May 2016

OPINION: Back to the future

Fiona RintoulI recently bought something I have never bought before: a darning needle. With this exotic  contraption, I rescued from extinction an expensive lambswool cardigan, two hats, one pair of gloves and several pairs of hillwalking socks. That I did this of a Saturday evening rather than, say, visiting a cocktail bar, may be a sign of encroaching middle age, but it is also a sign of the times. A repair revolution is apparently sweeping America. Pop-up repair events are popular in New York, and businesses such as Denim Therapy, which fixes people’s old jeans, are thriving. According to Jamie Facciola, who runs a company in San Francisco that is actually called Repair Revolution, this drive to repair is linked to broader trends, such as the maker movement and the circular economy, and resonates particularly with the millennnial generation.  It is also, I would suggest, linked to a back-to-the-future trend in the finance industry: a return to cash. Just as the identity of Bitcoin’s founder was (possibly) being revealed, a new think tank named the Cambridge Security Initiative (CSI) released a report showing that good old-fashioned cash is set to remain the dominant form of transaction globally.  Not only that, in straitened times, cash is having something of a renaissance. In Greece during the recent financial crisis, cash remained one of the few ways of successfully completing transactions, according to the CSI report entitled ‘Cash is King – the digital revolution: the future of cash’. Overall, in 2015, 50 years after the invention of plastic cards, cash was the payment method of choice in eight out of every ten transactions. “Cash is classless,” says Martin Sutherland, chief executive and chief finance officer of De La Rue plc, a bank note printer. “It is depended on by the 40% of the world that is unbanked.” Increasingly, cash is also safe. The CSI, which specialises in security and intelligence issues, notes in its report that increases in criminal cyber theft and attacks on ATM machines and electronic bank accounts have disproved the widely held belief that a cashless society would reduce crime rates. Indeed, it suggests that the French government’s promotion of web-based electronic transactions in the wake of the Charlie Hebdo attacks has had the reverse of the intended effect, creating more significant terrorist targets. Meanwhile in Sweden, whose stated ambition is to be cashless, a new series of banknotes was introduced in October 2015, featuring cultural icons. The country is by no means alone in sending mixed message about cash. “For more than 50 years, analysts have claimed that electronic money would replace printed and minted money,” says the CSI report. “Yet today central banks are issuing printed money faster than ever.” But what about savings? Surely it doesn’t make sense to keep savings in cash.  “Since negative interest rates were introduced in Switzerland in 2014, Swiss francs have increased in circulation by 20% and now represent more than 60% of notes in circulation,” says Richard Dearlove, joint chair of the CSI. “Fortunately many Swiss houses have mandatory nuclear bunkers in which to store the money.” Of course, Swiss people could have put their money in an investment fund. In which case, had they invested in an active fund based in Europe, there is an 86% chance that their investment would not have beaten its benchmark over 10 years. That’s if end-2015 research from S&P Dow Jones Indices covering the performance after fees of 25,000 active funds is to be believed. It’s not an especially compelling proposition.  When my grandfather died 25 years ago, there was nothing in his bank account – he didn’t trust banks – and several thousand pounds in the pocket of an old overcoat at the back of his wardrobe. How we chuckled at his eccentricity.  In the absence of a radical rethink of fund fees, his old-fashioned ways, like darning socks, begin to seem rather sensible. Fiona Rintoul is editorial director at Funds Europe ©2016 funds europe

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