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Financial Security Index: Cash's cachet

Mark Ellis

{DIG} Another study that targets the demise of cash.  Cash was the ultimate budgeting mechanism for my parents’ generation and just recently I was told that a colleague was over $23,000 deep in credit card debt.  Makes you wonder.  What’s in your wallet?  TW

Cash's Cachet

In yet another sign that cash's cachet may be waning, a new Bankrate survey found that 2 out of 5 consumers carry less than $20 in cash on a daily basis.  Bankrate's May Financial Security Index suggests that the good old greenback -- the traditional currency for many consumers -- no longer dominates like it used to.  The pockets of many Americans are now crammed with a bevy of alternatives such as debit cards, credit cards and smartphones with electronic payment apps. While cash isn't going away anytime soon, experts say, the role it plays in the marketplace may change in an increasingly wired world.

The electronic payments industry "is doing a good job shifting people away from cash," says George Peabody, a payments strategist at Glenbrook Partners, a payments research firm in Menlo Park, California. But, he adds, "Cash is going to be remarkably resilient. I'm not expecting cash to disappear anytime soon."

Consumers who opened their wallets to Bankrate's review weren't carrying much in the way of paper money. The survey found:


  • More than two-thirds of consumers carry $50 or less on a regular basis.
  • About 9 percent of those surveyed say they don't carry any cash at all.
  • Six percent of those making $75,000 or more carry more than $250 in cash, compared with 2 percent of the overall population.
  • The amount of cash people carry with them is fairly consistent across different age groups.
  • Women tend to carry less than men. Seventy-seven percent of women carry $50 or less on a daily basis, compared with 61 percent of men. 

It's unclear why there's a gender discrepancy in how much cash people tend to carry. Greg McBride, CFA, Bankrate's chief financial analyst, suggests that some women "may prefer to carry less cash than men so as to reduce the risk of being a target for criminal activity."

Hannah Cushman, a 22-year-old college student at the University of Missouri, is one of the people who tend to carry less than $20 in cash. For her, it's a way to control her spending.  "Cash for me is so much easier for me to spend," Cushman says. "If I have a lot in my wallet, I'm immediately going to spend it." Cushman adds that "$20 is enough to go out on the weekend or get lunch between classes, but not enough to go buy something crazy."  Cushman works at an ice cream shop, Sparky's, and once pocketed $50 in tips instead of depositing the extra cash into her bank account. She says having that cash in her wallet made her feel more flush, like she had more money.  She says she ended up spending more money that week, not only in cash but also on her debit card. "It's a weird kind of wealth effect," she says.

Joydeep Srivastava, a professor of marketing at the University of Maryland, says that feeling is common.  "If you're carrying more, maybe you feel you have more, and you feel you spend more easily," says Srivastava, who has studied consumers' psychological behaviors when it comes to money and spending.  Srivastava says many consumers consider the cash in their wallet as petty cash. People take that $20 out of the ATM, he says, and then mentally write it off as petty cash that's OK to be used for a latte or other small items.  "As soon as you draw it from the ATM, it's like you've already spent it," Srivastava says. "You don't feel that pang of guilt of spending it anymore."

Many consumers also are relegating cash to the back of the wallet as they find reasons to rely on noncash payments instead.  Jason Oxman, CEO of the Electronics Transactions Association, says there are a lot of reasons why consumers have embraced noncash payments.  One important reason is security, he says. If a $20 bill gets stolen from your wallet, you're out $20. In contrast, if someone fraudulently charges $20 to your credit account, you often don't have any liability.  Terrence Casey, 27, of Havertown, Pennsylvania, says he once lost a wallet that had about $150 in birthday money. Since then, he's tried to carry around less than $100 at any time. He says he tries to use cards to pay for most things.  Oxman says electronic payments can also be more convenient than cash because a credit or debit card is always in your wallet, whereas, with cash, a consumer may have to run to the ATM.  Plus, he says, electronic payments have worked hard to make themselves attractive to consumers for all kinds of transactions.

