‘ of the monetary sector plays a pivotal role in a dynamic
nation. It simply drives the pace and direction of any economy or society. In an economy
it is a fundamental infrastructure necessity for growth. In any society it is the primary
linkage of payments, goods or services. Mobility of people and goods are key success
factors of any country. Accessibility and Liquidity of monetary sector transforms
stagnant economic activity into resilience.
1.2 STATEMENT OF THE RESEARCH PROBLEM
As an example, in Sri Lanka, one of the important sectors of liquid cash is used is
transportation. Commuters or goods transported are charged according to the distance
travelled, which is segmented in intervals, and for category of transport (intercity, luxury,
semi-luxury etc). At present the first segment, or startup, fee would be Rs. 9.00, and
increments thereupon are according to aforesaid criteria. The maximum charge on a
single passenger on a bus ride in Sri Lanka is still under Rs. 1000.00. Thus, in monetary
terms these payments are considered as ―micropayments‖.
Micropayments with regard to mass transportation, about 10 million passengers a day,
(Lanka Private Bus Owners Association) is almost absolutely made by currency notes
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and coins issued by the Central Bank of Sri Lanka, the regulatory body and sole
authority on monetary matters in Sri Lanka.
Throughout history and throughout the world, monetary authorities have faced great
difficulty in finding the perfect range and variation of denominations, and their
availability to carry out a transaction in complete. Since, almost all transactions in
transport sector are carried out with coins and currency, then and there, the issue is even
worse.
Commuters find it difficult to manage the right denominations to pay the exact fee.
Conductors, or operators, find it difficult to be ready with exact change money to settle
any dues pending from transactions. Nonpayment of dues pending unfairly taxes
passengers. This harms trust and excellence between commuters and operators.
The day‘s collection of payments is in liquid money. However, there is no guarantee of
records for each and every transaction, or issuing of receipt/tickets for each commute.
Similarly, there is no record of accumulated extras as change made from nonpayment of
dues to passengers. Owners, on a day to day basis, pays expenses on fuel, oil, tires,
insurance, other maintenance, etc by giving a cash advance to the driver and conductor.
In the annual publication of Lanka Private Bus Owners Association its owners complain
of pilferage by conductors and drivers, and at times as staggering as 20% of the day‘s
collection of a industry which totals LKR 100 million a day. They also suspect
misappropriation of money given for fuel, oil etc. On the other hand, passengers
complain about short of change money given after making payments, and about the
hassle of carrying coins or notes as change money. (Lanka Private Bus Owners
Association)
Therefore transportation sector requires a smooth functional payment mechanism, where
proper records are available on each and every transaction, where payments guarantee
due change, where daily collection in full goes to the hands of the owner, hassle free
payment for users, conductors, and operators. This is just one example of how the current
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use of coins and notes has turned out to be a problem for both the commuter as well as
the service providers. It is obvious that most transactions done through coins & notes are
cumbersome, yet, users have no alternative.
The rising demand for coins and notes also creates difficulties for Central Bank of Sri
Lanka, which is responsible for producing new coins and notes to meet the demand. Cost
of this supply is a burden to the economy, given huge payments that need to be made for
designing, producing, distributing etc, the whole management of them.
As clearly experienced in successful global outcomes, Cashless Payments or E-Wallets
will boost the economy and its society by increasing and driving productivity through
enhancing operational efficiencies, and enabling a range of innovative new business
models.
Cashless Payments will importantly enhance trusted consumer convenience through the
potential to replace the hassle of analog life designed to convey money or information
(credit cards, loyalty cards, transit cards, tickets, passes, etc.) with a single, secure, more
powerful digital solution, which will drastically reduce intricacies, inconveniences, and
expenses rising from day to day management of conventional monetary payment.
In this backdrop, this study focuses on the factors affecting the cost of using conventional
notes and coins.
1.3 JUSTIFICATION OF THE STUDY
Implementation of none-physical money, or cashless payments, will naturally have its
advantages and disadvantages. Complete transformation into none-physical money will
call for an advanced system at this point of time in Sri Lanka, and will rightly be full of
audacity. Of course, it will be a groundbreaking initiative in the field of technology in Sri
Lanka, but at the same time the monetary system, as well as, the society at large will
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embrace its novelty only with caution. Hence, it is bound to leave an impact, both
positive and negative, on many stakeholders involved directly and indirectly.
One such stakeholder, an important one, is the banking sector. It is the most trusted and
readily available intermediary between the issuer, the Central Bank, and the user, the
general public. Banking sector is the chief momentum of the monetary system in any
economy. Therefore;
1. This is an untouched area
2. The entire economy will be affected by any changes
3. For convincing the authorities as well as the public, research based findings are
necessary
Hence this research, an assessment in terms of a research study, needs to be carried out to
bring light to aspects in the management of coins and notes by banks in Sri Lanka.
1.4 OBJECTIVES
Objective of this research study would be set as follows;
1. To understand current eco-system which exists with issuing coins and notes to
customers;
2. To understand the costs incurred by banks in managing this service on behalf of
the Central Bank and for use of customers;
3. To analyze the current concerns with issuing of coins and notes;
4. To determine the effectiveness of implementation of an cashless or e-wallet
scheme to overcome the issues encountered in managing coins and notes;
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1.5 SIGNIFICANCE OF THE STUDY
Banking sector is organically one of the most researched and documented industries.
However, it is important to understand the reason of existence and costs of managing
coins and notes in an era where non-tangible money [electronic, mobile, virtual money
etc] is becoming the most innovative mode of payment.
Therefore, this research study hopes to produce following as deliverables;
1. Contribution to the Central Bank, especially to understand management cost of
coins and notes from been introduced to the monetary system till its exit from it;
2. Contribution to the Banking sector, especially as the intermediary between the
issuer and user of coins and notes;
3. Contribution to the average user, especially in terms of convenience and security
is use of coins and notes;
4. Contribution to ocean of knowledge, especially to the banking sector;
1.6 SCOPE
The scope of this study will cover the monetary system of Sri Lanka, which include the
Central Bank of Sri Lanka, authorized commercial banks in Sri Lanka, and the average
citizen and entities- users of coins and notes- in Sri Lanka. Officials from the relevant
organizations and a purposive sample of users that include different levels will be
interviewed using in-depth interview method to collect data for this study.
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1.7 ORGANIZATION OF THE RESEARCH
CHAPTER 2-LITERATURE REVIEW
CHAPTER 3-RESEARCH DESIGN
CHAPTER4-DATE ANALYSIS & PRESENTATION
CHAPTER5-DISCUSSION
CHAPTER6-CONCLUSION & RECOMMENDATIONS
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CHAPTER 2
LITERATURE REVIEW
2.1 INTRODUCTION TO CHAPTER 2
This literature review will bring forward ideas and knowledge, derived from secondary
sources published by scholars and researchers, which at presently contributes to the
discussion related to the research topic presented in this paper. Presentation of ideas and
knowledge will guide the discussion towards identifying issues concerning and adopting
alternative money is not as expensive as the use of coins and notes in present day.
2.2 RESEARCH PROBLEM/ LITERATURE REVIEW
In Sri Lanka, fuel is not the only liquid asset which runs public transport but essentially
liquid cash as well. A total of 8 million transactions per day are made purely by use of
coins and notes. Similarly, 6.4 million transactions per month are made on utility
payments with use of coins ad notes. These figures exclude standing orders, bank
transfers, card payments and cheque payments. Almost 85% payments for merchandise
purchases in Sri Lanka are made through coins and notes. This speaks of the rising
demand for notes and coins.
A demand for coins and notes directly creates difficulties for Central Bank of Sri Lanka,
which is responsible for producing new notes and coins to meet the demand, but also to
the banking sector, which acts as intermediary agents in managing coins and notes for
public use.
Not only cost of supply is a burden to the economy, but huge expenses for designing,
producing and distributing coins and notes needs to be absorbed into the actual face value
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of physical cash. Similarly, cash management has to be met with by employing secure
transportation, secure vaults, secure & efficient counting and bundling process, and
machines & human resource to administer the entire operation.
It is in this backdrop that new and successful global outcomes have found cashless
payments or e-wallets to boost economic growth and thereby advance society by driving
productivity, enhancing operational efficiencies, and enabling a range of innovative new
business models.
Less-cash payments initiatives will importantly enhance trusted consumer convenience
through potential to replace the hassle of analog life designed to convey money or
information (credit cards, loyalty cards, transit cards, tickets, passes, etc.) with a single,
secure, more powerful digital solutions, which can drastically reduce intricacies,
inconveniences, and expenses rising from day to day management of conventional
monetary payments.
Therefore, this study will initially focus on evolutionary facts, theoretical arguments,
innovation breakthroughs, and global comparisons affecting the use of conventional notes
and coins.
2.2.1 CASH STILL IS THE KING?
In this modern age having passed space age and information age, even still cash is
holding on as king. D Wolman cites ―I hopped on a train … When the conductor came
around … took out my credit card and waved it at him … Then he said two words …
CASH ONLY‖ (Wolman, 2012). This speaks how some ‗systems‘ are still unwaived
amidst advances made in contemporary society.
While Wolman was taking the train from New York in that same year 2012, the historical
inventor of cash and today‘s biggest market - China, still makes an attempt to put breaks
on virtual currency. ―in 2009, an explosion in the trade of prepaid cards for online
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services and the selling of gaming currency prompted China‘s Ministry of Culture and
Minsitry of Commerce to issue a rule banning the exchange of virtual currency for real
goods and service‖ (Courtland, 2012)
So is cash the real the king? Or, is it the stubbornness of authorities, backwardness of &
loopholes in systems, lack of technological or financial resourcefulness, or simply as a
part of culture still makes cash the undisputed essential in monetary transactions?
In order to understand the complete role, dynamic functionality, and very existence of
money, it is important to understand the ―idea of today‘s money‖.
2.2.2 IDEA OF TODAY’S MONEY
To get an idea of today‘s money, it is important to go back in time to understand the
inventor of modern paper money Kublai Khan, the Chinese Emperor from 13th
century,
who was bold enough to live ahead of times with actual use of his invention. He enforced
exchanges to be made over mere pieces of paper against precious metals or coins which
was popularly in existence at the time. The underlining principle of the emperor was to
‗embrace the abstraction without worry‘.
When studying the evolution of this innovation over the past eight centuries, ―What
matters most about money is not what it looks like, or even what it is backed by, but
whether people believe in it enough to use it.‖ (Sorowiecki, 2012) This is the
fundamental principle and reality as far as today‘s mode or form of money is concerned.
―Today, that concept is the foundation of all modern monetary systems, which are built
on nothing more than governments‘ support of and people‘s faith in them. Money is, in
other words, a complete abstraction – one that we are all intimately familiar with but
whose growing complexity defies our comprehension.‖ (Sorowiecki, 2012)
Even the fundamental existence of physical money, or the monetary commodity, carries
the risk of breakdown as any other commodity as put forward by Economist Milton
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Friedman; ―Private promises to pay the monetary commodity are as good as the monetary
commodity itself – so long as they command confidence that they will be fulfilled – and
far cheaper to produce, since the issuers can meet possible demand for redemption by
keeping on hand an amount of the monetary commodity equal to only a fraction of their
outstanding promises. A pure commodity standard therefore tends to break down‖.
(Friedman, 1965)
As long as the physical money is cheaper to produce and manage it will stand a chance.
The moment the existence of physical money is cumbersome, any monetary system will
find alternatives to replace it.
2.2.3 BREAKDOWN OF TODAY’S MONEY
When a money scheme arrives at the point where its production and or management is
more of a burden than its returns it is either withdrawn or collapses. Explaining this
critical factor, an essay published in technology magazine ―Wired‖ goes on to report what
the cost an average tax payer has to pay in order to maintain physical cash-today‘s money
in the United States.
―To maintain our stock of hard currency, the US Treasury creates hundreds of billions of
dollars worth of new bills and coins each year. The cost to taxpayers in 2008 alone was
$848 million, more than two-thirds of which was spent minting coins that many people
regard as a nuisance. (The process also used up more than 14,823 tons of zinc, 23,879
tons of copper, and 2,514 tons of nickel.) In an era when books, movies, music, and
newsprint are transmuting from atoms to bits, money remains irritatingly analog. Physical
currency is a bulky, germ-smeared, carbon-intensive, expensive medium of exchange‖
(Wired, 2009)
The author goes on to the extent of brining a new definition to coins by stating ―coins that
many people regard as a nuisance‖. It clearly shows how fundamentals are hurt as ‗faith
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or believe people have in money‘ is compromised against the cost of production to put
them into their hands.
As society changes and advances people take-up to believe in money that is a less hassle
less costly, but not as something nuisance. Just as much Emperor Kublai Khan‘s bold
innovation centuries ago, new mode of money should not worry whether it is made up of
atoms or bits. Bits?
2.2.4 BITS TO MAKEUP TOMORROW’S MONEY
All forms of monetary transactions carried out via electronic networks as series of bits
devices from point-to-point, by use of mobiles, in virtual space, or in any similar form is
money made-up of bits. Since, this money is not made-up of physical entities it is not
made-up of atoms. Thus, bits not atoms have invented tomorrow‘s money.
