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Is Pix Really the End of Credit Cards?

In late August, Roberto Campos Neto, the head of Brazil’s central bank, is reported to have said about Pix, the bank’s two-year-old real-time-payments…

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In late August, Roberto Campos Neto, the head of Brazil’s central bank, is reported to have said about Pix, the bank’s two-year-old real-time-payments (RTP) system, that it “eliminates the need to have a credit card. I think that credit cards will cease to exist at some point soon.” Wow! Sounds amazing. A new system that does everything a credit card can do, but better.

As the old saying goes, however, something that sounds too good to be true probably isn’t. While Pix has some advantages, it also has many disadvantages. In particular, it lacks many of the features currently offered by credit cards, such as liability caps, fraud prevention, and—perhaps crucially—access to credit. So, it seems unlikely to replace credit cards any time soon.

Pix and the Unbanked

When Brazil’s central bank launched Pix in November 2020, evangelists at the bank hoped it would offer a low-cost alternative to existing payments and would entice some of the country’s tens of millions of unbanked and underbanked adults into the banking system. While Pix has, indeed, attracted many users, it has done little, if anything, to solve the problem of the unbanked.

Proponents of Pix asserted that the RTP system would dramatically reduce the number of unbanked individuals in Brazil. While it is true that many Brazilians who were previously unbanked do now have Pix accounts, it would be incorrect to conclude that Pix was the reason they ceased to be unbanked.

A study by Americas Market Intelligence (commissioned by Mastercard) found that, during the COVID-19 pandemic, “Brazil reduced its unbanked population by an astounding 73%.” But the study was based on research conducted between June and August 2020 and was published in October 2020, the month before Pix launched. It described the implementation of state and federal programs launched in Brazil in response to the pandemic:

  • The “Coronavoucher” program distributed emergency funds to low-income informal workers exclusively via state-owned bank Caixa Econômica Federal (CEF). Applications for funds could only be made via CEF’s Caixa Tem smartphone app, and funds were distributed via the same app. As of Aug. 5, 2020, 66 million people had received Coronavouchers via the Caix Tem app. Of those, 36 million were previously unbanked.
  • Merenda em Casa (“snack at home”), a program run by state governments, distributed funds to low-income families with children at public schools to help them pay for food while schools were closed due to COVID-19. The program distributed funds via PicPay and PagBank’s PagSeguro, both private-sector payment apps.

Following the launch of Pix, the central bank-run RTP program was made available to clients of Caixa Tem, PicPay, and PagBank. As a result, previously unbanked individuals who had become banked because of the Coronavoucher and Merenda em Casa programs were able to obtain and use Pix keys to send and receive payments.

It remains unclear, however, what proportion of those previously unbanked individuals actually use Pix. As Figure 1 below shows, the number of Pix keys registered vastly outstrips the number of users. As such, not only is it false to claim that Pix helped reduce the number of unbanked Brazilians, but it isn’t possible to say with certainty how many of those previously unbanked individuals are now active users of Pix.

FIGURE 1: Pix Keys Registered to Natural Persons and Pix Users Who Are Natural Persons

Pix-Created Problems

Pix suffered a series of data breaches this past year, with the end result that details of Pix accounts were stolen from more than 500,000 account holders. Meanwhile, hackers have set up fake apps designed to steal money from users’ bank accounts by masquerading as legitimate Pix-compliant wallets. And Pix has been associated with a rise in lightning kidnappings, whereby kidnappers force their victims to make a transfer on Pix in order to be released.

Faced with the problem that they cannot avoid having Pix because their banks have automatically enabled the system, some Brazilians have responded to the threat of kidnappings by purchasing second “Pix phones.” Users load these mid-range Android phones with banking and Pix apps and leave them at home. Meanwhile, they delete all banking apps from their primary phone. While such an approach ostensibly prevents criminals from stealing potentially large amounts of money from individuals who can afford to have a second phone, it is quite a costly and inconvenient solution.

Pix vs Credit Cards

Roberto Campos Neto reportedly conceded that Pix data breaches will occur “with some frequency.” This acknowledgment of Pix’s unresolved security issues is difficult to square with the central bank president’s claim that the service will soon replace credit cards. After all, the major credit-card networks (Visa, Mastercard, American Express, and Discover) have more than half a century of experience managing fraud, and have built massive artificial-intelligence-based systems to identify and prevent potentially fraudulent transactions. Pix has no such system. Credit-card networks have also developed a highly effective system for challenging fraudulent transactions called “chargebacks.”

Card networks’ investment in fraud management has enabled them to offer “zero liability” terms to cardholders, which has made credit cards attractive as a means of paying for goods and services, both at brick-and-mortar locations and online. While Pix now has a system to reverse fraudulent transactions, its reliability has yet to be tested, and Pix as yet does not offer zero liability. Thus, given the choice between a credit card and Pix, users are unlikely to use Pix to pay for goods where there is a risk that the business will fail to deliver goods or services as promised.  

