What would happen if cash would be prohibited..?

This new post comes from an article on Financial Times, I read days ago. An interesting perspective which has made me think about this topic: "What would happen globally, if money in cash would not exist anymore..? ". Well, it is not any script of any science fiction movie, although it could be so. Financial times article talks about the new legislation in Denmark, where Danish government permits shops, retailers and outlets decide if cash is accepted or it does not, for current transactions. Read the article on Financial times here: http://www.ft.com/cms/s/0/159b17ca-47f3-11e5-b3b2-1672f710807b.html#axzz3kLBFVLC6.

The reason why this legislation in Denmark goes live, is because negative interest rates in Denmark, makes people keep cash at home, instead of allocating savings on commercial banks or financial markets...
It is well known, central banks in Switzerland, Denmark and Sweden, have applied negative interest rates on deposits held (over - 0.20%), since ECB started off its "Quantitive easing" and its progressive monetary policy reducing interest rates (on 0.5% currently) and applying negative rates on deposits over - 0.10% to boost inter-bank transactions in the EuroZone. The response from the other central banks has been to apply negative rates accordingly, in order to avoid massive capital transfers from Eurozone to those countries, which would appreciate their currencies, impacting negatively on their exports. Negative interest rates mean investors and savers have to settle payable interests for their deposits, instead of receivable interest as it is normally done.

Gold used to be a payment method over 19th and 20th century, specially, when currencies globally were pegged to gold model. The "barbarious relic" as John Maynard Keynes used to refer to it. Global transactions are not being settled by gold anymore, (that's why gold is an asset, deemed as a "shelter" for investors on uncertain times at financial markets, as it is not related to currency fluctuations in the global economy).
As the gold was taken off from the economic system previously, cash money could be getting off as well, and moving on to electronic money instead, in the future.

The key question here, is if zero interest rates are set up for a long time (six years in a row in USA already) and an unstable economic scenario grows up, people will tend to keep savings "in cash" at home instead. This trend could become global, and governments and authorities will try to set up measures to get that volume of capital back to the banking system. One potential method to avoid it, could be abolishing "money in cash" from the system. In monetary theory, there are four types of money (MO,M1,M2 and M3).MO is cash itself (bank notes and coins). In current times, MO just represents 3% in USA and UK, and over 8.3% worldwide. 
This percentage is being reduced since decades ago. So, the trend is already there.   

I´ve started thinking of what would happen if cash would be withdrawn from the economy worldwide, moving towards electronic money instead. Throughout my analysis, I´ve drawn the following takeaways, (Pros and contras).

PROS:

   - Control. All transactions would be easily tracked back, from the beginning to the end, therefore it would be easier to detect anomalies, fraudulent transactions, etc..

   - A powerful tool to money laundering. Money laundering practices would be better implemented, and more effective, as all transactions could be analysed from the origin, and easily tracked back.....on the chained payment system.

   - Tax collection improvements.  More money picked up by tax authorities, as fraudulent transaction would be reduced dramatically. Impacting positively on public deficits.

   - Reduction on informal economy practices. It would be more complex to trade over black markets and underground economies, as all operations are recorded on data bases. Although, we have to consider loads of transactions regarding human or drug trafficking are being done by "bitcoins" worldwide, as bitcoins are not controlled or issued by any central bank.

   - Streamlining accounting practices. As Financial Times article says, VAT returns may be done automatically,  speeding up accounting closed-ends, and improving VAT collections to Tax authorities, and payment methods...

   - Transparency. From an entrepreneurial point of view, financial statements and data bases will be more reliable, as balances and figures would be completely verifiable from other data sources. Consistency would be applied to the whole economic system, and accounting audits would be more streamlined and realistic.

  - Money creation expenditure. Cash has to be created and printing money is not free at all. Through electronic money creation, this expenditure would be nearly zero.

  - Delinquency reduction. No chance to rob a wallet, or stealing any valueable and selling it out afterward, as it would not be feasible on black markets anymore. Delinquency, as we know it, will disappear, but other delinquent approach will come up, fitting with the new economic model, as hacking IT payments softwares, or similar approaches.   