This is also in parallel to the drawbacks recorded in breakdown of fundamental elements
in hard physical currency and the cost of having it. Electronic form of money is an
alternative that is already in effect and tried out by various economies around the globe.
A study carried out on one such alternative in Sweden establishes groundbreaking facts
on use of electronic money in new age;
"Sweden is rapidly moving towards a cashless economy. Bills and coins represent only 3
percent of Sweden's economy, compared to an average of 9 percent in the eurozone and 7
percent in the U.S. The Swedish Bankers' Association says the shrinkage of the cash
economy is already making an impact in crime statistics. The number of bank robberies
in Sweden plunged from 110 in 2008 to 16 in 2011 — the lowest level since it started
keeping records 30 years ago. It says robberies of security transports are also down. The
prevalence of electronic transactions — and the digital trail they generate — also helps
explain why Sweden has less of a problem with graft than countries with a stronger cash
culture, such as Italy or Greece, says economics professor Friedrich Schneider of the
Johannes Kepler University in Austria. (Slashdot, 2012)
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Also, this establishes the fact that societies of developed economies have already began
its transition in use of new schemes of money abandoning conventional money even for
social factors affecting their lifestyle changes in today‘s world.
Today‘s world is ever more defined by global connectivity. It is in this backdrop that the
presence and behavior of financial world is even more interdependent on new money
schemes. In keeping with advance pace of modern financial world, less-developed and
developing economies will soon have to follow suit and enter into new money schemes,
as explained in ‗Flying Geese Paradigm‘ by eminent Japanese scholar Akamatsu
Kaname. (Rupasinghe, 2010)
2.2.5 SRI LANKAN CONTEXT ON MONEY
Therefore it is important to understand the Sri Lankan context. Having moved from a
less-developed economy into a developing economy during the past ten years, Sri Lanka
doesn‘t seem to consider in modernizing its financial system, and importantly its
monetary schemes.
The Annual Reports published by the Central Bank of Sri Lanka tabulates the Monetary
Survey for past 60 years, including the amount of currency held by general public in
terms of notes and coins. Table 1 below, formulated with extracts obtained from annual
reports, show the amount of coins and notes held by general public in past five years
from 2008 to 2012, with an annual year on year increase. (CBSL, 2008-2012)
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Table 2.1: Monetary Aggregates in Sri Lanka - 2008-2012
Year Reserve Money
LKR Billion
Currency Held by
Public
LKR Billion
Commercial Bank
Deposits with
CBSL
LKR Billion
2008 268.4 155 82.3
2009 303.5 181.9 86.1
2010 360.5 216.6 104.9
2011 439.5 242.9 146.3
2012 484.4 251.5 166.3
(Source: Annual Reports of Central Bank of Sri Lanka 2008-2012)
*Reserve Money = currency outstanding (ie, currency held by public + currency with commercial banks) +
commercial banks' deposits with the central bank + government agencies' deposits with central bank
During this period of time, it is quite clear that more than 50% of currency is held by
public. Savings in banks ranged between Rs30 billion been lowest and Rs70 billion been
highest (10-14%), indicating that most of physical money is consumed as exchange in
transactions, and most of it is to pay for merchandise, transport, and utility bill payments.
Similarly, nearly one-third of cash deposits belonging to commercial banks are held with
Central Bank, whereas the required deposit is half that amount- around 15%. Notes and
coins are only denominations of value, and in this case idling in large chunks. But carries
a huge opportunity cost as the process and resources put into its making is invariably
exhausting. The same amount could have been easily met by ―bits‖ created specifically to
serve the purpose.
Therefore, at minimum at least one alternative scheme of money (such as cheques, bank
orders, bonds etc) were introduced to facilitate transactional needs, made between people,
organizations, businesses, banks, and governments. However, this in today‘s world can
now be converted to bit-money; which has shown strong promise to replace use of not
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only hard currency but also archaic alternative schemes of money. So why is Sri Lankan
monetary schemes not changing?
2.2.6 IS THERE AN OPPORTUNITY COST OF CONVERTING ATOMS INTO BITS?
No matter how complex or dynamic the world is out there, there are only three basic
payment instruments; pay before, pay now, and pay later. Most electronic payment
solutions fall into pay before or pre-paid category of payment. ―If the liquidity effect sets
in prior to receipt of the good, the buyer incurs opportunity costs in the form of lost
interest income.‖ (Fernando, 2001)
In traditional form money held in hand would reduce if bank interest rates are attractive,
this means opportunity cost of holding on to that money in hand is more than having
drawn an interest on it. Similarly, most pre-paid solutions are smart enough to create a
brand new scheme of points or perceived value in terms of bits for users willing to take
the bold step forward.
Maintaining sophisticated bank reserves and logistical arrangements to count, bundle,
transport, stack, secure, issue, account, over and over again with physical money made of
atoms is an immense cost of resources and without argument an even more enormous
opportunity cost.
2.2.7 BECAUSE CASH IS GODFATHER OF MONEY?
The very existence of physical money over any other mode of monetary to carry out a
transaction is primarily due to its capacity of anonymity. ―anarchists, drug dealers,
politicians, prostitutes, dog walkers, and nannies all have reason to prefer cash‖
(Zorpette, 2012) simplifies the actual reason of existence of physical money even in
modern age.
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However, Bitcoin turned a golden fresh page in history of electronic transaction with a
solution fully embedded with privacy. ―A system like this, which restores privacy to
electronic payments, could do more … Bitcoin or another system like it will give political
dissidents a new way to collect donations and criminals a new way to launder their
money – while causing headaches for traditional financial gatekeepers.‖ (Peck, 2012)
By putting to rest a golden worry and taking up a brand new way, Bitcoin and similar
solutions now levels the playing field for electronic money to be in par with cash -
currency notes and coins- and opens up a whole new league of transaction possibilities.
Modern world awaits the arrival of the new godfather of tomorrow‘s monetary
transactions. But, is everybody wants it?
2.2.8 AFRAID OF INVASION OF INNOVATIONS?
As the network of interconnected electronic machines are now wanting to take total
control of the monetary world, step by step, measures, systems, tools, solutions, and more
innovations are making their way into day to day lives in human society. It is said ―these
will circulate electronically, by means of the mobile phones that are increasingly part of
the dress of every person on the planet‖ (DGW Birch, ieee) and it is precisely why E
Strickland asks ―ATMs in Japan already scan your veins. Is this the first step to a cash-
free, card-free world?‖ (Strickland, 2012).
As an endless stream of innovations are rolled out to erase lethargy and inconvenience
caused to people in use of money, where enhanced comfort in making transactions are
facilitated in wearable essentials and biological readings with an assurance of security.
The golden fundamental ‗embrace the abstraction without worry‘ is now given a brand
new makeover.
All these advanced systems and solutions will always leave behind gaps, especially
creating disparity among segments of human society. Some may feel left behind due to
convention, another not been able to grasp rapid changes, others not been able to afford
22
new developments, and even making some inferior. Social dogma and diversity in
cultures always adds on the resistance to changes.
2.2.9 NEW CULTURE IN MONEY
History records an unaccounted times how money from its inception simply drove and
changed cultures across the globe, while bringing down great civilizations and building
brand new empires. Similarly, culture too plays a predominant role in money of a given
time or society. Over centuries money was a distinct and important form in carrying an
identity of a particular society in face of rest of the world.
However, with bits taking over from atoms, it has no real means of carrying identity of
social groups. Instead individuality and connectivity now defines money. This is as a
result of complex and exponential changes that take place in today‘s social texture and
global interconnectivity.
Anthropologist Bill Maaurer at University of California in Irvine find as he goes on to
explain ―People can go for a whole day without their wallet and not freak out. But if they
are missing their smartphone, it‘s another story‖. This is the very reason for marketers to
couple these two essentials together, and to come out with devices that can also serve as a
wallet.
Across the world staggering amounts of moneys is now invested to fix terminals that
recognizes the ―tap-tap‖ and returns a ―beep-beep‖ with a near field communication
(NFC) enabled phone or similar device coupled in as an essential wearable or accessory
for the next transaction. (Ross, 2012)
While individuality and connectivity defines new global culture, the discussion continues
on setting up frameworks which could work beyond boundaries. Importantly when there
is a failure of systems or users in violating morality, ethics, and accepted norms in putting
new age money to use. If found violated can they be compensated or corrected?
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2.2.10 LEGAL WORRIES IN GLOBAL CONTEXT
Another obstacle is importantly the fear associated with international monetary
regulations. How monetary regulations could be jammed by electronic transactions ―due
to the possibility of the cross-border use and issuance of network money.‖ It is feared that
this will help trigger a monetary system error as ―residents will use money issued by a
non-resident for domestic purchases … and if they coincide with rising holdings of
money abroad … monetary aggregates would probably lose some of their productive
power regarding future inflation trends‖ comments the State Bank of India, but goes onto
highlight recent changes as ―network money circulation is increasingly becoming
independent of monetary policy‖ (Fernando, 2001) (emphasis by author)
Just as the existing monetary system which is built on physical money, electronic (and
alternative schemes of) money will also carry the risks of loss, theft, counterfeit, etc. This
would require a brand new set of legal and procedural framework, and operational
support. This is something present monetary establishment either ―mistakenly fears‖ very
much or is ―incompetent‖ in dealing with. Kublai Khan would have gone through the
same process as even historically China was the major supplier and trade hub in Silk
Route. Yet, he was bold enough to embrace the abstraction without worry as
advancement requires innovative thinking to bring comprehensive new systems into
place.
2.2.11 REVISIT SITUATION SRI LANKA
Some of the sentiments expressed above were relating to foreign economies rather than
Sri Lankan economy. Therefore, it is important to revisit and understand the context of
Sri Lankan monetary situation, in terms of cost of production, cost of opportunity, and
advancement in times.
In a research study on Sri Lankan context Prof Srirmevan Colombage publishes a brand
new set of data and issues identified in use of physical money and alternative money
24
including electronic schemes. He publishes that in Sri Lanka from 2005 to 2009 among
all non-cash payments cheques use fell from 94.3% to 87.7%, with a year on year
decrease. Whereas use of credit cards more or less stayed at flat rate of 1.3%, but
observed a steady growth in internet banking from 1.3% to 4.9%. This is amidst
increased amount of new money printed over the same period of time. (Colombage,
2011l)
The report continued to show that out of available electronic schemes, awareness and
knowledge of use among household members in using ATM machines is 70% with 23%
using the facility, internet banking at 37%, with 3.2% using the facility, and sms banking
& mobile cash at 30% with only 1% using it for transactions (2008/09). (Colombage,
2011)
In summarizing his argument a series of reasons for not using mobile phone technology
for banking is shown, where 8% of households cite high costs, 2.3% says it is due to less
security, and 9.4% difficulty in use, but 40% cite no understanding and 15% says never
heard, while 25% says not necessary. It concludes that out of those who sees a necessity a
staggering 75% of households lack basic knowledge in its use, and another 25% has
issues with devices or methods used. (Colombage, 2011)
Helping society on familiarization with modern technology helps to fill the gap in the
digital divide. New trends brings in changes to the existing social texture and easy
accessibility to devices & solutions within rapid innovative technology developments are
only a matter of time, and just around the corner waiting to knock on the doors of Sri
Lankan society which will be swept by waves of electronic money.
2.2.12 FURTHER TRENDS IN THE MAKING IN SRI LANKA
In Sri Lanka, Automated Teller Machines (ATMs) have played a key role in bridging the
digital gap. Increased use of ATMs means more use of access to fulfill demand for
25
conventional money by use of automated network machines for financial transactions.
This help to erase the digital gap.
From being a simple cash dispenser ATMs have systematically grown to become
facilitators of electronic transfers and with new generation roll-outs even capable of
providing facility for live online transactions directly from personal bank accounts or
personal cards - prepaid, debit or credit.
CBSL periodic bulletin publishes that the number of ATMs in Sri Lanka is growing
rapidly, with 2221 at end of 2010, 2607 in 2011, and 2845 in 2012. During the same
periods total volume of financial transactions carried out through ATMs have grown from
28 to 32 to 37 million amounting to Rs 178 to 216 to 282 billion. (CBSL, 2010-12)
These statistics talk of two important matters relevant to this paper. Firstly, that public
use of ATMs has grown in cash withdrawals and deposits confirming the trust placed in
convenience of around the clock accessibility to money, whereby limiting hand held
amounts of cash. Secondly, public use of ATMs to do transfers, utility bill settlements,
and to make online payments have increased indicating a tendency towards accepting
hassle-free cash-less payment methods.