Credit cards have developed extensive rewards programs for buying anything from organic apples to airline tickets. Money transfer programs like PayPal and Google Wallet make person-to-person payments easier. Even Starbucks has entered the noncash market: The coffee giant allows customers to buy their morning java (and even tip the barista) with a scan of its smartphone app.

"Consumers are taking advantage of the fact that, with the exception of a few small-dollar transactions, electronic payments are so easy and ubiquitous that (consumers) are carrying little cash around," Oxman says.

Despite this, the demise of cash is not coming anytime soon.  "My sense is that cash will remain king, at least for a while," says Gail Cunningham, spokeswoman for the National Foundation for Credit Counseling.  An April report from the Federal Reserve looked at consumer spending habits in October 2012 and found that cash is used more frequently than any other payment tool, although cash accounts for a relatively small share of the value of those transactions.

The report found that cash is the dominant payment form for low-value purchases, particularly for transactions worth less than $10. It's the most common form of payment for gifts and other transfers to people, as well as for food and personal care supplies.  The study also found that cash plays an important role as a backup payment option when someone who tends to use a credit card, debit card or a check can't use that option to pay.

"Cash still plays a very significant role in the consumer payments landscape," the report notes.

By Allison Ross•


FINCEN Ruling on Armored Car Coin and Currency Exchanges

Mark Ellis

FIN-2014-R008 Issued: April 29, 2014

Subject: Whether a Company that Provides an Armored Car Coin and Currency Exchange Service is a Money Transmitter and Whether the Armored Car Service Exemption Would Apply to the Service.

Dear [ ]:

This responds to your letter of December 4, 2012, seeking an administrative ruling from the Financial Crimes Enforcement Network (FinCEN) on behalf of your client, [the Company], regarding whether your client is a money services business (“MSB”) under FinCEN’s regulations. Specifically, you ask (a) whether [the Company]’s new armored car coin and currency exchange service (the “Service”) would make [the Company] a money transmitter for purposes of the Bank Secrecy Act (“BSA”); and (b) if falling under the definition of money transmission, whether the armored car service exemption would apply to the Service.

In your letter, you represent that the purpose of the Service is to provide retailers with change (smaller or higher denominations of cash or coins) to meet their operational needs. A retail customer or similar establishment (the “customer”) places a change order with [the Company]. [The Company] then prepares a sealed bag containing the change, drawing from [the Company]’s-owned cash inventory, and delivers the bag to the customer through an armored car on regularly scheduled stops. In return for the change bag, the customer delivers to the armored car driver a payment bag containing currency and/or coin in the exact amount of the change order.When the payment bag from the customer reaches [the Company], [the Company] examines the currency, verifies the total, and collects or pays out any discrepancy (e.g., payment shortages or overages) through a debit or credit to the customer’s bank account via Automated Clearing House or credit card.

On July 21, 2011, FinCEN published a Final Rule amending definitions and other regulations relating to MSBs (the “Rule”).The amended regulations define an MSB as a person wherever located doing business, whether or not on a regular basis or as an

While your letter does not specifically state that the currency and/or coin delivered and received correspond to the same country, it is clear from the context that the service does not involve exchanging currency and/or coin from one country into currency and/or coin of another.

76 FR 43585 (July 21, 2011) Bank Secrecy Act Regulations – Definitions and Other Regulations Relating to Money Services Businesses.

organized or licensed business concern, wholly or in substantial part within the United States, in one or more of the capacities listed in paragraphs (ff)(1) through (ff)(6) of this section. This includes but is not limited to maintenance of any agent, agency, branch, or office within the United States.3

BSA regulations, as amended, define the term “money transmitter” to include a person that provides money transmission services, or any other person engaged in the transfer of funds. The term “money transmission services” means the acceptance of currency, funds, or other value that substitutes for currency from one person and the transmission of currency, funds, or other value that substitutes for currency to another location or person by any means.The regulations also stipulate that whether a person is a money transmitter is a matter of facts and circumstances and enumerates business models where a person’s activities would not make such person a money transmitter.
31 CFR § 1010.100(ff)(5)(ii)(D) provides a specific exemption from money transmitter status for persons that are primarily engaged in the business of physically transporting currency, other monetary instruments, other commercial paper, or other value that substitutes for currency, from one person to the same person at another location, or to an account belonging to the same person at a financial institution, provided that the person engaged in physical transportation has no more than a custodial interest in these items at 
any point during the transportation (the “armored car exemption”).