CONTRAS:

 - Transactions traffic. The volume of transactions would be increased exponentially. Tiny payments are actually done by cash, therefore, all those should be processed electronically, increasing payments traffic worldwide, and increasing the likelihood of technical problems on those systems.

 - Technological dependence. Cash flows globally should be done by electronic systems. Strong dependence to this system which may be hacked, collapsed or coming down. If that happens. it would be impossible to buy any basic good or service, like water, food, or getting on a bus, or any other routine activity...
It would be like all the money disappears from the earth suddenly.

- Lay-offs. Dismissals would arise on commercial banks, and other jobs involved in cash management.

- Control over population. If all payments around the world would be made electronically, Governments, Banks and Data-bases management agencies could be getting full access to all info involved in "your payments". Analysing historical data, they would be able to know about your likes, priorities, personal tendencies, and other sensitive information. Great tool to "Big Data" for instance, but damaging your intimacy. 

- Social impact. Homeless and poor people would be totally dependant to NGO's and Government benefits, rather than tipping on streets, which would reduce their incomes. Simply, they would be poorer.  

 - Illegal immigration. Immigrants who are working and receiving their salaries on an illegal way, would be completely gone from the society and the economic system, as they could not receive their "cash in hand" wages anymore. No chance to buy groceries, basic goods, etc....It would be like taking off the oxygen to breath to all of them. The impact on countries which are harbouring illegal immigration, would be enormous and dramatic from a social point of view. Phenomenons like hunger, riots, social imbalance, or lack of public safety would take place. Also, immigrants might come back to their countries or other legal environment, where they probably won't get jobs to receive their salaries by electronic money. What that means, poverty will rise up, and subsequently further wealth imbalance. Special mention to drugs addicts who won't able to pay for their "stuff" by cash anymore. No chance to "feed the monkey" by MasterCard, Visa or American Express. That means more social instability.

-  Disable and elderly people. The world health organisation estimates about 285 millions of people suffering blindness, or visual impairments. Any blind person may distinguish bank notes easily to the touch. Something absolutely impossible, if cash would disappear from the global economy.
Also, elderly people would be on trouble to carry out their domestic economies, as they are not normally familiarised to new technologies.

They are my conclusions about this fictional scenario. Probably, if i would be thinking further, more potential consequences will come up.
Anyway, coming through this analysis, my corollary is "better off if cash remains as it is. It would be more costly, taking it off from the market in terms of social and economic perspective, rather than doing the otherwise". 

Digital music sales take over Physical music sales....and vinyls spinning more than ever...

If there is something completely sure is that the music is like an immortal mate, who always stands by you, when needed.
But also, what is absolutely truth, is music formats are like the same immortal mate, wearing in different clothes, moving around you in cyclical trends.  From acetate vinyls turning on gramophones to iTunes store sounding on your smart phone, or iPod, passing trough cassettes or cd's at 80's and 90's, moving through digital era and getting back to vinyls again.... 
Times are changing as Bob Dylan said decades ago, but now, more than ever.
Currently, digital music is getting stronger at every instant, through its main formats, "downloads and streaming services". Figures and stats don't lie. IFPI (International Federation of Phonographic Industry), is one of the most prestigious and recognised institutions, who develop accurate stats and reliable metrics on Music industry worldwide, just published the following key milestone on the music history. "For the first time in the history, digitals sales take over physical music sales globally". Just check this graph below created by IFPI to prove this fact.

At this point, digital revenues have increased by 6.9%, up to 6.85 ($)bn, in 2014. If we breakdown this growth into the main revenues streams (streaming services and downloads), we got the following takeaways. Downloads decrease by 8% and streaming subscriptions are soaring by 39% to 1.59 ($)bn. in 2014.

In regards with Physical sales, revenues globally have dropped by 8% in 2014. Special mention to vinyls sales which have increased by 54.7% in 2014 worldwide, according to IFPI reports, and also increasing by 53% in Q1-2015 in relation to Q1-2014 in USA. See chart below from Nielsen, US. (Music industry leading data provider).