Similarly Electronic Fund Transfer at Point of Sale (EFTPOS) statistics presented in the
same report shows transaction volumes and amounts carried out at such point of sales in
2010 was 6 million amounting to Rs 30 billion, in 2011 it was 7.5 million amounting to
Rs 39 billion, and in 2012 it was 9 million amounting to Rs 48 billion. All these
payments were carried out by cards -prepaid, debit, or credit. Once again this proves and
highlights the tendency in Sri Lankan society in accepting hassle-free cash-less payments
method. (CBSL, 2010-12)
Payments handled through electronic systems shows mobile phone banking in 2010 at
49,881 transactions amounting to Rs 1.3 billion, in 2011 at 48,275 amounting to Rs 1.2
billion, & in 2012 at 58,264 amounting to Rs 1.3 billion, and internet banking in 2010 at
26
1.2 million transactions amounting to Rs 68 billion, in 2011 at 1.5 million amounting to
Rs 98 billion, & in 2012 at 2 million amounting to Rs 166 billion. (CBSL, 2010-12)
It is noteworthy to highlight that during the same period mobile technology grew into 3G
(third generation) technology facilitating high data speeds for live online banking. This
new development stalled traditional mobile banking gateway which was in existence for
nearly 15 years, but instead used similar principles for greater internet banking via
mobiles through wider, faster, and convenient overage of 3G solutions.
2.2.13 NUMBERS TALKING ABOUT TRENDS IN SRI LANKA
Another interesting research done on popularity of e-banking in Sri Lanka (Jayasiri,
2008) indicates that nearly 48% of users of e-banking are from age category 26-40 and
this amounts to 82% of total customers in that age group. Similarly, nearly 31% are from
41-55 age group amounts to 46% of customers in that age group, and 7% from 55 and
above age group amounts to 24% of customers in that age group. Among users 46% says
its convenience is what attracts them to go e-banking, while 20% says it is cheaper and
34% says time saved is the main factor that makes e-banking preferred over conventional
banking.
The IFC Mobile Money Report of 2011 publishes on perception of Sri Lankans on
relative expense of mobile money against conventional banking in a comparison drawn
between user and nonusers of mobile money. Among user of mobile money more than
60% says it is cheaper compared to 35% disagreeing with it. Among nonusers of mobile
money more than 75% says it is cheaper against 25% either disagreeing or unaware of
such service. (IFC, 2011)
Age and earning capacity has is clearly shown in use of e-banking solutions. As the new
generation becomes more and more entangled in advance technology, traditional banking
would come more alien to them than the generation which founded the ideas of physical
banks. Further, it echoes demands of new labor force (age group 26-40) to call
27
convenience, times saving, and less costly to be essence in modern age hectic lifestyles.
This shows steadily and increasingly bits are winning over atoms in money schemes in
Sri Lanka. So, where does Sri Lanka stand in the global picture?
2.2.14 SRI LANKA IN GLOBAL CONTEXT
In a report published by the International Finance Corporation on Mobile Money Study in
2011, Sri Lanka is compared with six other countries drawn from four different regions
and economic conditions including United States, Japan, Brazil, Thailand, Kenya, and
Nigeria.
Analyzing potential transactions in mobile money in Sri Lanka, the report presents
possibility of 264 million transactions in public transport, 4.7 million transactions in
payrolls & informal sector usage (as in postal money orders), 1.6 million transactions in
government sector welfare payments and 6.4 million transactions in utility bill payments
in a given month.
All most all of above at present is done through hard currency, cash or coins. Here,
mobile money can be substituted by any of new age alternate money schemes as all such
is based on ―bits‖ and not on ―atoms‖.
28
Table 2.2: Financial Sector Development Indicators
Indicator
Bra
zil
Nig
eria
Sri
Lan
ka
Th
ail
an
d
Jap
an
Ken
ya
US
Bank account
penetration (%)
43 21 59 80 100 19 93
POS
devices/million
inhabitants
16,606 80 1,173 3,933 9,742 66 17,277
ATMs/million
inhabitants
889 55 88 526 1.070 21 1,317
Payment
cards/million
inhabitants
2.7M 0.17M 0.28M 0.94M 6.4M 0.04M 6.9M
(Source: IFC Mobile Money Study 2011)
2.2.15 SRI LANKA STILL GOING CASH
Seen all positive signs and clues of a inevitable drastic change, it is interesting to find as
to why the Sri Lankan monetary system continues to invests heavily on systems
supporting physical money and increase the supply of physical money. Why is Sri Lanka
still banking on old money?
When researching Sri Lankan condition it is important to realize and give higher priority
to local culture and economy. While it seems aspects related to conventional momentary
schemes and new electronic schemes are been studied, it also important to research and
understand the cost of existing system in place. This actual study on cost and burden of
29
the existing cash society will provide the final frontier in support of the dawn of a less-
cash society.
Therefore it is important that the research question presented in the next section is an
aggregation of concerns the researcher is left with including the following; What‘s the
cost of producing these extra moneys introduced to the system each year? What‘s the
storing and distribution cost of it? What‘s the cost of various new and unique inclusions
on them? And even, how can it be reduced annually rather increased?
2.3 CONCLUSION OF CHAPTER 2
This literature review has brought forward ideas and knowledge, derived from secondary
sources published by scholars and researchers, which at presently contributes to the
discussion related to the research topic presented in this paper. While ideas and
knowledge presented has guided the discussion towards identifying issues, the main focus
has strengthen the argument of a less-cash society will contribute to economic growth,
and to understand the exact cost, both financial cost and opportunity cost, of the current
cumbersome hard currency system.
30
CHAPTER 3
RESEARCH DESIGN
3.1 INTRODUCTION TO CHAPTER 3
Chapter 3 will focus on converting the research problem into a research question.
Employing and considering the literature review & the preliminary inquiries that were
conducted to device a conceptual framework, which would then be used to structure the
proposition. This chapter will then provide research methodologies available and the best
suited methodology will be identified. Finally, mode of collecting data for the research
methodology will be decided.
3.2 THE RESEARCH QUESTION
What are the factors affecting the Central Bank and banking sector of Sri Lanka on
managing coins and notes in Sri Lanka?
3.3 CONCEPTUALIZATION
Problem - Costs of management of coins and notes
Possible causes-
1. Cost of Production
2. Cost of Storing and Distribution
3. Cost of Including Unique security, identification, verification, etc features
4. Cost of Exit of coins and notes from the monetary system
31
3.4 RATIONALIZATION
Cost of Production –Sri Lanka monetary system is unique that each time a new coin or
note is introduced to the system it has to be done from scratch, from the designer boards-
size, color, value, material, series-to its total volume. Each and every aspect of this long
tedious process contributes to the production of a specific coin or note. The actual
minting of coins and printing of notes is primarily carried out overseas and then brought
back to Sri Lanka.
Cost of Storing – Once minted/ printed, coins /notes are valid as most liquid monetary
form to carry out any transaction. Hence, primarily it is important to store them in a
secure manner, secondly store in a manner it‘s easy to dispatch, and thirdly to keep
proper account of volumes. This is something the entire banking sector, from the Central
Bank down to average commercial bank branch has to undergo.
Cost of Distribution – For a sound eco system to prevail in the banking system as well as
the entire monetary system it is important that the distribution of coins/ notes needs takes
place across the board. From central bank to commercial bank HQs, from commercial
bank HQs to regional and zonal branches, from region and zonal to grassroot branches,
the entire process needs to happen more on a daily basis, in a secure manner, and with
absolute accuracy.
Cost of Including Unique security, identification, verification, etc features – Each new
round of coin or note, irrespective whether it is of the same denomination or not, requires
a brand new set of security features, identification, verification and features. This
continuous change and unique inclusions are essential for the particular coin or note to be
recognized of its belonging, in this case as Sri Lankan money, and also not been able to
reproduce by a third party as long as it is in valid circulation.
Cost of Exit –Wear and tear due to increase in use of coin and notes, necessity of
functional adaptability with new machines, and importantly the increase threat of
counterfeit money results in the forceful exit of coins and notes to be replaced only to be
32
replaced by new money in circulation. Exit of money from the monetary system and its
proper storage or destruction itself is a meticulously carried out process.
3.5 DEFINITIONS OF THE CATEGORIES
For the purpose of this research Cost of Production is defined as the cost purely involved
with minting of coins or printing of notes.
For the purpose of this research Cost of Storing and Distribution is defined as the secure
storage and readily availability of coins and notes at dispose of its users.
For the purpose of this research Cost of Security, identification, verification and features
is defined as the unique inclusions that separate it from other batches of the same money
or differentiate from other currencies.
For the purpose of this research Cost of Exit is defined as the safe removal of coins and
notes from the monetary system.
For the purpose of this research Cost of Management of coins and notes is defined total
cost of all of above.
33
3.6 OPERATIONALIZATION
Table 3.1: Operationalization
Concept Variable Indicator Measure
Cost of
Producing
Designing Distinguishable Cost of differentiation
National identity Cost of drafting with every issuance
Printing Variety Cost of printing variety of currencies
Minting new coins
Transport Secure passage Cost of transport from printers
Cost of
storing cash
Storing at
Central Bank
Maintaining
quality and
standards of
currency
Cost of space and infrastructure
Cost of providing physical quality
Maintaining
security
Cost of providing security, systems
and man power
Ensure accuracy Cost of counting and time spent
Storing at
main branch
of banks
Maintaining
quality and
standards of
currency
Cost of space and infrastructure
Cost of providing physical quality
Maintaining
security
Cost of providing security, systems
and man power
Ensure accuracy Cost of counting and time spent
Storing at Maintaining Cost of space and infrastructure
34
regional
branches
quality and
standards of
currency
Cost of providing physical quality
Maintaining
security
Cost of providing security, systems
and man power
Ensure accuracy Cost of counting and time spent
Individual
user
Maintaining
security and
accuracy
Cost of safety and find of actual
change
Cost of
Distribution
From safe
vault to safe
vault
Transport Cost of transport from vault to vault
Provide security Cost of security from vault to vault
Ensure accuracy Cost of counting from vault to vault
Security,
identification,
verification
etc
Automated
systems
Ensure genuine,
non-counterfeit
Cost of equipment and systems, for
each new currency
Manual
processes
Ensure genuine,
non-counterfeit
Cost man power and specialization,
for each new currency
Exit from
monetary
system
Removal/dest
ruction
Ensure safe exit Cost involved in destruction and or
storing of exit money
35
Costs of
management
of coins and
notes
Monetary
Cost
In foreign
currency
Trend in growth (%)
In local
Currency
Trend in growth (%)
Labor Cost Storing &
issuing labor
cost
Trend in growth (%)
Distribution &
security related
cost
Trend in growth (%)
(Source: Developed by the Researcher)
3.7 PROPOSITION
The cost of production, storing, distribution, inclusion of security, identification,
verification, features etc and cost of exit of coins and notes exerts are the factors having
an impact on the cost of management of coins and notes, an added burden on the
monetary system in Sri Lanka.
3.8 METHODOLOGY
The two main types of research methodology consist of ―Quantitative Research Method‖
and ―Qualitative Research Method‖ (Sarantakos, 1993). Further, quantitative research can
be defined as methods employed with quantitative theoretical and methodological
principles together with its techniques and statistics. Whereas, qualitative research can be
36
defined as methods of social research that employ no quantitative standards or technique,
and purely based on theoretical and methodological principles of symbolic interactions,
hermeneutics and ethno methodology. Following presents a guideline in order to
differentiate the two methods of research; (Sarantakos, 1993).
Table 3.2: Perceived Differences in Quantitative and Qualitative Methodology
Features Quantitative Methodology Qualitative Methodology
Nature of reality objectives; simple; tangible;
senses impressions; single
Subkjective; holistic;
Problematic; a social construct
Causes and
effects
nomological thinking;
cause effect linkage
Nondeterministic; no case effect
linkage; mutual shaping
The role of values value neutral;
value free inquiry
Normativitism;
Value bound inquiry
Natural and
social sciences
deductive; nomothetic;
model of natural sciences;
based on strict rules
Natural and social sciences are
different; ideographic; no strict
rules; interpretations; inductive
Methods quantitative; mathematical;
extensive use of statistics
qualitative with less emphasis on
statistics, verbal and qualitative
analysis
Researcher’s role rather passive; dualism;
separate from the subject-the
known; the knower
active; knower and unknown are
interactive and inseparable
Generalization analytical or conceptual
generalizations;
time and context specific
inductive generalization;
nomothetic statements
(Source: Sarantakos, 1993)
This research paper needs to be structured on opinions, preferences or values expressed
by different users of physical cash systems already in place in Sri Lanka. Trust and
convenience are two important psychological factors in opinions, preferences or values
37
expressed in regards to using of cash, and it purely depends on the individual who‘s
making the decision. This construes nature of reality to be subjective, problematic and a
social construct. Similarly, it construes the research to have a value based impact, to have
an understanding of opinions or preferences of users.
Since the research requires a clear understanding of different segments of society who
uses physical cash in Sri Lanka, psychological measurement such as opinions,
preferences, and values needs to be researched. Hence, previous research into such
emotions or habits of cash uses in Sri Lanka is almost-nil. This makes the research even
more difficult in absence of availability of data or information in emotions or habits
among segments dealing with physical cash in Sri Lanka.