Finally, credit cards offer users the ability to defer payment for no fee until their next bill becomes due (usually at least a month). And they offer the ability to defer payment for longer, if necessary, with interest payable on the amount outstanding.

Conclusion: There Ain’t No Such Thing as a Free Lunch

The investments that credit-card networks have made in the identification, prevention, and rectification of fraud have been possible because they are able to charge a (very small) fee to process transactions. Pix also charges merchants a small fee for transactions but, as noted, it is not able to offer the same protections.

Most Pix transactions to date have been person-to-person (P2P), effectively replacing transactions that would have otherwise been made with cash, checks, or online bank-to-bank funds transfers. That makes sense when one thinks about the risks involved. P2P transactions are likely to involve parties that know one another and/or are engaged in repeat business. By contrast, many consumer-to-business and business-to-business transactions involve parties that are relatively less well-known to one another and thus have more incentive to renege on commitments. Consumers are therefore more inclined to use the payment system with protections built in, while merchants—who are happy for the additional business—are willing to pay the price for that business.

The science-fiction writer Robert Heinlein popularized a pithy phrase to describe the idea that it is not possible to get something for nothing: “There Ain’t No Such Thing as a Free Lunch.” If Pix is to challenge credit cards as a real consumer-payments system, it will have to offer similar levels of fraud protection to consumers. That will not be cheap. While the central bank might continue to subsidize Pix transactions, doing so to the degree that would be necessary to offer such fraud protections would be an abuse of its position. Thinking otherwise is science fiction.

The post Is Pix Really the End of Credit Cards? appeared first on Truth on the Market.

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High fossil fuel prices mean UK cannot delay transition to low emissions steel

Steelmaking with green hydrogen is now a less expensive prospect relative to alternatives.

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Norenko Andrey/Shutterstock

Steel is essential for making many of the technologies that will end fossil fuel combustion, including electric vehicles, wind turbines and solar panels. Unfortunately, to produce a lot of steel, manufacturers need to burn a lot of fossil fuel.

Steel production accounted for 2% of the UK’s emissions in 2019 and ranks second for energy consumption among the country’s heavy industries. Roughly two-thirds of this energy comes from coal.

The blast furnaces of steelworks burn a special type called coking coal (which is converted to a hard and porous fuel known as coke) at temperatures of up to 2,000°C, producing large amounts of carbon dioxide (CO₂) – around 1.8 tonnes for each tonne of steel. This method accounted for 82% of steel production in the UK in 2021, and 71% of all steel made worldwide that year.

While coal-based steelmaking can be decarbonised to an extent by capturing the CO₂, there has to be a suitable storage site nearby or sufficient demand for using that CO₂ in other industries. This is not the case for the blast furnaces in Port Talbot, Wales, which account for half of UK steel production.

Coking coal prices have more than doubled since the beginning of the pandemic and the invasion of Ukraine has disrupted supplies. In 2021, the UK imported 39% of its coking coal from Russia, with almost all of the rest coming from the US and Australia.

Another option is to use natural gas, another fossil fuel. But since 2020, gas prices have also risen considerably. These recent fuel cost hikes demand a reassessment of how steel is made.

A metallurgical plant at night with chimneys belching smoke.
High coal prices make coal-based steelmaking less attractive for producers. ArtEvent ET/Shutterstock

Steelmaking with green hydrogen (hydrogen that has been split from water using electricity generated by renewables or nuclear power) removes fossil fuels from the process altogether. As a result, it could be insulated from increases in fossil fuel prices and carbon taxes, all of which have made steelmaking with fossil fuels more expensive in recent years.

The UK steel industry is currently given a free allocation of emissions allowances, which significantly lowers the effective carbon price paid by steel producers. Our recent research shows that, if this exemption were phased out gradually, steelmaking with green hydrogen produced using wind and solar electricity would in fact be cheaper than all other options.

Green steel

Hydrogen can convert iron ore to a pure form known as sponge iron through a process known as direct reduction. This involves heating hydrogen to between 800 and 1,000°C which reacts with the oxygen in iron ore to leave pure iron and water vapour, with no carbon emissions. The sponge iron is then processed in an electric arc furnace to produce steel.

Electric arc furnaces can also recycle scrap metal, and while the UK has no direct reduction furnaces, it already has five electric arc furnaces that recycle scrap to provide 18% of the nation’s steel. If renewable electricity powered these furnaces and was used to generate the hydrogen that fuels the production of sponge iron, then total emissions from the steel industry could be zero.

