ravi menon : three “ c ” s of a good payment instrument welcome address by mr ravi menon, managing director of the monetary authority of singapore ( mas ), at the currency conference 2011, singapore, 3 october 2011. * * * why cash is still king distinguished guests, ladies and gentlemen, good morning and a warm welcome to singapore and the 2011 currency conference. singapore is honoured and delighted to host this flagship event. the late mr john shepherd - barron, who pioneered in 1967 the development of the automated teller machine, or atm, said during a 2007 interview : “ money costs money to transport. i am therefore predicting the demise of cash within three to five years. ” shepherd - barron believed fervently that we would soon be swiping our mobile phones at till points, even for small transactions. we have indeed seen an increasing use of cashless payments at point - of - sale. electronic payment alternatives have mushroomed in many countries, ranging from contactless stored value cards in singapore to real - time settlement of electronic fund transfers in the united kingdom. but cash remains “ king ”. even in advanced economies. this is especially so for person - toperson transactions and micro - payments. take high - tech singapore. the use of electronic payments has proliferated rapidly in recent years. yet, currency - in - circulation has been growing at an average 7 per cent per annum during the last ten years. this has reflected demand from a growing population and a growing economy. less well known is how the demand for cash globally is being driven by tourism. tourists have a habit of taking back home unused currency – both notes and coins. this represents a leakage from circulation and needs to be replaced. we don ’ t have good data on this. but take for example, singapore. last year, we received almost 12 million visitors. if everyone took 8 coins back with them, close to 100 million coins would have leaked out of the country. and it will cost mas about s $ 10 million to replace them. that ’ s why we have been working with the singapore mint, changi airport group, and charity organisations to increase the availability of boxes in various parts of changi airport, for tourists to donate their excess notes and coins before they leave the country. physical cash commands a premium during times of uncertainty. we saw this during the 2008 global financial crisis. within the first month of the collapse of lehman brothers, there was an exceptionally large withdrawal of high denomination notes by banks in

this country. the question remains – can we keep it up? the answer to that question depends on developments both at home and abroad, but let me comment first on the international situation which is currently the focus of a great deal of attention. the bounce back from the world economic slowdown in 1998 / 1999 was such that in the year just ended world economic activity grew at a rate of some 4½ % which equals the fastest rate for 16 years – and compares with an average rate of some 3¼ % over the last 10 or 20 years. in large part this recovery was underpinned by unusually strong growth in the us, averaging some 4½ % over the past 4 years and surging to a peak of some 5½ % at an annual rate in the first half of last year – compared with an average rate of 2¾ % over the preceding decade. this remarkable strength of the us economy was possible, without overheating, against the background of unusually rapid productivity growth as investment in it spread through the us economy improving its supply - side capacity. these developments together implied higher corporate earnings growth in the us pushing up the stock market and at the same time attracting massive direct and portfolio capital inflows into the us – substantially from the eurozone – which comfortably over - financed a burgeoning us current account deficit and underpinned the strong dollar. however helpful all this was in supporting the world economy it clearly could not continue for ever or without limit. at some point – and no - one could know at all precisely at what point – demand in the us would begin to outstrip supply and the growing external imbalance between the us and the rest of the world would become unsustainable ; relative asset prices – including the dollar ’ s exchange rate – would over - discount prospective us corporate earnings growth and both equity and foreign exchange markets would then become vulnerable to abrupt correction. against that background it has been clear for some time that there needed to be a slowdown in the growth of the us economy to a rate which was more sustainable, both in the us itself but also in terms of the imbalance within the global economy – and the debate turned to whether it would come as the “ soft landing ” we would all welcome or a more disruptive “ hard landing ” which we could all well do without. and slowdown, of course, is what we have seen over the past six months. in the third quarter us gdp growth fell to an annualised rate of some 2