Thus, the researcher could not find any previously published research on the same topic
of similar problem. Decisions made by different segments using physical cash over others
within or counterparts outside their segment vary immensely. Hence, this research will
focus on a non-exhaustive list where opinions, preferences or values of individuals matter
in order to come to a conclusion on the full list of reasons.
Denzin and Lincoln (2000), stresses that participants are often more willing to open up
when the interviewers are free to answer questions and express feelings, and Sproull
(1995) believes individuals presenting their own opinions, preferences, or beliefs as facts
are the best source of information. (Sarantakos, 1993)
Therefore, the methodology adopted for this research is inductive method where
qualitative data is collected through in-depth interviews. The main reason to adopt this
approach is the lack of local research on psychological factors on mining cost of the
management of coins and notes in monetary system in Sri Lanka.
38
3.9 METHOD OF DATA COLLECTION
Data collection is through in-depth interviews with executive and managerial level
officers in charge of the actual responsibilities with coins and money, from the Central
Bank and commercial banks. In addition in-depth interviews with institutional head of a
pioneer transport sector authority, an expert of electronic networks solution provider for
banks, and few users of coins & notes
3.10 CONCLUSION OF CHAPTER 3
Chapter three of this research paper framed the research question, built conceptual
framework and constructed the proposition. This chapter further helped with research
design and identified the qualitative research method is best suited for the research at
discussion. Finally, it justifies occupying of in-depth interviews from different uses and
user of physical cash in Sri Lanka as the method of data collection.
39
CHAPTER 4
DATA ANALYSIS & PRESENTATION
4.1 INTRODUCTION TO CHAPTER 4
Objective of Chapter 4 will be to analyze the data that was collected mainly by in-depth
interviews with 10 critical respondents, and also data published by Central Bank of Sri Lanka and
derived from couple of newspaper articles.
The 10 critical respondents are individuals who are directly and critically involved in the
monetary system of Sri Lanka. Chapter 4 will also include demographics of the 10 respondents,
data analysis and presentation, findings and categorization. Finally, a re-visit to the conceptual
framework will show necessary whether modification needs to be made.
4.2 DEMOGRAPHICS OF THE RESPONDENTS
R1 – Respondent 1 is a male from the age group 40-50 years. Married and has young
children. He is the head of central cash at a leading private commercial bank in Sri
Lanka. He is qualified with bachelor‘s level education and professionally qualified as a
banker. He carries over 20 years of work experience in the banking sector.
R2 – Respondent 2 is a male from the age group 50-60 years. Married and has children.
He is the head of central cash at a leading government commercial bank in Sri Lanka. He
is qualified with master‘s level and professionally qualified as a banker. He carries over
30 years of work experience with exposure in local and foreign banking sectors.
R3 – Respondent 3 is a male from the age group 50-60 years. He is married and has
children. He is the head of central cash at a leading government commercial bank in Sri
40
Lanka. He is qualified with bachelor‘s level education and professionally qualified as a
banker. He carries over 30 years of work experience in the banking sector.
R4 – Respondent 4 is a male from the age group 60-70 years. He is married and has
children. He is the head of a state bank and a member of the Monetary Board of Sri
Lanka. He is qualified with a doctorate and professionally qualified as a banker. He
carries nearly 40 years of experience in finance and bank sectors and consulted as an
expert both locally and internationally.
R5- Respondent 5 is a male from the age group 50-60 years and married. He is the head
of central cash at monetary statutory institute. He is qualified with a master‘s and
professionally qualified as a banker. He carries over 30 years of work experience at a
leading regulatory institute dealing with monetary system in Sri Lanka.
R6 – Respondent 6 is a male from the age group 40-50. He is married and has young
children. He is a technocrat at an international electronic financial system provider. He is
qualified with a master‘s and professionally as a computer networks engineer. He carries
over 15 years of experience in computer networks and over 10 years of experience as a
solution developer for bank networks.
R7 – Respondent 7 is a male from the age group 50-60 years. He is married and has
grandchildren. He is the head of finances at a pioneer transport sector institute. He holds
a bachelor‘s and professionally qualified as a senior administrative officer. He carries
over 40 years of experience in administrative service in transport sector in Sri Lanka.
R8 – Respondent 8 is a female from the age group 30-40 years. She is married and has
young children. She is works as a private secretary to an institutional head in Colombo.
She holds a higher diploma and professionally qualified as a secretary. She lives in the
outer periphery but works in the capital city. This makes her travel to Colombo on a daily
basis and she resort to public transport for her commuting.
R9 – Respondent 9 is a female senior citizen from the age group 60-70 years and
unmarried. She is retired and works as a consultant. She holds a master‘s and other
41
qualifications in the academic sector. She lives in the sub-urban sector and commutes by
public transport and private vehicle. She lives by herself and manages household chores
by herself.
R10 – Respondent 10 is a male from the age group 20-30 years and unmarried. He is
newly employed as an accountant in a leading private firm in Colombo. He holds a
bachelor‘s and professional qualification as an accountant. He comes from a rural area
but boarded in suburban sector and travels to Colombo by rail, bus or taxi. He lives and
manages chores by himself.
4.3 DATA ANALYSIS
Data is analyzed using the content analysis method. Both similar and opposing views expressed
are recognized and presented. Categories are formulated based on similarities in responses, or on
opposed views.
4.3.1 CATEGORY 1: PERCEPTION OF MONETARY WORLD TOWARDS THE ROLE OF CASH
Socio-economic momentum of a country also depends on the monetary system that is in
place. A monetary system is made-up of an array of eclectic modes of cash, and since
modern times primarily it is physical cash (notes and coins). Apart from physical cash
other alternatives such as cheques, money orders, certificates, coupons etc are issued for
varied values as physical alternatives. Similarly, electronic sequences used via online,
mobile, telegraphic and other mediums are used as virtual alternatives.
Irrespective of era, new alternates have always found to replace existing schemes with
change in socio-economic condition. This is to minimize cost and hassle in managing the
entire system. That is how today‘s coins and notes were put in place of gold, silver,
precious stones & metals, etc. Less cost & less hassle builds efficient use & enhance
42
confidence. This directly helps to drive socio-economic momentum. All respondents,
those who were interviewed, were well aware of this reality.
Nevertheless, R2 being in charge of the senior most position in one of the leading
commercial banks in Sri Lanka, said ―Being a bank, we do an intermediary activity.
Central Bank (CB) is the issuer and we take the money from CB and give it to normal
users‖.
These same remarks were shared by respondents R1 & R3 all coming from leading
commercial banks in the country. They have already taken their role solely granted to be
only an intermediary in managing demand & supply of physical cash.
When asked if banking sector considers physical cash as a burden, R4 a head of a state
bank stated ―It is views and fancies of the CB and other people. Banks have to recount
bundles etc. This is all work of CB. There is nothing we could do‖.
Further, confirming this general perception held by those in monetary sector, a senior
official at a monetary related statutory institute R5 went onto say ―We are a statutory
institution. We have to provide notes and coins to carry out all possible transactions in a
convenient and trusted manner. And as the governing authority (in Sri Lanka) we have to
supply money in physical form‖.
While knowingly highlighting the convenience and trust as essentials, R5 goes on to say
that his institution believes it can do its job just by managing physical cash. This echo
system, or equilibrium, seems to be the accepted norm within the banking industry in Sri
Lanka. This is the perception of Sri Lanka‘s monetary world towards role of cash.
Finding 1: Monetary sector including commercial banks and apex body the
Central Bank considers monetary management is primarily managing
physical cash (notes & coins).
43
None of the respondents wants to revisit possibility of transformation
by introducing efficient and less costly alternatives to better manage
monetary schemes.
They continue to consider that what is in existence is best, and
improvement is neither needed nor possible.
4.3.2 CATEGORY 2: CONCERNS OF GIVING PRIORITY TO PHYSICAL CASH IN A MODERN
MONETARY SYSTEM
Growth in public held cash in Sri Lanka has always increased, and some even draw
parallels to economic growth as its cause. If Sri Lanka was living few decades back or if
Sri Lanka was categorized as an under developed economy this would have been an
accepted norm. However, since Sri Lanka is a part of modern world especially with
recent achievements in socio-economic spheres it is important to reconsider this position
in building a dynamic economy.
When looking at expressions of respondents it is clear that demand for notes grows by the
year. In a response R1 stated that ―It is growing year-on-year. It is growing 20%
annually, with around 40% growth seasonally. Apart from that the branch network is also
growing. So is the ATM network. Withdrawal amounts have become unpredictable
(high) during seasons. Latest (Traditional New Year) was about 12 billion rupees worth
of notes‖. Respondents R2 & R3 coming from different commercial banks but with
similar large networks shared similar concerns on above matter.
These sentiments are clearly visible when studying relevant sections in the annual report
of CB. CB reports indicate that cash held by public in 2008 was Rs.155 billion and went
on to grow annually to show that by 2012 this figure was at Rs. 251.5 billion.
R6, a leading technocrat and consultant in electronic financial systems, commented ―A
large number of ATMs are now dispatched in Sri Lanka. Numbers are not just growing,
44
because these machines are expensive, but return on investment seems positive because
customers are carrying out more transactions with ATMs‖.
CB periodic bulletins publish that the number of ATMs in Sri Lanka is growing rapidly,
where 2221 ATMs at end of 2010 has grown to 2845 by 2012, facilitating financial
transactions worth to grow from Rs 178 to 282 billion. An absolute majority of these
transactions account for withdrawals.
R4 who is not only a head of a state bank but an expert on the banking was asked if
physical cash was a burden he went on to say ―I don‘t know whether it could be called a
burden. Cash is always there and banks accept cash‖.
The panel summoned by R4 went onto add contradictory views trying to draw parallels
with the economics condition saying ―It also could be increase in GDP. Due to inflation,
value of currency is less and therefore the CB has to issue more currency notes and coins.
GDP growth and depreciation of value of currency may have contributed to this
increase‖.
However, when it was highlighted that issuing of more new money went unchanged
amidst drastic fluctuation in inflation (ex: during 2006-2012) they resort to say ―You
should ask the CB‖.
R5, while occupying a seat at helm of a monetary statutory institute, goes onto state
―When an economy grows, or as a result of GDP growth or inflation, cost of goods and
services increases. So it helps to have notes with bigger values‖. He fails to answer the
obvious contradiction yet sees growth of physical cash is parallel to economic growth and
is the accepted norm.
Finding 2: A simple notion like introducing of notes & coins was primarily an
‘alternative remedy’ to address the growing concerns of a bulky
45
monetary system is still understood by Sri Lankan monetary experts
as notes & coins as the ‘only remedy’.
It is quite apparent that growth of physical cash is always considered
a positive factor in Sri Lanka, and it is the norm to have more notes &
coins produced to facilitate growth of its monetary system parallel to
the economy, even if it has no positive impact on the system.
Even today new physical cash is still injected. This will only burden
the entire monetary system and soon leave an outdated colossal mess
hampering much needed dynamism in the monetary system &
economy.
4.3.3 CATEGORY 3: COST OF PRODUCING PHYSICAL CASH
―The Monetary Law Act No. 58 of 1949 (MLA), Section 48 to 59A provides the
Monetary Board with the authority to issue currency as a means of payment in Sri Lanka.
Within this given mandate, the Currency Department (CRD) of the Central Bank of Sri
Lanka (CBSL) is assigned with the responsibilities of issuing notes and coins to facilitate
the payment system, accepting currency deposits from LCBs to maintain the statutory
reserve requirement, withdrawing unfit notes and coins from circulation and taking
necessary measures to prevent offences related to currency, including counterfeiting.
Table 4.1: Supply of Coins & Notes in 2012
Item New Serviceable Total
Notes Rs 74.8 billion Rs 280.6 billion Rs 355.4 billion
Coins Rs 747.3 million Rs 1.4 million Rs 748.7 million
(Source: CBSL, 2012)
46
In order to meet the demand for currency notes and coins in the economy and ensure
good quality notes in circulation, the CRD made arrangements to print 215 million pieces
of currency notes and mint 197.5 million pieces of coins during 2012‖. (CBSL, 2012)
R5 a senior officer at a statutory monetary institute explaining the human resource
employed at his department ―I am the head of the currency department. There is about
100 staff under me, including two sub-superintendents, others are managerial and lower
staff‖.
R5 goes onto explain the actual print arm of money in Sri Lanka ―Money is printed by a
joint venture between the Treasury of Sri Lanka holding 40% and with a British firm
having 60%. It‘s locally printed. All these years they decided on the material, quality,
size, colors, etc. And we don‘t consult the commercial banks on these issues‖. However,
he did agree that all necessary ingredients for printing money are imported from outside
Sri Lanka.
R5 on explaining the role of his institute and department comments ―Sri Lankan culture,
maybe it is not just our culture but even most of the world out there, is happy and when
one sees and feels money. As long as that‘s the case there will be a demand. And as the
governing authority we have to supply money in physical form. But yes, there‘s certainly
a heavy burden. But we have to bear all costs and efforts to win trust and happiness of the
ultimate user‖, certainly even brushing-off the increasing use of cheques as an alternative
physical means of cash.