A suspended cylinder spewing molten metal.
Electric arc furnaces cut out fossil fuels, but are still expensive to run. D.Alimkin/Shutterstock

The EU and UK have both committed to ending imports of Russian coal in 2022, and large producers such as Tata Steel and ArcelorMittal have already stopped using Russian commodities in their supply chains.

While high gas and electricity prices are making some industries revert to burning coal, our findings show that green hydrogen offers a cheaper alternative to steelmakers. At recent fossil fuel prices, we estimate that direct reduction steelmaking with green hydrogen could be roughly 15% cheaper than the cheapest coal-based option (including carbon capture and storage) over a typical 25-year project lifetime.

Steelmaking with green hydrogen and electric arc furnaces uses lots of electricity. So, in a recent paper, we looked at reducing industrial electricity bills by removing green levies (which raise funds to spur the deployment of renewable technology and support vulnerable customers) and energy network maintenance costs and moving them to general taxation instead.

This would put the UK’s steel industry on an equal footing with France’s and Germany’s. We found that price parity could be achieved by increasing the average income tax bill by around 68p, rising to around £5.50 if UK steel production switched entirely to direct reduction with green hydrogen.

The UK government is considering exempting industries that consume a lot of energy from paying green levies. But soaring fossil fuel prices have hiked wholesale electricity costs so much that removing them and network maintenance fees will not significantly affect bills.

Instead, steelmakers and other heavy industries could access cheap renewable electricity directly in a green power pool.

The UK cannot afford to keep coal-based steelmaking in its decarbonisation strategy and must ensure the steel industry is ready to transition to using green hydrogen fuel instead.


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Clare Richardson-Barlow is a non-resident fellow at the National Bureau of Asian Research.

Andrew Pimm and Pepa Ambrosio-Albala do not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and have disclosed no relevant affiliations beyond their academic appointment.

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What Is Helicopter Money? Definition, Examples & Applications

What Is Helicopter Money?What’s a surefire way to encourage spending, and thus, spur growth? How about dropping money from the sky? As far-stretched…

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Former Fed Chair Ben Bernanke describes helicopter money as a “money-financed tax cut.”

Public DomainPictures from Pexels; Canva

What Is Helicopter Money?

What’s a surefire way to encourage spending, and thus, spur growth? How about dropping money from the sky?

As far-stretched as this idea seems, it actually has credence in schools of economic thought, particularly during times of recession or supply shocks. Helicopter money policies inject large sums into the monetary supply either through increased spending, direct cash stimulus, or a tax cut.

This policy has two goals in mind:

1. Expand the supply of money, which improves liquidity

2. Spur economic growth

Economists consider helicopter money to be an option oflast resort, after other measures, such as lowering interest rates or quantitative easing, have either failed to lift an economy out of recession or because interest rates are already as low as they can get. This conundrum is known as a liquidity trap, when the economy is at a standstill because people are hoarding their savings instead of spending.

Since the practice of helicopter money also tends to foster inflation, it typically works best during periods of deflation, when prices, along with overall monetary supply, contract without a corresponding decrease in economic output. One relevant example is the Great Depression. Bank runs resulted in a reduction in both the monetary supply as well as in the overall prices of goods and services.

It takes a whole lot to lift an economy from such dire straits, and in such cases, helicopter money can be a viable option.

Example of Helicopter Money: The COVID-19 Recession

At the onset of the COVID-19 pandemic, the stock market crashed, and GDP nosedived, thrusting the economy into recession. While the Federal Reserve slashed interest rates and instituted a new round of quantitative easing measures, the U.S. government responded with helicopter money.

  • Under the Coronavirus Aid, Relief, and Economic Security Act (CARES), the Trump administration authorized two rounds of direct-to-taxpayer stimulus payments, of $1200 and $600 per person, in 2020.
  • In addition, as part of the Paycheck Protection Program (PPP), payroll loans were offered to thousands of small businesses—and many were quickly forgiven. The Federal Reserve also provided increased liquidity to banks so that they could offer loans to businesses to help them stay afloat.

Who Coined the Term Helicopter Money?

In a 1969 paper entitled “The Optimum Quantity of Money,” economist Milton Friedman coined the term “helicopter drop” as a method to increase monetary policy during times of economic stress. He wrote:

“Let us suppose now that one day a helicopter flies over [the] community and drops an additional $1,000 in bills from the sky, which is, of course, hastily collected by members of the community. Let us suppose further that everyone is convinced that this is a unique event which will never be repeated.”

The point was that the easiest way to lift an economy out of troubled times would be to give its population a direct injection of money. This would both expand the monetary supply and as well as increase the disposable income of the populace, resulting in greater consumer spending and increased economic output.

Who Made the Concept of Helicopter Money Popular?

In the 1990s, Japan was facing a deflationary crisis. Its central bank had implemented crippling rate hikes to calm its housing bubble—to disastrous economic effects.

