Another BRIC in the Wall of Cash

Another BRIC in the Wall of Cash
Tags: Asia, Australia & Pacific, Central and Eastern Europe, Latin America, Research
February 8, 2011

How many folks have read about the so-called BRIC economies? Here they are in green below: Brazil, Russia, India and China.

These four countries together account for more than a quarter of the world's land area and more than 40% of the world's population. Recently, Goldman Sachs argued that by 2050 the combined economic output of these four rapidly developing economies could eclipse the total output of the current richest countries of the world.

So the acronym “BRIC” has become a symbol of the shift in global economic power away from the developed G7 economies toward the developing world during the course of the 21st century.

As a futurist interested in the long-term future of cash, I thought we should put together a picture of cash use in the BRIC countries as a window onto the future of global cash. We are looking at the future rich economies of the world. But how cash-based are they?

In Brazil, which will host both the FIFA soccer world cup in 2014 and the 2016 summer Olympics, cash payments account for some 77% of payments carried out by individuals, according to a 2007 Banco Central do Brazil survey.

The central bank’s “Report on the Brazilian Retail Payment System Statistical update – Figures for 2008” shows that the number of ATM transactions per inhabitant increased by 44.9% between 2001 and 2007, with a 12.6% increase in the number of cash transactions per terminal in the same period. The average value per cash transaction rose by a staggering 93.2%! It is not surprising that the volume of currency held by the population has risen sharply.

In Russia, currently the 10th largest economy, cash in circulation has increased dramatically in the last decade. Central Bank Surveys by the Bank of Russia from 2001-2010 show that the average currency in circulation at the month’s end during 2001 was 487,225 million Russian rubles but by 2010 this figure had climbed to 4,756,155 million, representing
almost a tenfold increase in currency in circulation.

In India, the most populous democracy in the world, the Reserve Bank reports that banknotes in circulation in the country rose from 38,336, 000,000 in 2004 to 56,549, 000,000 by 2010 (Source: Reserve Bank of India Annual Reports). The average annual increase in the volume of banknotes in circulation between 2006-10 was 5.7%, while the corresponding increase in the value of banknotes in circulation was 14.5%.

Fourthly, in China, the future superpower of the world, the year on year growth in currency in circulation in China rose from 22039.08 million Yuan in 2005 to 408139.93 million Yuan by 2010 (Source: People’s Bank of China). By 2020, there are expected to be 900 million city dwellers in China. Readily attainable penetration rates of 1 ATM per 1,000 citizens would result in installations of 900 000 ATMs for these urban Chinese. These numbers are mind-boggling.

If the BRIC economies become the future economic powerhouses of the world, then it seems logical to assume that the volume and value of global cash is set to rise exponentially over the next few decades, judging by recent trends in increased banknote production and circulation in these four countries.The wall of global cash sure contains some big ‘BRICs’.

Reader Comments

Tom Wilhelm

about 15 months ago

while these "BRIC" economies are large in an absolute view, they remain relatively small (individually) to the US and EU. The BRIC economies measure $10.1 trillion vs the combined US/EU economies of $30.7 (2010 IMF data).

Currency distribution will be correlated to inflation measures and these countries also have relatively high inflation rates which "inflates" the data a bit. The state of California's GDP is higher than two of the BRIC countries and just misses Brazil in 2010.

I am not implying there are not opportunities for products, services, and growth in the BRIC countries, but I believe at times the data may appear to be a bit rosier than reality. Nonetheless, opportunities abound in every economy and small, growing economies may present the best investment case.

While currency will always survive (in my view), the bigger issue will be if alternative, electronic payments will begin to supplant currency transactions. I believe within the next few years we will see a big test with the advent of RF payments via cell phones.

Tom Wilhelm
www.theDIGrp.com