An array of requirements needs to be met before the final note or coin comes out to hands
of the public. A strenuous effort is put to finalize size, colour, designs, & security
features, and still being sensitive to public opinion as R5 divulge ―Like on the 2000 note
there were so many complaints from the public regarding the size as it doesn‘t fit the
wallets used by Sri Lankans. So that‘s why we decided to come out with a smaller size
series‖.
47
Commenting further R5 says ―Central Bank of Sri Lanka believes that currency plays two
dominant roles. Most important service, or use, is that it is the most trusted mode or
medium of exchange in carrying out transactions. Therefore we have to provide notes and
coins to carry out all possible transactions in a convenient and trusted manner‖.
And ―Also, notes and coins are a good vehicle to be used to inculcate cultural values,
themes, or policies as it travels and exchanges hundreds and thousands of hands in any
given moment. The new series is themed as ‗prosperity and development‘. Likewise, we
issues different coins and notes‖.
A senior officer of Central Bank comments to Sunday Island newspaper saying ―Unlike
high value notes, low denomination currency notes in circulation are disfigured at a swift
pace because of their steady movement in diverse transactions. Hence, they need to be
replaced faster and at tremendous cost, for that matter. Coins are more durable and easier
to handle. As they last much longer, there is a big saving on printing currency notes".
(Perera, 2013)
Finding 3: A large amount of resources are employed in production department
of physical money in Sri Lanka.
A laborious process both demanding and consuming is required for
the production of physical money.
Most of production expenses are paid to outside parties, including
offshore.
Production is not necessarily a new series of money or bulk amounts,
but also replacement of unserviceable.
Printing of notes and minting of coins are tremendous costs at any
scale.
48
4.3.4 CATEGORY 4: COST IN MANAGING LOGISTICS IN SUPPLY & COLLECTION OF
PHYSICAL CASH WITHIN THE NETWORK (OF BRANCHES & ATMS)
With recent socio-political developments in Sri Lanka all commercial banks, both public
and private, are in a competitive drive to make their presence seen in the market place
while increasing accessibility to their services. This is a key factor of growth
individually, for banks, and collectively, for the economy.
R1, R2 & R3, disclosed strengths of their network of branches respectively as they stand
at 255, 300, and 350 (& 380 service centers for Bank3). Similarly speaking on ATM
networks R1, R2, & R3 disclosed that Bank1 has more than 300, Bank2 has more than
300, and Bank3 has more than 480 ATMs. They all confirmed that their networks will
continue to grow as expansion programs are already in place.
When looking at the massive network of branches and ATMs spread around the country,
as mentioned above, it is not difficult to establish how complex is the logistical
arrangement needed to satisfy this integral part of a monetary system. Though caught in
this complexity banks cannot move out from it since their existence is very much
dependent on it.
Detailing this situation R4 divulge ―Even Bank2 currency requirement has gone up.
Three or four years back they had around 11 billion cash in hand and now it is 19 billion.
If they use magnetic form we don‘t need to keep that much money‖. The said growth is
almost a double.
In order to be profitable commercial banks have to make sure that their supply of cash is
ready to meet the demand of their customers. Similarly physical cash coming into
respected banks needs to be properly invested for higher returns. A breakdown in this
balance will cut back profits for the respected bank.
Panel of experts summoned by R4 went onto explain this scenario in their own lingo ―If
you take Rs.100/- deposit 8% has to be kept in the Central Bank. That is fee of cash. 4%
we have to keep in cash form. From 12% of the Rs.100/- there is no income. Only from
49
Rs.88/- we can earn something. 88% is the way to earn the cost of Rs.100/- as well.
There is a cost on that‖ and ―What we feed to ATMs also clean money. I heard that
earlier the rate of bad money in circulation is 3% and now it is 6%. That means if you
give 100 notes, 6 are bad‖.
In order to tackle this issue Bank1 & Bank2 employs a centralized distribution of
physical cash (for notes & coins) to all branches and ATMs, bank3 employs a
decentralized distribution with a regional and specialized feeder centers.
Responding to the question of cash feeds to ATMs respondent R3 said ―380 ATMs are in
main branches. In addition, busy service centers too are given ATMs. Total ATM
network is 480. Around Rs 400,000/- is loaded (per machine) for a weekend. Even here
the amount loaded is too much. Most of it idles inside the machine. For convenience
officers load this amount, because, if not, they have to come during the weekend to reload
cash. On average there is around Rs 1.3 billion in our ATMs during weekends‖.
R3 represents the bank with largest network of ATMs in Sri Lanka. Nevertheless,
respondents R1 & R2 shared similar experience but with total amounts been relative to
their network strength. Yet, idling amount of cash is staggering. A staggering amount of
notes are idling inside ATMs. What about coins?
Responding to the demand for coins R1 said ―Not many coins come back to banks.
Circulation is going down. Customers are also reluctant to accept coins. Counting and
managing of coins are considered as a hassle. Central Bank has no system to accumulate
coins. So coins must be getting accumulated at some place other than banks‖.
In a response R3 states ―Coins get retained in various places such as religious places, at
homes, in shops etc. If CB issues 100 new coins not a single one come back. The value of
the metal used for making coins is more than the value of the coin (denomination). In
boutiques and shops they horde coins in tills‖.
While the management of commercial banks and senior officials of Central Bank are
aware of hassle and costs incurred with supply, distribution and collection of physical
50
cash, they have never considered of any overall alternative measures to overcome visible
and hidden costs in managing logistics of the physical cash system in Sri Lanka.
Logistics includes supply & collection of physical cash, transportation solutions, security
while in transit, insurance against failure of delivery, and additional customized
information while in transit.
Responding to the question R1 states ―Transport is by another company and the cost is
about Rs10 million per month‖, this means entire supply is outsourced to a third party by
Bank1 and the logistical contract includes all requirements mentioned above. R2
confirms that Bank2 employs a similar logistical arrangement for cash supply &
collection.
R3 details a different measure employed by Bank3 as ―Regions have transport facilities.
They go to branches, collect the cash and bring to feeder banks (FB). This facility
belongs to the Bank. We have our own security under the regional office. We use our
vehicles and get down the cash, and yet it is expensive. There is dedicated transport in the
regions‖. This means all logistical complexities are handled as an in-house operation by
Bank3.
Giving out more details about the complex operation, R3 goes onto say ―On 8th
, 9th & 10
th
we dispatch money for paying pensions. Between 18th
and 20th
cash should be sent for
paying salaries. From 23rd
onward cash comes from shops etc. to the branches. However,
the entire amount dispatched does not come back as deposits. 1st to 9
th and 12
th to 18
th we
receive cash‖.
―It is 14 billion for every month‖ a response given by R2 gives a gist about the actual
amount that is discussed. Rs.14 billion is what is supplied to 300 branches & 300 ATMs
within a given month. This is only one side of the coin as collection is needs to be looked
at separately.
However, it is not only banks that are tossed in the cost of managing logistic of physical
cash. Transport sector in Sri Lanka more less 100% is dependent on notes and coins.
51
Respondent R7 is a senior administrative officer in charge of finances at a pioneer
transport system in Sri Lanka. Following facts were exposed when explaining how his
institution was managing notes and coins
―99% of ticket or coupon payments are made with notes and coins. 100% of change is
given with notes and coins. Daily collection is counted, sealed, and brought to the center.
It is recounted before entries are made to accounts. Actual cash is then taken to the bank
for deposit. They count again. On a daily basis we deposit few hundred million rupees.
And it is growing fast like never before‖ and further commented ―it is not profitable
when you look at staff numbers, total resources, delays, and routines. Either regulations
must change or we must introduce new advance systems‖.
Finding 4: Logistical cost of distribution & collection of physical cash is relatively
high, irrespective whether this complexity is handled by an in-house
operation or by outsourcing to a third party.
Cost incurred for logistical arrangement by non-financial institutions
is also very high due to physical cash systems.
Invisible aspects such as the idling of cash while in transit, in vaults,
and inside ATMs. It is a huge opportunity cost since it cannot be
invested to bring financial returns.
It is not only the money, but when idling of resource meant for
physical cash is not in operation or use it is also an opportunity cost.
Vaults, ATMs, and transits are not always utilized to their maximum
capacity.
In a monetary system an opportunity cost is both a financial cost and
an economic cost.
52
4. 3.5 CATEGORY 5: COST OF MANAGING PHYSICAL CASH AT BANKS & BRANCHES
As the issuer and owner of all negotiable money in Sri Lanka, the Central Bank has laid
down regulations to manage cash collection and distribution. There are various types of
rules and regulations applicable to banks and other institutions. Types vary as to how a
bank or role of a bank is recognized. This extends even to other institutions dealing with
large amounts of physical cash.
All institutions, including central bank, commercial banks and other institutions dealing
with large amounts of physical cash, have to make sound decisions as to how the
collected physical cash needs to be dealt with in order to bring maximum returns to the
respected outfit.
R3 explains this practical aspect saying ―Maximum of cash we should retain is Rs.5
billion. Anything above that tends to make losses. The excess is always deposited at CB.
We should not have cash idling in hand because it could be invested and earn to meet the
interest we should pay to the customers that make deposits. The moment we get extra
cash from the branches immediately they are invested in Repo etc‖.
Above statement explains the movement of physical cash towards deposits of CB by a
bank, or collectors of large amounts of physical cash. A similar movement in the opposite
direction is also out there from CB. This is revealed by R2 as he explains the following.
―We have to make an order to the CB. The process is as follows: The branches ask for
cash from the head office cash department. The cash department assesses the position of
cash received by them. If the cash received is inadequate to meet the requirement then a
request is made to the CB at least two days prior the date of requirement‖.
―CB allows us to request for 100 million twice a month. If we need over and above this
amount we have to make a request with one day notice. If we make an emergency request
without 1 day notice then we have to pay a penalty‖.
53
This forward and backward movement needs to be well supported by a long chain of
decisions and actions taken at each and every time physical cash is involved. Hence, an
enormous amount of effort and systems goes into assure & certify that this process is still
governed by the ‗rule of trust‘.
―They all come as sealed bundles. It is all on trust. Even with other banks. Bundles are
strapped and then bags are sealed. It is double work we have to do to ensure right counts.
Bank seals are generally trusted by all‖ summarizes R1.
Parallel to the requirements at CB individual banks have to employ a similar system in
place, firstly, to deal with CB and, secondly, with their own large networks, both for
collection and distribution of physical cash. This means twice the process. And the
demand on human resource component alone is heavy.
Detailing precisely the demand of work that a central cash department of a bank has to do
R1 tells ―We are handling machines and engaged all the time. We start from 6am. There
are two shifts. We have to work around the clock. Otherwise we cannot meet the demand.
Weekends are twice as much busy. And paydays are thrice as much busy‖.
―We have 5 officers and 25 clericals and 5 minor officers. They have to also attend to
cash drops or cash collection at CB. They are paid general bank salaries starting at
Rs.35000 for clericals. Even trainees are paid basics of Rs.15000, of course with added
benefits. Integrity is the most important, and output is also important. So we have to pay
them better to retain them‖.
R2 in a similar supporting statement say ―We have to employ one cashier, one officer and
security staff at all times. At Central cash we have 23-25 employees and with security
and drivers it is about 50 employees, all of them are in the permanent cadre‖. Permanent
cadres in a state bank will enjoy all benefits including job security.
Commenting further R2 goes onto explain ―We have a big machine that can make 100
bundles per day. An employee could do 20-25 bundles a day. All 23 people are not
counting and bundling. We use them for delivering cash as well. There are few working
54
only on counting and bundling. Counting alone is done by 12 people. We have only one
machine. There are small machine for counting only‖.
Among many responsibilities their main job is to deal with sorting of cash that is
collected from customers by branches & service centers. It is a cumbersome process and
with a fair amount of manual applications in it. R3 gives a detailed account of this
process.
―Let me explain first. Our bank has 340 main branches and 380 service centers with a
total of 720. We collect all that at branch level. Branches have to keep 2% of cash for
meeting the withdrawals. Maximum cash we could retain in a branch is 4%‖.
―There are 24 Regional Offices altogether and 720 branches are working under them.
Each Region has a Feeder Branch (FB). Whatever the cash that are in branches excess
over 2% is collected to FBs. There is at least one FB in each Region and some have two
FBs. There are about 40 FBs. Such cash is transported to the Central Cash Department
(CCD). Around 2 billion comes from FBs. But it fluctuates. Like during festival times we
have to send cash to branches‖.
―Sorting is done at the central cash department (CCD) and we have about 25 staff
members. We sort it and send the cash to CB. Sorting process is manual. For counting
we have machines, and sorting is done manually. Only sorting is done manually. We are
going to buy a very effective machine for Rs. 5 million. If it is good we will buy another
two or three‖.
And to rub more salt into the wound, R1 explain how they have to also deal with coins
―Coins, we don‘t weigh. We have to count. We use machines. Machines are not that
expensive. But it takes more time and hassle, so more cost to count coins. Operator‘s
capacity decides output. Similarly the quality of coins matters‖.