In a 2002 speech to the National Economists Club, then-Fed Governor Ben Bernanke proposed that Japan’s central bank could have re-started the country’s economy through fiscal programs:

“A broad-based tax cut, for example, accommodated by a program of open-market purchases to alleviate any tendency for interest rates to increase, would almost certainly be an effective stimulant to consumption and hence to prices. Even if households decided not to increase consumption but instead re-balanced their portfolios by using their extra cash to acquire real and financial assets, the resulting increase in asset values would lower the cost of capital and improve the balance sheet positions of potential borrowers. A money-financed tax cut is essentially equivalent to Milton Friedman's famous "helicopter drop" of money”

However, critics interpreted Bernanke’s words as his way of authorizing indiscriminate money printing, and the moniker “Helicopter Ben” took hold.

Bernanke would go on to chair the Federal Reserve from 2006–2014, and many of his theories were put into practice during the Financial Crisis of 2007–2008 and subsequent Great Recession. In fact, President Barack Obama credited Bernanke’s leadership during the crisis with averting a second Great Depression.

Helicopter Money vs. Quantitative Easing

While helicopter money and quantitative easing are both monetary policy tools, and both increase the monetary supply, they actually have different effects on a central bank’s balance sheet.

Through quantitative easing, a central bank buys trillions of dollars’ worth of long-term securities, such as Treasury securities, corporate bonds, mortgage-backed securities, or even stocks. This increases its reserves and expands its balance sheet. These purchases are also reversible, meaning the central bank can swap out its assets if it chooses.

Helicopter money, on the other hand, involves fiscal stimulus: distributing money to the public. It has no impact on a central bank’s balance sheet. The practice of helicopter money is irreversible, which means it is permanent—and cannot be undone.

In effect, helicopter money is less a long-term economic solution than it is a “one-time” or short-term operation.

Pros of Helicopter Money

In a 2016 blog post written for the think-tank Brookings Institution, Bernanke admitted that his helicopter money reference gave him some bad PR. In fact, he said that their media relations officer, Dave Skidmore, had warned Bernanke against using the term, saying “It’s just not the sort of thing a central banker says.”

But Bernanke insisted, and the moniker stuck.

To this day, Bernanke continues to believe in the practice of helicopter money as a tool the Fed could use in response to a slowdown in the economy. His successor at the Federal Reserve, Janet Yellen, agreed, stating that helicopter money “is something that one might legitimately consider.”

Other central bankers support the concept, particularly in Europe, which suffered from debt crises that mired its economy throughout the 2000s, igniting deflationary pressures like low demand and weak lending, and made recovery exceedingly difficult.

Cons of Helicopter Money

The biggest drawback of helicopter money is the inflation it tends to ignite. And since inflation is notoriously difficult to manage, once the inflationary fires have been stoked, what’s to prevent them from growing out of control—and fostering hyperinflation? That’s what happened in countries like Argentina and Venezuela, when their central banks printed money and gave it to their governments, who in turn gave it to the people. Inflation surged.

Helicopter money also leads to weakened currencies, because as more and more money is printed, its value decreases significantly. It could also deter currency traders from making long-term investments if the practice is prolonged.

Clearly, helicopter money is not a practice a central bank should undertake lightly.

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Arsenal’s $55.9M Loss An Improvement Over Previous Fiscal Year

Arsenal took a heavy loss but saw reasons for optimism.
The post Arsenal’s $55.9M Loss An Improvement Over Previous Fiscal Year appeared first on Front…

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As a team in transition, Arsenal saw some losses in its last`fiscal year — but also saw signs of hope.

The Premier League team took an operating loss of $55.9 million in the fiscal year ending May 2022.

  • That figure was a significant improvement on last year’s $131.9 million loss.
  • The team saved around $39 million in wages compared to the previous year.
  • But broadcasting revenue dropped from $225 million to $178 million.

Arsenal benefitted from the lifting of pandemic restrictions, with matchday revenue rising by around $51.6 million to $453.7 million.

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Streak Snapped

The club failed to qualify for any European competitions in the 2020-21 season for the first time since 1994-95, which led to heavy spending on player contracts. 

“This investment recognises that the Club has not been where it wanted to be in terms of on-field competitiveness and that, as a minimum, qualification for UEFA competition needed to be regained, as a prerequisite to re-establishing a self-sufficient financial base,” the club wrote.

Arsenal credited owners Kroenke Sports & Entertainment for its willingness to invest in the team.

The move has borne fruit this season with Arsenal’s return to the Europa League, the second-tier competition to the UEFA Champions League. The team has already earned $8.4 million for its appearance there, with total potential earnings up to $22.1 million.

The post Arsenal’s $55.9M Loss An Improvement Over Previous Fiscal Year appeared first on Front Office Sports.

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