It was the trading excesses of one person, Nick Leeson (the Rogue Trader) which brought down Barings Bank in 1995. It was the decision of the Board of one company, the Royal Bank of Scotland, to buy ABN-AMRO that sowed the seeds of its collapse and subsequent rescue by the UK government. And it was the collapse of another bank, Lehmann Brothers, in 2008 that triggered the financial tsunami, from which the worldâ€™s economies have yet to recover.
And the point of all this, you are probably asking by now, isâ€¦â€¦.?Â The point is that it was the actions of a few that had a fundamental, and disastrous, impact on their companies, their markets and even their economies.
The same principle applies with the news from Sweden about Paxania, where it would appear that a couple of managers were at least partially (it may even transpire – as the fraud investigation unfolds – wholly) responsible for the companyâ€™s collapse.
Companies do fail â€“ there is nothing unusual in that.Â But the problem with Paxania is that it was a leading provider of cash distribution services, and its demise has meant that retailers have lost out, that the supply of cash has been disrupted and that people are being encouraged to use alternatives instead. While services will resume, will businesses and people return to cash? Some will, many wonâ€™t â€“ particularly in a country which is already in the vanguard of cashless payments.
Unfortunate though this is, the collapse of Paxania has wider implications, in that it highlights one of the main vulnerabilities of cash â€“ the risk in, and cost of, its distribution.Â The cash handling industry as a whole is doing a sterling job in ensuring the security of supply and bringing down the costs, and billions of notes and coins are handled, counted and transported each day with no problem. Cases such as Paxania are notable only because they are so exceptional. But they do highlight the risks of cash, and the devastating impact that losses can have on businesses and individuals.
We can opine (and often do) about the visceral and emotional attachment people have to cash, pointing to the fact that it imbues national pride, confidence etc. More to the point, however, cash is the lifeblood of many businesses, particularly small ones, and when the moneyâ€™s gone in this manner, itâ€™s gone – with immediate effect and with little if any chance of compensation. Many small retailers are being hit hard, and the losses could tip some into bankruptcy themselves through no fault of their own.
We can also opine (and, again, often do) about the ingenious security features in currency, its durability, the security in its production (and distribution) â€“ but none of this counts if cash isnâ€™t available where itâ€™s needed, when itâ€™s needed- even if just temporarily. Disruption of supply will inevitable laded to some to switch to alternatives, sometimes for good.
The same can be said, in another context, in those countries where cash isnâ€™t available because of poor communications and logistics â€“ specifically developing countries, and the remote parts of these. The Better Than Cash Alliance, launched last month, is based on the premise that dependence on cash, and the lack of it, is an impediment to social and economic development, and is encouraging electronic payments as a way out of poverty. Lack of cash and a good telecoms infrastructure also explains the spectacular growth of mobile payments in parts of Africa. Technology loves a vacuum, and if this vacuum is caused by the absence of cash, then alternatives will take root.
Back to Paxania. If it transpires that its collapse was caused by the fraudulent activities of some of its personnel, not only will they have caused inconvenience to many and hardship to some, they will have cast an unwelcome spotlight on two of the weaknesses of cashÂ â€“ ie. what happens when it isnâ€™t available, and the uncertainty of compensation (any or none) when losses are caused by fraud.
There undoubtedly will be a case for better supervision in Sweden and this will undoubtedly be addressed. In a similar vein, had there been better banking supervision, we probably wouldnâ€™t be experiencing the difficult economic conditions that we are. Supervision will not stop fraud and recklessness, but properly implemented it can detect problems before the consequences are too great.