Still undone, they have to deal with another costly and tricky encounter. Though, banks
go by the ‗rule of trust‘ customers seems to violate it not so rarely. As a result a separate
55
process needs to be employed to eliminate unserviceable and counterfeit physical cash
from the system.
R1 contributes to explain the situation as ―Unserviceable, about Rs.1-2 million a day, all
these goes into a trunk. And once the trunk is filled it is then supervised by CB officers.
Then only it is sent to CB. Quality of our notes is poor. People and culture of notes in Sri
Lanka is not clean. CB recently introduced a new policy for clean currency notes.
Unserviceable notes need to be printed again. More cost to maintain the balance.‖ And
―Teller counters are provided with cash counting machines. Double counts are
encouraged. And of course it consumes more time‖.
Describing how banks deal with counterfeit notes, R2 comments ―We have a mechanism
for identifying counterfeit notes. One is a machine and the other is the experience of
employees. More than the machine, the people detect counterfeits. Human resource is
very important in identifying the counterfeit notes. This is done while handling Rs.14
billion cash in a day‖.
R2 revealing the cost of the machine used says ―Cost of the machine is Rs.30 million and
it was bought one year ago. It can detect forged notes, do sorting and counting‖ and then
the procedure adopted ―Once a counterfeit is found we have to make a complaint to the
CID. Sometimes we recover the value from the cashier or we claim from insurance. If
insurance refuses the cashier has to pay that amount, so much for putting trust in line with
customers‖.
R3 shares that ―Mostly unserviceable notes are in low denominations such as Rs.10,
Rs.20, Rs.50 and Rs.100 etc. The number of unserviceable notes is rising‖. All
unserviceable notes have to come out of the system and new notes have to be introduced
to the system. In order to guesstimate the colossal loss, numbers dealt by Bank2 is
divulged by R2 as he shares ―We have to deposit all unusable and damaged money at CB,
on average Rs.30 million per month‖.
56
At the same time banks must maintain facilities and systems at all their branches - current
and planned expansions- to deal with physical cash that is collected and sent. Explaining
these requirements within Bank1 network R1 shares that;
―Sorted money is kept inside chubs, inside walls, or kept inside vaults. Maximum
security is employed with new systems and time locks. It includes human resource that is
part of our bank. And also most advanced systems with cameras in every sensitive area.
We have to upgrade all systems, software and hardware too. We have to be in par with
these changes, else we incur huge costs‖.
R2 sharing similar views also contributes saying ―All branches are given machines. We
can identify new features in currency notes. When size of the currency note is changed
we have to get adjusted. We have to adjust the ATMs and the trays of ATMs. The trays
are of a specific size. If different types of new notes are issued, then we find it difficult to
adjust‖.
―Money is kept in vaults and it is a capital cost. We are introducing CCTVs to all the
branches. Counting and bundling process is handled by Branches. They seal all the
bundles and then send them to the Central Cash. We have to recount‖.
―Even to the branches we have given small counting machines. Those machines can
count, sort, and detect forged notes. Now we are increasing the number of machines. The
cost of a machine is Rs. 250,000‖.
R3 sharing similar views go onto add ―Each bundle is counted three times. There is no
cash management in Sri Lanka. We just the collect cash and give. Cash management is
totally a different process. What we are doing is simply not cash management‖.
Even negotiating with clean serviceable notes is not an easy task. R1 says ―For
serviceable notes deposited at central bank there is a cost per bundle. They charge
something like Rs.100 per bundle, so most banks exchange among banks and among
branches. That way we try to cut down on cost‖. This reveals unseen complexities in
negotiating with physical cash collection.
57
Revisiting the fundamentals of a commercial bank, R3 states ―It affects cost of funds. We
must have a system for overnight investing for all the excess cash. In USA they invest all
the excess cash in every branch. We invest only if it comes to CCD‖. Here again it
reveals another unseen problem with physical cash collection.
At present day another unique problem exists with Rs.1000 denomination. During the last
five years Sri Lankan monetary systems was supplied with three different types of
Rs.1000 denominations. Each one is different to one another in size, color, and other
attributes. Thus, complicating use of the most frequently used denominations in Sri
Lanka.
R1 explains how Bank1 is over burden by this lapse ―With Rs.1000 notes, system is only
programmed to catch similar ones. Rest of it gets rejected. So we have to run it at least
two times, almost three times to sort Rs.1000. So output is slow. Cost is more‖.
A similar view was shared by R3 ―With Rs.1000 notes, same work is done three times. It
takes more time. There is no standard in cash in Sri Lanka. In USA there is only one
design. People don‘t like the new notes‖.
R2 explains an extension of the problem ―With Rs.1000 notes, our ATMs have to first
change the size of the tray. Then it is a cost. We can‘t put currency into any tray. Also we
have to fill these trays. When there is a new type of currency, the ATM has to be
changed. We only put one type of currency in each denomination into the ATM‖.
It is essential to reiterating a section from the previous category to further confirm that
the issues are not only solely faced by the banking sector, but also by other institution
dealing with large collections of physical money.
R7 commenting on the transport sector said ―99% of ticket or coupon payments are made
with notes and coins. Daily collection is counted, sealed, and then brought to the center.
It is recounted before entries are made to accounts. Actual cash is then taken to the bank
for deposit. They count again. On a daily basis we deposit few hundred million rupees.
And it is growing fast like never before. it is not profitable when you look at staff
58
numbers, total resources, delays, and routines. Either regulations must change or we must
introduce new advance systems‖.
Finding 5: CB needs to equip itself to deal with each and every physical cash
movement, requiring more space to receive, store and release physical
cash.
Cost includes very tight security measures for arrivals & departures
of physical cash and for money that is in storage.
Cost includes sophisticated machines and systems capable of handling
large volumes, in swift time, and with absolute accuracy.
Cost includes competent and trusted human resource capable of
making decisions and actions rightfully serving ‘the rule of trust’. To
retain this alone is a massive expenditure.
Similarly all banks and other institution dealing with large some of
physical cash have to install itself with all of the above at a staggering
cost.
Cost of replacing unserviceable physical cash, and procedural costs
dealing with counterfeit cash.
Cost multiplications due to lapses by CB such as with Rs.1000
denomination.
Cost in loss of opportunity due to lack of foresight by CB in
regulations dealing with excess amounts of physical cash.
59
4.3.6 CATEGORY 6: ISSUES FACED BY USERS OF NOTES & COINS
An important role of cash, physical or otherwise, is to provide convenience to those who
use it and maintain it. It loses appeal and requirement for existence when it is considered
as something full of hassle or cumbersome. A successful mode of cash must always
maintain its popularity among all quarters.
R5 talking on behalf of his monetary related statutory institute stated ―Therefore we have
to provide notes and coins to carry out all possible transactions in a convenient and
trusted manner‖. While the later part of his disclosure confirms the essentiality in
convenience, the former highlights that they consider it is demanded of them.
R1 commenting on coins said ―Not many coins comes back to banks. Circulation is going
down. Customers are also reluctant to accept coins. Counting and managing are
considered hassles. Central bank has no system to accumulate coins. So coins must be
getting accumulated at some place other than banks‖ and ―It takes more time and hassle.
So more cost to count coins‖. Similar views were share by R2, R3, & R4 on hassle of
coins and how it has gone down in circulation.
R7 representing a sector with high usage in coins and notes comments ―exact change is a
big problem. Commuters find it difficult to come up with exact change. Conductors and
counters find it difficult to give correct change back. Due to this we lose lot of time and
confidence between us and them, both ways‖.
R8 travels to and returns from Colombo on a daily basis states ―It is always a problem. I
never get correct change back. Sometime due to this I can‘t give correct change, so waste
of time to find change money, or I lose money. Small amounts daily add up at the end‖.
She further states ―Other problem is buying food items and other small items. We never
get change back. So we hardly have correct change to give. This is ok for rich people. But
not for us. And it is also trouble for a woman. Coins are heavy, noisy, and take space
inside the purse. Notes and also coins are very dirty. But most importantly I feel unsafe to
60
take money these days. So many robberies and murders. It is because we take money
with us‖.
R8 brings concerns associated with merchandise purchase. What is generally termed as
micro payments, payments less than Rs.100. This same concerns were highlighted by R9
when she stated ―I am in retirement. Every rupee counts. On the other hand with age it is
difficult to carry bulky coins. There were plenty of times I missed counted notes and
coins. A better system must come now. I am also concerned about me safety. In today‘s
world carrying cash is very risky‖.
However, R10 shared a different view ―I hardly use notes or coins. My salary is directly
deposited to my account. I have an online bank account. I pay my utility bill online. For
merchandise I pay via mobile or debit card. I use a coupon to take the rail to work. I
transfer money to a guy who actually does the transaction on my behalf. If I take a taxi I
pay by debit or mobile. It is very convenient and saves me money‖.
Elaborating on statistics related to use of ATMs R6 states ―People consider ATMs as an
extended wallet, because they simply don‘t like to carry too much physical money with
them. So they use ATMs to draw just the right amount and at the precise moment they
need it. Its 24/7. Same goes for debit and credit cards. We lack is a prepaid card.‖
The Island newspaper reported that ―A garment factory director in Ekala who was
relieved of Rs. 7.5 million by an armed gang recently died of a heart attack‖, and further
reported ―He had withdrawn money for the wedding expenses, but a five-member gang
robbed it near the garment factory on May 28. According to the police Mr. David was
planning to pay an advance for the reception hall after withdrawing the money‖.
What was robbed was not just physical cash, but a valuable human life. What was
missing was a simple facility to transfer funds without taking the risk of carrying a heap
of physical cash to make a payment without inviting trouble. (Palihawadana, 2013)
61
Finding 6: All quarters of monetary sector consider that maintaining of physical
cash is cumbersome.
All users & uses of physical cash is a hassle, inconvenient, bulky, &
unhygienic.
Shortage in proper denominations leads physical cash payments to
financial loss or time loss.
Carrying physical cash is considered risky and life threatening.
Alternatives in place of physical cash is now used and trusted than
ever before.
4.3.7 CATEGORY 7: COST OF NOT GOING BEYOND ATMS & BANKCARDS
Presently in Sri Lanka there are few alternatives to physical cash. Cheque payments lead
the physical alternative for non-cash payment. However, in the latest study carried out on
this topic in 2005-09 Prof. Colombage publishes that in Sri Lanka among all non-cash
payments cheque use fell from 94.3% to 87.7% amidst a three-fold growth in electronic
alternatives during the same period of time. (Colombage, 2011)
The two major drawbacks in cheque payments, time it consumes to realize and
availability of funds, makes it very unpopular. Nevertheless, it also pave the way for
electronic alternatives such as credit cards, debit cards, ATM cards, online banking,
mobile cash, and prepaid cards.
R1 summarizes the total picture as he states ―More products must come to Sri Lanka.
Right now we have only debit and credit cards. It is also mostly in urban sector. Not in
rural sector. It will help cash management. It will help teller counters. It will reduce the
hassle of counterfeits. Less deposits to be made at Central Bank mean less costly. The
entire process will weigh less. And help the bank systems‖.
62
R2 explaining trends observed says ―Now you have the alternative of credit cards and
debit cards etc. Use of cards is also rising. There is a big change towards electronic &
mobile forms. Electronic banking is growing. Last two years there was a huge rise. But
from the rural community there is a requirement for currency. We were trying to
encourage other people also to use the card but there is no big pick-up from that end.
People in Urban areas use credit cards, debit cards and internet facilities, but we don‘t get
it in rural areas‖.
R2 goes onto share his experiences with the mindset of users by saying ―Even in urban
areas they go to banks etc. to pay the water bill. My own brother was not sure whether the
money goes to the right place and wants to pay to a bank. I have paid thousands of
payments, yet nothing has gone wrong. There are people who don‘t believe in this
technology very much. It will take some time for our society to come to that level may be
with the education and other things‖.
Anticipating changes in future R2 says ―We prefer working for electronic cash.
Customers can‘t do third party payments with ATMs but could do their own transactions.
Even utility bill payment is not possible through ATMs but possible through internet
banking. But soon we are going to introduce it to ATMs‖.
However, R3 is optimistic only with concerns regarding electronic money. He says
―People use ATM cards and over time they will go electronic. Because of hacking issues
people are scared to deal with credit cards. We try to issue cards, so that they can buy
goods at POS centers. The young generation likes online and electronic transactions. A
common switch would come soon and with that there will be less usage of cash. Yes, this
will bring gains to the bank‖.
R4 with a broader policy perspective looks at electronic money schemes and shares
―Now, for instance, salaries and payments are done electronically by most of the people.
Or they withdraw at an ATM or use credit or debit cards where appropriate. There is a
63
large number of trading places that do not accept cards. People use debit or credit cards.
Yet people need cash depending on their habits and requirements, they definitely have to
deal with non-card transactions‖.
He then goes onto say how electronic use is promoted in remote sectors ―According to
records 1.5-2 million people are abroad. All earnings of such blue collar workers send
their small earnings to the country to their parents or family. Usually they come from a
faraway place and withdraw all the money. But we have given ATM cards and say
withdraw only what you want. Day and night they could go to an ATM, not only from
our bank, but from any bank ATM to withdraw‖.