Another remarkable characteristic on vinyls sales, is just to know which albums are being best selling lately, bearing in mind the most artists are not releasing albums in vinyl formats anymore. 
Data is truly paradigmatic. Once again, Nielsen US provides the info. (See chart below).
Absolutely shocking to see classic albums like "Abbey Road" from the Beatles, which was originally launched in 1969, "Dark Side of the Moon" from Pink Floyd launched in 1972, or "Kind of Blue" from Miles Davis (1959) among others, as best sellers vinyls since 2010. 
Well, the trend seems to go in cycles..."Same mates, different timings". What will it be the next?

 

Streaming music industry. A growing market, growing revenue, growing losses and growing capitalisation!!

After having investigated and read further about Streaming music market, there are some aspects to be called out and analysed.
I am going to talk about two of the most leading companies at this economic sector. Spotify and Pandora Radio, as well as their business performances over 2014.
Spotify, the Swedish company started up the business in 2008 in Stockholm, the volume of users has increased incredibly over the time. If the company attracted over 10 millions of users in September 2010, business metrics show over 75 millions on 30th of June 2015.
Spotify is a subscription-based-model, therefore there are two types of users. Subscribers, who pay 10$ monthly fee to get access without advertising, and non paying users who get access for free, but getting ads every three or fours tunes played. Therefore, there are two revenues streams, subscriptions and advertising. On 30th of June, 20 millions of users of 75 millions in total, are paying theirs subscriptions on a monthly basis.
On the other hand, Pandora radio. An american company created in San Francisco in 2010, which operated in NYSE (S&P 500).
It operates in three countries, USA, Australia and New Zealand, in opposite to Spotify which is trading over 58 countries worldwide. The business model is pretty much the same, subscription without advertising, and free access with advertising. However, just 5% of users are paying the monthly fee to avoid ads. Well, at this point, we have two different companies, the same service provided, one business model, and two different responses from the audience when demanding the service. Spotify is getting the revenue from subscriptions mainly, and Pandora radio from advertising.
Just check out this graph below. Revenue streams breakdown belong to 2013 period, but those percentages are quite similar, currently.

Let's come through Financials in 2014 to see which option should be the best one.

Spotify reported an increase on year to year revenue by 45%, up to 1.08 bn. Surprisingly, net losses increased by 190%, from 68m to 197m in 2014. The reason is the increasing on operating costs, such as product development, international expansion, and personnel, as the head-counting went up by 43%. Also, royalties and distribution costs represent 82% of the total revenue.

Pandora radio: The company has increased its revenue by 40% from 2013, as well as gross margins by 12% (from 30% in 2013 to 42% in 2014) drawing an operating profit (EBIT) increasing by 62%. Great metrics initially. But the problem comes along. Research and development went up by 62%, and personnel costs has increased by 50%, both. (just note, under US GAAPS Research and development costs must be written off on the same accounting period, other accounting conventions allow capitalise those expenses over years, if specific criteria are met, like IFRS).
Once again, overheads are upsetting figures eventually.
However, Pandora radio has incurred in losses for three years in a row, 30.5 ($)m in 2014.

Under this scenario, it would be easy to understand, no investors will put any money in, but it is NOT like that at all!!. This kind of industries are utterly dynamic. New upgrades on the services, business internationalisation and implementation costs use to be expensive, but those investments (rather than costs) are completely needed to develop the service and going forward. However, those investments beyond the revenue, (what makes both business incur in losses), frame a promising market with great expectations. For example, Spotify has received a volume of capitalisation for 400 ($)M from different investors, among them, Goldman Sachs. Due to the launch of the new video network service (similar to Youtube), among other company plans still unknown publicly.
On the other hand, Pandora radio has increased its equity by 415% from 99($)M in 2012 to 508 ($)M in 2013, and other 15% in 2014, up to 583($)M in accordance with its balance sheets. What makes a capitalisation increasing of 430% in two years!!.

Also, Apple through iTunes will come on board shortly throughout its new adquisition Beats Music.

Great insights about one industry which is not still taking off, but it seems to be flying high in the future.