The other major consequence of the Coronavirus!
Covid-19 has caused a run on cash, at least from the moment that the fears started to grip our Western societies. Intuitively, it is however the opposite of what we might have imagined. Weren’t there fears – albeit justified – that the illness could be transmitted by certain objects? Isn’t this why there have been warnings from numerous governments to their populations calling on them to priorities electronic payments? Didn’t some shops quite simply refuse to take cash during the lockdown?
However, having at their disposal complete data on activity during this period, two economists, Ashworth and Goodhart, concluded that certain countries in Europe and North America had on the contrary seen a take-off in the use of cash due to the pandemic. They showed that the demand for cash extrapolated over a year had increased by more than 12% in the US, exceeding the run caused by the panicked actions following the 2008 financial crisis! The European Union had not been outdone though as it has also seen a substantial rise in the demand for cash, increasing monthly by 2 to 3% over March, April and May 2020, to levels about three times higher than those of the financial crisis and the sovereign debt crisis. The printing of 200 euro notes only served to bring about a rise in their demand, by 30% during this time, whereas it made up only 7% of the notes in circulation.
My conviction, however, is that this health crisis will see the total consecration of all that is electronic and all that is digital, far from the primitive (but completely understandable) instincts observed when lockdown began, which was also the climactic point of certain anguishes and uncertainties. In my opinion, the major, direct and inevitable upshot of Covid-19 will be the abandonment of analogue. The lockdown, social distancing, and fear of contamination are indeed the factors that are pushing us ever closer to revolutionising our way of using, assembling and compiling information. The mobile phone, that has of course existed for many years, is becoming the main source of information at the disposal of public powers who can now follow the progress of the virus in real time. On the same note, it goes without saying that our telephones will serve not only to track the illness, but also our consumption habits, by analysing our electronic and online transactions.
The range of possible applications is therefore gigantic, and the opportunities on offer for quantitative and qualitative economic studies, on artificial intelligence for example, by processing these data, will allow us to streamline public powers to a noticeable degree. It is indeed a paradigm shift that will take place in the months to come, and that was in fact predictable, but definitively propelled to the forefront by the way we have faced up to Covid-19. Let us consider merely the good old statistics on consumption, economic confidence or inflation that have so far conditioned the responses of central banks and the budgets of governments, but that are in reality hardly reliable indicators that become outdated as soon as they get published. And let’s imagine a macroeconomic backdrop made up of real time data that creates true economic intelligence, eclipsing with its quality the traditional period publications and statistics that only serve to confirm what the analysts already knew or suspected, and to trigger reactions and swathes of measures that are out of step with an economic situation no longer the same following the compiling of said data…
But let’s diver even deeper into the applications offered by abandoning analogue and by committing in the broadest sense of the word to the electronic and digital, because this is the very measure of the critical indicator of inflation that is fundamentally changing to instead be modelled on our individual behaviour. In fact, why define inflation indexes based on fixed criteria, like for example household consumption, when we all have different and divergent consumption habits. Why can’t I define for myself my personal inflation index according to uses that are my own? We can note that our governments, our institutions, and the committees and other commissions at the highest level that are responsible for advising them, are no longer able to provide appropriate responses, because they are based on “reheated” data, and because they simply cannot move in step with consumers.
High technology, artificial intelligence, and algorithms are therefore being called upon to become the champions of economic analysis and prediction. The daily life of central banks and Ministers of Finance, as for them, will henceforth consist mainly of processing data. And the disappearance of analogue will of course not go without a significant shift in the balance of power.