Further elaborating this he says ―We are trying to see a guy working in another country
and working with another bank. At home, while watching TV they can initiate the
transaction through the internet. Money comes to our bank. Immediately the money is
here. Irrespective of time differences, whether we work or not, immediately it comes.
That way the work is reduced. No hassle to the bank and to the customer. That is the kind
of thing we are looking for the blue collar worker workers living abroad. Then we can
ensure that we get money to the country than we get now. We are now missing 30%-40%
of what should really come to the banks. 4-5 billion dollars are still outside. We need that
money for balance of payment and everything else. There are different dimensions and I
don‘t think there is one text book answer.
R4 then introduces a grassroot problem saying ―If the person wants to buy two eggs,
some food and a bag of fertilizer using debit card is not possible. It will take a very very
long time for the changes to take place to have that type of society. Even in Britain,
money transactions are there. All the corner shops, the underground and some of the
buses also request cash. Sri Lankan private buses also tried it. The bus owners were
willing to accept cards. I don‘t know when cash less kind of things are totally
implemented. It will take a long long time, not in my life time.
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R4 finally rests stating ―A less cash society may not happen immediately, but it is the
trend. Everyone is trying to attempt to do that. We are working through electronic media
with less manual transactions. The ultimatum is less cash or cashless‖.
R5 representing the view of a statutory institute in monetary sector says ―We are for it.
We support and help any initiative towards it. The recent launch of mobile cash was
encouraged by us. Of course it was the mobile operator, who wanted our stamp as a
scheme approved by us, but we have set all guidelines and regulations for anyone to
come and try alternative schemes. Our blessings are always there. It will grow slowly.
Like the mobile phone market. We are still a growing economy. Once our economy
reaches a certain milestone these things will come out. Till then we have to supply
physical money.‖
R6 in his views states ―The common switch is important. It will make a world of changes.
This will open-up many door and clear lot of barriers. It will facilitate live, then and
there, transactions simply with anyone with no hassle but at lightening fast speed‖.
―Regulatory agencies and banking sector leaders must drive it. In today‘s world you can‘t
sit back and let things happen. Obviously things will eventually happen, but only with a
huge cost and a total mess. So they have to take control of the wheel. Simply saying it
will improve bottom lines of all- government, banks, businesses & people‖.
―ATM numbers are growing. New generation machines come with loaded live facilities.
We have passed debit & credit era. Now it is prepaid. Once you top-up it is your money
that is in there. Use it to make micro-payments or even large sums. First unit of a bus ride
is nine rupees. If we are paying that with a prepaid card, I want to buy a kimbula banis (a
local sweet delicacy) for Rs.20 with electronic money. It will revolutionize the society
totally‖.
Finding 7: Cheque use has declined, and electronic alternatives are increasing.
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Less physical cash means, less hassle, less counterfeits, less costly
operation, and more savings.
Trend among younger generation is for electronic money.
Banks are encouraging electronic alternatives and banks are also
facilitating utility bill payments electronically.
A common switch linking all electronic gateways to a single platform
is essential. This can bring banks, mobile operators, internet service
providers, and other institutions authorized to work with electronic
money.
Initiatives taken to introduce alternative money to rural and remote
areas by use of bankcards.
Importance in tapping into remittances of over US$ 3billion not
coming into Sri Lanka by means of electronic transfer schemes.
Policy makers and regulatory chives still going slow and allowing time
to drive the necessary changes socio-economic spheres want.
Prepaid electronic card for micro payments will revolutionize the
entire monetary system and society.
4.4 CATEGORY FORMULATION
Based on the content analysis following categories are formulated as having an impact on
the cost of managing physical cash in Sri Lanka:
Category 1: Perception of monetary world towards the role of cash
Category 2: Concerns of giving priority to physical cash in a modern monetary system
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Category 3: Cost of producing physical cash
Category 4: Cost in managing logistics in supply & collection of physical cash within the
network (of branches & ATMs)
Category 5: Cost of managing physical cash at banks & branches
Category 6: Issues faced by users of notes & coins
Category 7: Cost of not going beyond ATMs & bankcards
4.5 FINDINGS OF THE DATA ANALYSIS
4.5.1 FINDINGS
1. Monetary sector including commercial banks and apex body the Central Bank
considers monetary management is primarily managing physical cash (notes &
coins).
2. None of the respondents wants to revisit possibility of transformation by
introducing efficient and less costly alternatives to better manage monetary
schemes.
3. They continue to consider that what is in existence is best, and improvement is
neither needed nor possible.
4.5.2 FINDINGS
4. A simple notion like introducing of notes & coins was primarily an ‗alternative
remedy‘ to address the growing concerns of a bulky monetary system is still
understood by Sri Lankan monetary experts as notes & coins as the ‗only
remedy‘.
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5. It is quite apparent that growth of physical cash is always considered a positive
factor in Sri Lanka, and it is the norm to have more notes & coins produced to
facilitate growth of its monetary system parallel to the economy, even if it has no
positive impact on the system.
6. Even today new physical cash is still injected. This will only burden the entire
monetary system and soon leave an outdated colossal mess hampering much
needed dynamism in the monetary system & economy.
4.5.3 FINDINGS
7. A large amount of resources are employed in production department of physical
money in Sri Lanka.
8. A laborious process both demanding and consuming is required for the production
of physical money.
9. Most of production expenses are paid to outside parties, including offshore.
10. Production is not necessarily a new series of money or bulk amounts, but also
replacement of unserviceable.
11. Printing of notes and minting of coins are tremendous costs at any scale.
4.5.4 FINDINGS
12. Logistical cost of distribution & collection of physical cash is relatively high,
irrespective whether this complexity is handled by an in-house operation or by
outsourcing to a third party.
13. Cost incurred for logistical arrangement by non-financial institutions is also very
high due to physical cash systems.
14. Invisible aspects such as the idling of cash while in transit, in vaults, and inside
ATMs. It is a huge opportunity cost since it cannot be invested to bring financial
returns.
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15. It is not only the money, but when idling of resource meant for physical cash is
not in operation or use it is also an opportunity cost. Vaults, ATMs, and transits
are not always utilized to their maximum capacity.
16. In a monetary system an opportunity cost is both a financial cost and an economic
cost.
4.5.6 FINDINGS
17. CB needs to equip itself to deal with each and every physical cash movement,
requiring more space to receive, store and release physical cash.
18. Cost includes very tight security measures for arrivals & departures of physical
cash and for money that is in storage.
19. Cost includes sophisticated machines and systems capable of handling large
volumes, in swift time, and with absolute accuracy.
20. Cost includes competent and trusted human resource capable of making decisions
and actions rightfully serving ‗the rule of trust‘. To retain this alone is a massive
expenditure.
21. Similarly all banks and other institution dealing with large some of physical cash
have to install itself with all of the above at a staggering cost.
22. Cost of replacing unserviceable physical cash, and procedural costs dealing with
counterfeit cash.
23. Cost multiplications due to lapses by CB such as with Rs.1000 denomination.
24. Cost in loss of opportunity due to lack of foresight by CB in regulations dealing
with excess amounts of physical cash.
4.5.7 FINDINGS
25. All quarters of monetary sector consider that maintaining of physical cash is
cumbersome.
26. All users & uses of physical cash is a hassle, inconvenient, bulky, & unhygienic.
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27. Shortage in proper denominations leads physical cash payments to financial loss
or time loss.
28. Carrying physical cash is considered risky and life threatening.
29. Alternatives in place of physical cash is now used and trusted than ever before.
4.5.8 FINDINGS
30. Cheque use has declined, and electronic alternatives are increasing.
31. Less physical cash means, less hassle, less counterfeits, less costly operation, and
more savings.
32. Trend among younger generation is for electronic money.
33. Banks are encouraging electronic alternatives and banks are also facilitating
utility bill payments electronically.
34. A common switch linking all electronic gateways to a single platform is essential.
This can bring banks, mobile operators, internet service providers, and other
institutions authorized to work with electronic money.
35. Initiatives taken to introduce alternative money to rural and remote areas by use
of bankcards.
36. Importance in tapping into remittances of over US$ 3billion not coming into Sri
Lanka by means of electronic transfer schemes.
37. Policy makers and regulatory chiefs still going slow and allowing time to drive
the necessary changes socio-economic spheres want.
38. Prepaid electronic card for micro payments will revolutionize the entire monetary
system and the society.
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4.6 REVISITING THE CONCEPTUAL FRAMEWORK
Data analysis paved way to new findings – a new set of categories. Some of it was
identified at research design stage. Therefore new findings need to be added to the
conceptual framework after revisiting Conceptualization in Chapter 3.3.
What was presented in Chapter 3.3 was as follows;
Problem - Costs of management of coins and notes
Possible causes –
1. Cost of Production
2. Cost of Storing and Distribution
3. Cost of Including Unique security, identification, verification, etc features
4. Cost of Exit of coins and notes from the monetary system
With new findings conceptual frameworks needs to be modified as follows;
Problem - Costs of management of coins and notes
Possible causes – 1. Perception of monetary world towards the role of cash
2. Concerns of giving priority to physical cash in a modern monetary system
3. Cost of producing physical cash
4. Cost in managing logistics in supply & collection of physical cash within the
network (of branches & ATMs)
5. Cost of managing physical cash at banks & branches
6. Issues faced by users of notes & coins
7. Cost of not going beyond ATMs & bankcards
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4.7 REVISITING THE PROPOSITION
In respect to modifications done to conceptual framework, a revisit original proposition
in Chapter 3.7 needs to be made to make relative modification to the proposition.
Original proposition presented in Chapter 3.7 is as follows;
―The cost of production, storing, distribution, inclusion of security, identification,
verification, features etc and cost of exit of coins and notes exerts are the factors having
an impact on the cost of management of coins and notes, an added burden on the
monetary system in Sri Lanka‖.
Having made relative modifications, revised proposition should read as follows;
―Cost of production, cost of logistics, & cost of managing coins and notes, stagnant
alternatives to cash, the perception towards money, & priority given to coins and notes,
and lack of confidence among users of coins and notes, are an added burden on the
monetary system in Sri Lanka.
4.8 CONCLUSION OF CHAPTER 4
After carefully analyzing the revelation made through in-depth interviews with critical
respondents supported by other relevant data, the research indicates the system in place,
perception, and lack of confidence among segments connected adds an extra burden on
the monetary system in Sri Lanka.
These findings will be used in Chapter 5 to assess the relevance between assumptions
made and outcomes found through data analysis. Chapter 6 will discuss recommendations
to be made based on the findings.
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CHAPTER 5
DISCUSSION
5.1 INTRODUCTION TO CHAPTER 5
Chapter 5 will revisit the objectives outlined in Chapter 1.4 with new findings through
the data analysis. This will lead to a discussion on progress made in relation to the
objectives and also where possible relate findings to literature review. Chapter 5 will also
revisit proposition and the conceptual framework for a verification on the modifications
made.
5.2 ACHIEVING THE OBJECTIVES
Objectives of this study and the extent in which they were achieved through this research
are as follows;
1. To understand current eco-system which exists with issuing coins and notes to
customers;
Analyzing data revealed through in-depth interviews with decisive
respondents in the entire monetary eco-system resulted in achieving a
comprehensive understanding of the entire eco-system on issuing note and
coins to users, thus, achieving objective 1.
2. To understand the costs incurred by banks in managing this service on behalf of
the Central Bank and for use of customers;
Analyzing data revealed through in-depth interviews with decisive
respondents in the entire monetary system resulted in achieving a
comprehensive understanding on the costs incurred by banks in the total
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management of coins and notes related services. Further, categories were
also formulated parallel to this objective, thus, achieving objective 2.
3. To analyze the current concerns with issuing of coins and notes;
Analyzing data revealed through in-depth interviews with decisive
respondents in the entire monetary system and data obtained through
relevant publications resulted in achieving a comprehensive understanding
on current concerns related to issuing coins and notes. Further, categories
were also formulated parallel to this objective, thus, achieving objective 3.
4. To determine the effectiveness of implementation of an cashless or e-wallet
scheme to overcome the issues encountered in managing coins and notes;
Analyzing data revealed through in-depth interviews with decisive
respondents in the entire monetary system and data obtained through
relevant publications resulted in achieving a comprehensive understanding
to determine the effectiveness of implementation of a less cash society
leading to a cashless or e-wallet schemes. Further, categories were also
formulated parallel to this objective, thus, achieving objective 4 will be
based on these finding and recommendations will be made in Chapter 6.
5.3 RE-CAPPING THE OBJECTIVES AND THE PROPOSITION
Objectives of this research study are concentrated on finding the total burden incurred by
coins & notes on Sri Lanka‘s monetary system, and whether a less-cash initiative could
be a remedy for it. Purpose of developing a proposition was to setup a basic structure to
guesstimate how coins and notes are an added burden on the monetary system in Sri
Lanka. Analyzing data reveled through in-depth interviews with decisive respondents in
the entire monetary system and data obtained through relevant publications resulted in
74
achieving a comprehensive understanding on current concerns related to issuing coins
and notes. Final outcomes indicate that the proposition made at first in order with the
objectives remains without much deviation after the research analysis.