FinCEN interprets all of the above referenced exemptions strictly. For example, an activity that does not conform fully to the elements of an exempted transaction or that contains additional features not contemplated in the description of the exempted transaction, is not covered by such exemption. Therefore, a common carrier of currency, other monetary instruments, other commercial paper, or other value that substitutes for currency that goes beyond the basic activity described in the armored car exemption might be a money transmitter under FinCEN’s regulations. Based on the description contained in your letter, we note that the armored car exemption does not apply to [the Company]’s new Service, as the Service is not limited to the physical transportation of currency and/or coin as described in 31 CFR § 1010.100(ff)(5)(ii)(D), but consists of the additional activity of changing larger denominations of currency for smaller denominations of currency for customers.

However, in considering the elements of the Service in the context of the definition of “money transmission services,” we also note that the Service does not involve the “acceptance and transmission of currency, funds, or other value that substitutes for currency to another location or person.” As described in your letter, [the Company]’s armored cars effectively act as remote teller counters for its Service. Rather than offering the Service at its own headquarter, and making the customer incur the expense and risk of transporting the value in its original denomination to [the Company] and transporting the change back, [the Company] leverages its core activity as a common carrier of valuables to conduct the transaction at the customer’s own location. After the original request from the customer, [the Company] transports low-denomination currency (which, until the exchange is concluded, is [the Company]’s own property) to the customer’s location, completes the exchange with the customer, and transports the equivalent amount in large-denomination currency (which, after the exchange, is also [the Company]’s own property) back to headquarters.Accordingly, the transportation of currency and/or coin of certain denominations from [the Company]’s vault to the customer’s location and the return transportation of currency and/or coin in the exact amount of the change provided to [the Company]’s own vault does not constitute the acceptance of value from one person and the transportation of such value to another person or location and, therefore, it does not make [the Company] a money transmitter under FinCEN’s regulation.

This ruling is provided in accordance with the procedures set forth at 31 CFR
§ 1010.711. In arriving at the conclusions in this administrative ruling, we have relied upon the accuracy and completeness of the representations you made in your communications with us. Nothing precludes FinCEN from arriving at a different conclusion or from taking other action should circumstances change or should any of the information you have provided prove inaccurate or incomplete. We reserve the right, after redacting your name and address, and similar identifying information for your clients, to publish this letter as guidance to financial institutions in accordance with our regulations.
You have fourteen days from the date of this letter to identify any other information you believe should be redacted and the legal basis for redaction.

If you have questions about this ruling, please contact FinCEN's regulatory helpline at (703) 905-3591.

'Partially Privatized' Criminality Flourishes in North Korea

Mark Ellis

{DIG} The dreaded “supernote” term is used and it usually involves a government-supported illicit operation...but, currency remains a low fraud payments mechanism given the efforts of the Secret Service.  TW


'Partially Privatized' Criminality Flourishes in North Korea

Kim Jong Un's regime is allowing private companies to produce and smuggle illegal products to raise cash for activities such as North Korea's nuclear program and missile tests, according to a report released Tuesday.  For decades, Pyongyang has propped up its beleaguered economy by being involved in the trade in narcotics and endangered animal products as well as making some of the world's highest-quality counterfeit currency.

But the Washington-based Committee for Human Rights in North Korea (HRNK) said a fledgling free-market economy has now emerged with firms taking over some of these activities from the state.  Kim's regime reaps the benefits of the arrangement -- taking up to 70 percent of the profits.  Authored by Dr. Sheena Chestnut Greitens of the Center for East Asia Policy Studies at the Brookings Institution, the report said: "Much of the illicit activity in North Korea has become decentralized and partially privatized, operating in a hybrid space between public and private."

Greitens added that "politically powerful people protect and benefit from the activities of those involved in illicit trade and vice versa."  Five men were extradited from Thailand to the U.S. in November 2013, suspected of being part of a ring smuggling methamphetamine from North Korea.  The 115-page report was compiled using interviews with North Korean defectors. It said the illicit activity has provided as much as 30 percent of the country's trade, and with it "a lifeline for a regime long said to be on the brink of collapse."

Between 20 percent and 30 percent of the North Korean economy is thought to be spent on defense. And the report said the U.S. and other members of the international community need to better understand how its economy is evolving so it can tailor sanctions aimed at halting Pyongyang's nuclear program and stopping human rights abuses.

North Korea's involvement in illicit exports can be traced back to the 1970s when its economy collapsed. It produced narcotics and amphetamine-type substances in state-run factories and printed what the Secret Service said were some of the best counterfeit $100 bills on the market. They were informally dubbed "supernotes" because they are so hard to detect.  The report said the state focused on production of these goods, as well as fake pharmaceutical products, endangered animal products, and counterfeit cigarettes, even while as many as one million people died in the "Arduous March," a famine between 1994 and 1998.  From the 1970s to the 1990s the government produced these goods and smuggled them itself, often by overseas envoys using diplomatic bags. North Korea then began outsourcing distribution to criminal gangs, such as the Chinese Triads and Japanese Yakuza, according to the report.

However, since 2005 the state has had less control, with production and sale shifting toward a free-market economy.  The report said this has come with a decentralization of the economy as a whole. People are now permitted to invest and run state-run enterprises, such as restaurants, while donating between 30 percent and 70 percent of the profits back to the state, it said.  HRNK co-chair Andrew Natsios said that this "criminal" economy "is feeding off the suffering and deprivation of the population."

 April 15th 2014 Alexander Smith



Dirty Money: A Microbial Jungle Thrives In Your Wallet

Mark Ellis

{DIG} No mention of replacing the $1 banknote with a coin...I wonder what nasty things are living in and on other public domains?  The turnstiles at a ballpark?  Or a anything at the kid’s please touch museum?  Yuk!

Dirty Money: A Microbial Jungle Thrives In Your Wallet

Even some euro bank notes may need a good scrubbing. Like dollar bills, these notes are made from cotton and they harbor an array of bacteria.  You may have heard that dollar bills harbor trace amounts of drugs.  But those greenbacks in your wallet are hiding far more than cocaine and the flu. They're teeming with life.

Each dollar bill carries about 3,000 types of bacteria on its surface, scientists have found. Most are harmless. But cash also has DNA from drug-resistant microbes. And your wad of dough may even have a smudge of anthrax and diphtheria.

In other words, your wallet is a portable petri dish.  Made from plastic, Canadian $100 bills are resistant to liquids and tearing. But are they better than cotton-based bills at keeping dangerous bacteria at bay?  And currency may be one way antibiotic-resistant genes move around cities, says biologist Jane Carlton, who's leading the Dirty Money Project at the New York University.  The project offers an in-depth look at the living organisms shacking up on our cash. One goal of the work is to provide information that could help health workers catch disease outbreaks in New York City before they spread very far.

"We're not trying to be fear mongers, or suggest that everyone goes out and microwave their money," Carlton tells Shots. "But I must admit that some of the $1 bills in New York City are really nasty."  So far, Carlton and her colleagues have sequenced all the DNA found on about 80 dollar bills from a Manhattan bank. Their findings aren't published yet. But she gave Shots a sneak peak of what they've found so far.

The most common microbes on the bills, by far, are ones that cause acne. The runners-up were a bunch of skin bacteria that aren't pathogenic: They simply like to hang out on people's bodies. Some of these critters may even protect the skin from harmful microbes, Carlton says.  Other money dwellers included mouth microbes — because people lick their fingers when they count bills, Carlton says — and bacteria that thrive in the vagina. "People probably aren't washing their hands after the bathroom," she says.

What about the potential traces of anthrax DNA? Not a cause for alarm, Carlton says.  "Anthrax is a very common bacteria in soil," Carlton says. "People who work with soil, like farmers, are often exposed to it. It's only when anthrax is weaponized and sent through the mail that it causes those issues."