5.3 RELATING FINDINGS TO LITERATURE REVIEW
In Chapter 2 in Literature Review it was quoted that ―What matters most about money is
not what it looks like, or even what it is backed by, but whether people believe in it
enough to use it.‖ (Sorowiecki, 2012). This statement precisely states how dynamic
economy should look at the changes need in a monetary system. However, following
findings seems contrary to the above, and confirms that part of the problem is lack of this
perception.
Finding1-Monetary sector including commercial banks and apex body the Central Bank
considers monetary management is primarily managing physical cash (notes & coins).
Finding2-None of the respondents wants to revisit possibility of transformation by
introducing efficient and less costly alternatives to better manage monetary schemes.
Finding3-They continue to consider that what is in existence is best, and improvement is
neither needed nor possible.
Revisiting the literature review we find that ―To maintain our stock of hard currency, the
US Treasury creates hundreds of billions of dollars worth of new bills and coins each
year. The cost to taxpayers in 2008 alone was $848 million, more than two-thirds of
which was spent minting coins that many people regard as a nuisance‖. (Wired, 2009)
Finding7-A large amount of resources are employed in production department of physical
money in Sri Lanka. Findings8-A laborious process both demanding and consuming is
required for the production of physical money. Findings9-Most of production expenses
are paid to outside parties, including offshore. Findings10-Production is not necessarily a
new series of money or bulk amounts, but also replacement of unserviceable. Finding11-
Printing of notes and minting of coins are tremendous costs at any scale.
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Further, Chapter 2 recalls ―In an era when books, movies, music, and newsprint are
transmuting from atoms to bits, money remains irritatingly analog. Physical currency is a
bulky, germ-smeared, carbon-intensive, expensive medium of exchange‖ (Wired, 2009)
This is further confirmed by Finding25-All quarters of monetary sector consider that
maintaining of physical cash is cumbersome. Finding26-All users & uses of physical cash
is a hassle, inconvenient, bulky, & unhygienic. Finding27-Shortage in proper
denominations leads physical cash payments to financial loss or time loss. Finding29-
Alternatives in place of physical cash is now used and trusted than ever before.
In literature review Professor Friedrich Schneider was quoted ―The prevalence of
electronic transactions — and the digital trail they generate — also helps explain why
Sweden has less of a problem with graft than countries with a stronger cash culture‖.
(tech.slashdot.org)
This is the exact reflection of Finding28-Carrying physical cash is considered risky and
life threatening.
As shown in Chapter 2 Prof Colombage‘s research states a new trend towards a decline in
use of analog money and increase in use of digital money.
These sentiments are reflected in the following findings. Finding30-Cheque use has
declined, and electronic alternatives are increasing. Finding31-Less physical cash means,
less hassle, less counterfeits, less costly operation, and more savings. Finding32-Trend
among younger generation is for electronic money. Finding35- Initiatives taken to
introduce alternative money to rural and remote areas through.
A report published by the International Finance Corporation on Mobile Money Study in
2011 was included in the literature review. ―Analyzing potential transactions in mobile
money in Sri Lanka, the report presents possibility of 264 million transactions in public
transport, 4.7 million transactions in payrolls & informal sector usage (as in postal money
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orders), 1.6 million transactions in government sector welfare payments and 6.4 million
transactions in utility bill payments in a given month‖. (IFC, 2011)
This is further supported by Findings33-Banks are encouraging electronic alternatives
and banks are also facilitating utility bill payments electronically.
5.5 RE-EXAMINATION OF THE CONCEPTUAL FRAMEWORK
In Chapter 4 conceptual framework was revisited with categories formed from new
findings that emerged through data analysis. Modification to conceptual framework was
done in parallel to categories formed to include new findings. The proposition was also
revisited and accordingly modified, to agree with changes made to conceptual
framework.
5.5 MODIFYING THE CONCEPTUAL FRAMEWORK
In Chapter 4 modification to conceptual framework was done in parallel to categories
formed to include new findings. The proposition was also revisited and accordingly
modified, to agree with changes made to conceptual framework.
5.5 CONCLUSION OF CHAPTER 5
In Chapter 5 it was confirmed that objectives 1, 2 & 3 as set out in Chapter 1 was
achieved through a comprehensive data analysis and presentation. Modification to
conceptual framework was done in parallel to categories formed to include new findings.
The proposition was also revisited and accordingly modified, to agree with changes made
to conceptual framework. Objective 4 will be established in Chapter 6.
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CHAPTER 6
CONCLUSION & RECOMMENDATIONS
6.1 SUMMARY
The research study was initiated with a focus on studying the cost of production, storing,
distribution, inclusion of security, identification, verification, features etc and the cost of
exit of coins and notes exerts an impact on the cost of management of coins and notes
and whether this in turn burdens the monetary system in Sri Lanka.
Following an in-depth data analysis new findings paved the way to arrive at that the cost
of production, cost of logistics, & cost of managing coins and notes, stagnant alternatives
to cash, the perception towards money, & priority given to coins and notes, and lack of
confidence among users of coins and notes, are certainly an added burden on the
monetary system in Sri Lanka.
6.2 FINDINGS OF THE STUDY
The research study was able to find thirty-eight (38) different factors related physical
cash – coins and notes – contributing to the burdening of the monetary systems in Sri
Lanka. These 38 factors can be summarized into the following segments;
6.2.1 FINDINGS IN SEGMENTS 1: COST OF PRODUCTION, COST OF LOGISTICS, & COST OF
MANAGING COINS AND NOTES
Starting from design templates, using natural resources to print notes or mint coins incurs
is an immense cost. Human and machines employed for sorting, counting, strapping,
78
bundling, storing, & transporting, all under precision of zero errors & maximum security
incurs an immense cost. Human resource employed to make the right decisions to send
and recall physical cash to and from Central Bank to Central Cash, or to and from Central
Cash to network nodes to get the maximum returns on physical cash incurs an immense
cost. Further, idling of any of the above resources, human, machines or otherwise is an
added cost incurred.
6.2.2 FINDINGS IN SEGMENTS 2: STAGNANT ALTERNATIVES TO CASH, THE PERCEPTION
TOWARDS MONEY, & PRIORITY GIVEN TO COINS AND NOTES
Stagnation comes from relying on atom based alternatives like issuing cheques that lacks
real time realization and availability of funds, to primary bit based (electronic)
alternatives like ATM cards. There seems no momentum to move beyond. This is purely
due to the colonial mindset giving priority to notes and coins. Centuries ago notes and
coins were the ultimate medium to express the value of a transaction. During the last four
decades global population has doubled, number of transactions has multiplied in few
folds, and the values have grown pass figures trillion. Times have changed, but change
has not come. This is due to the wrong perception. Physical cash is only a medium, not
the value. Value is governed by the trust that is placed on the medium.
6.2.3 FINDINGS IN SEGMENTS 3: LACK OF CONFIDENCE AMONG USERS OF COINS AND
NOTES
The trust that is placed on the medium gives it the value. People are increasingly
distrusting notes and coins. They feel it is hassle. They feel insecure with it. They feel it
is not the best solution to make precise payments. They feel it is slow and taxes time.
They are ever more converting into bit (electronic) money. Electronic money is fast. It
has no physical presence. It is ever more secure. It can make precise payments. It can be
79
used round the clock and over physical boundaries. Public is asking for more of less-cash
initiative in the monetary system leading to e-wallets and possibly cashless transactions.
6.3 RECOMMENDATIONS
This research study was able to bring known and unknown facts and figure on the same
table of discussion on burden of coins and notes have on Sri Lanka‘s monetary system.
There had been no similar research study done to bring known and unknown facts
affecting the regulator, banking sector, day-to-day users and other related institutes on
burden of coins and notes have on them.
Therefore, following recommendations are made in best interest of all segments
connected to the monetary system in Sri Lanka and are affected by the burden of coins
and notes.
6.3.1 RECOMMENDATION 1 ON PERCEPTION
As the sole regulatory agency for monetary related matter in Sri Lanka, the Central Bank
of Sri Lanka (CBSL) should take a bold step forward to lose the convention and to bring
change the perception to ‗embrace the abstraction without worry‘. CBSL must take the
lead to advocate this change of perception within banking sector and general public.
6.3.2 RECOMMENDATION 2 ON REGULATORY MEASURES
CBSL should take the lead to introduce necessary policy & regulatory framework
supporting a less cash society. The authoritarian style regulatory presence will never
allow change to come from bottom-up. It has to be top-down. Policy and regulatory
changes should necessarily include priority given to national security, new laws &
80
regulations in par with technological advances, and financial encouragement for new
initiatives.
6.3.3 RECOMMENDATION 3 ON COLLECTIVE DRIVE
Central Bank of Sri Lanka (CBSL) & banking sector, Telecommunication Regulatory
Commission (TRC) & telecommunication sector, and National Transport Commission
(NTC) & transportation sector, Information and Communication Technologies Agency
(ICTA) & ICT sector are important cornerstones on managing a new age monetary
systems. A joint mechanism needs to be formed with all these partners coming together
to realize positive changes.
6.3.4 RECOMMENDATION 3 ON SOLUTIONS
Introduce a prepaid card as the first initiative to envision a less-cash society. Expand it
over to mobile phones with near-filed communication (NFC) technology introducing an
e-wallet. Finally, lead it to couple itself on to a biometrics network. At each phase assure
total security and convenience in accessing finances.
6.4 CONTRIBUTION TO THEORY & PRACTICE
A resilient nation like Sri Lanka cannot afford to have a stagnated economy at present.
Economic dynamism must come from all possible direction, including from statutory and
regulatory institutes. In an economy monetary system is the critical supply of blood. Only
a clean warm supply of blood can assure proper healthy functional organs. Right now Sri
Lanka needs a vibrant monetary system in place.
A monetary system should always study what burdens it most and apply remedies to
rectify it. Winning the trust of institutions and individuals involved in actual functionality
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of a monetary system is a prime necessity. Winning the confidence of the ultimate user is
the only way to keep the circulation intact.
It must always reinvent itself to cut back on unnecessary expenses, because cutbacks on
expenses are a saving that always improves the bottom line. It must reinvent itself to
reduce cost from unwarranted waste, because reduction of waste is a saving that always
improves the bottom line. It must reinvent itself to save time, because time saved is
another opportunity won for an investment.
Sri Lanka‘s monetary system must first help the Central Bank to free itself heavy,
conventional, and bureaucratic procedure to ready itself to embrace the abstract without
worry. Otherwise it will end up being another colonial institutional mess.
Sri Lanka‘s monetary system must help the banking sector to free itself from procedural
conventions and create an environment free of red tapes to try new alternatives that could
add more efficiency to the system.
Sri Lanka‘s monetary systems must help the average user to find more time and savings,
rather than being recognized as a hassle and a time tax just for using the system.
World population has gone past 7 billion. Sri Lanka‘s population has doubled during the
past four decades. Geographical boundaries are put to rest by lightning fast
communication networks. Accessibility is a thing of the past with sophisticated
advancement in infrastructure.
With all these increases in numbers and with time becoming more valuable in essence, a
monetary system in an economy is the last place to be stagnant and to carry a burden.
Transactions must be made with confidence and must reflect immediately in true value.
With such a demand, electronic (or bit) money becomes ever more popular and powerful.
Electronic money having won over speed and confidence now threatens the reign of
money as king of cash.
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A less cash society will collectively save time, unwarranted expenses, and will be free of
hassle to contribute more towards the economic development. Banking sector will less
procedural red tapes and better bottom lines will try an innovate new measures which will
trigger economic progress. A cutting edge regulatory system is always in top gear ready
to drive the economy into new heights.
6.5 LIMITATIONS OF THE STUDY
The research accounts for cost and thoughts on burden of coins and notes on the
monetary system and data was collected through in-depth interviews. Therefore,
accessing sensitive information was limited and collecting sensitive feedbacks was also
limited. Therefore, on certain occasions all figures and numbers would not have come
out, and some would have held back on their thoughts.
6.6 DIRECTION FOR FUTURE RESEARCH
This research did not include data from religious institute, merchants, boutique
businesses, bus conductors, till savers, and similar individuals who deals with large
amounts of small money including coins and notes on a daily basis. Further research
could include data from above segments. Also, it can collect date on different attributes
of uses and users of new electronic money schemes.
6.7 CONCLUSION OF CHAPTER 6
This research study brought to light problems faced by the monetary system in Sri Lanka
due to coins and notes. How different segments including the statutory institutes,
commercial banks, other institutions, and individuals have started to lose confidence in
coins and notes. The convention that money has to be physical (as in coins and notes) is
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deeply rooted within our mindset and colonial structures. The 13th century perception of
‗embrace the abstraction without worry‘ which invented paper money is ever more
relevant today. The importance of having a modern monetary system capable of
sustaining confidence and growth is clearly spelt. A movement towards initiating a less-
cash society is a brand new beginning with an assurance for a prosperous economic
development.
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