And some of the DNA that looks like anthrax's could have come from a harmless relative, she notes.  The DNA survey also detected genes that make bacteria impervious to penicillin and methicillin. The latter make MRSA bacteria such dangerous pathogens.  "Now we know that viable bacteria are on money and could serve as a mode of transmission for antibiotic-resistant genes," Carlton says. "Money is a frequent route of contact between people in New York City."

At this point, though, scientists don't how important money is for transmitting pathogens and fueling disease outbreaks.  Would changing the material for dollar bills are made from help to keep them cleaner? The jury is still out.  Some countries, such as Canada, have started printing money on flexible sheets of polymer film, a fancy plastic. One study found less bacteria, in general, grew on these plastic bills than cotton-based ones, like the dollar and euro notes. But another study reported that microbes survive longer on polymer-based billsThe Wall Street Journal reported last week. 

Until the ideal material gets figured out, the best protection against money's invisible inhabitants is also the simplest one: Wash your hands after handling cash.

Michaeleen Doucleff April 23, 2014


Magnetic Particles Help Fight Olive Oil Counterfeiting

Mark Ellis

{DIG} Currency isn’t the only product that is counterfeited and it’s interesting that magnetic particles are also used in currency detection.  TW

 Magnetic Particles Help Fight Olive Oil Counterfeiting

Thu, 04/24/2014 - 1:46pm (Zurich)

An invisible label, developed by ETH Zürich researchers, could perform the task. The tag comprises tiny magnetic DNA particles encapsulated in a silica casing and mixed with the oil.

Just a few grams of the new substance are enough to tag the entire olive oil production of Italy. If counterfeiting were suspected, the particles added at the place of origin could be extracted from the oil and analyzed, enabling a definitive identification of the producer. “The method is equivalent to a label that cannot be removed,” says Robert Grass, lecturer in the Department of Chemistry and Applied Biosciences at ETH.

The worldwide need for anti-counterfeiting labels for food is substantial. In a joint operation in December 2013 and January 2014, Interpol and Europol confiscated more than 1,200 tons of counterfeit or substandard food and almost 430,000 liters of counterfeit beverages. The illegal trade is run by organized criminal groups that generate millions in profits, say the authorities. The confiscated goods also included more than 131,000 liters of oil and vinegar.

A forgery-proof label should not only be invisible but also safe, robust, cheap and easy to detect. To fulfil these criteria ETH researchers used nanotechnology and nature’s information storehouse, DNA. A piece of artificial genetic material is the heart of the mini-label. “With DNA, there are millions of options that can be used as codes,” says Grass. Moreover, the material has an extremely low detection limit, so tiny amounts are sufficient for labelling purposes.

Synthetic fossil

However, DNA also has some disadvantages. If the material is used as an information carrier outside a living organism, it cannot repair itself and is susceptible to light, temperature fluctuations and chemicals. Thus, the researchers used a silica coating to protect the DNA, creating a kind of synthetic fossil. The casing represents a physical barrier that protects the DNA against chemical attacks and completely isolates it from the external environment – a situation that mimics that of natural fossils, write the researchers in their paper, which has been published in the journal ACS Nano. To ensure that the particles can be fished out of the oil as quickly and simply as possible, Grass and his team employed another trick: they magnetized the tag by attaching iron oxide nanoparticles.

Experiments in the lab showed that the tiny tags dispersed well in the oil and did not result in any visual changes. They also remained stable when heated and weathered an aging trial unscathed. The magnetic iron oxide, meanwhile, made it easy to extract the particles from the oil. The DNA was recovered using a fluoride-based solution and analyzed by PCR, a standard method that can be carried out today by any medical lab at minimal expense.

“Unbelievably small quantities of particles down to a millionth of a gram per liter and a tiny volume of a thousandth of a liter were enough to carry out the authenticity tests for the oil products,” write the researchers. The method also made it possible to detect adulteration: if the concentration of nanoparticles does not match the original value, other oil – presumably substandard – must have been added. The cost of label manufacture should be approximately 0.02 cents per liter.