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Cashless Payments in Austria: the Role of the Central Bank

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Cashless Payments in Austria: the Role of the Central Bank Cashless payments in Austria: the role of the central bank Hans Kernbauer1 Austria was a latecomer in the use of cashless payment techniques. This can be explained by the economic backwardness of the Habsburg monarchy compared with Northwestern European countries in the first decades of the 19th century, by the low degree of monetization and the abundance of paper money as a consequence of financing major military campaigns through central bank credits, and by the issuing of paper money by the state. The incorpora- tion of the Austrian Postal Savings Bank in 1882 marked a turning point in the spreading of modern financial technologies in Austria. An amendment to the charter of the Austro- Hungarian Bank in 1887 was a precondition for the substantial growth in the number of giro accounts and in the transaction volumes of the central bank in the following years. In the interwar period, Viennese and Austrian banks had to adapt to the potential of a far smaller economic area. The transaction volumes in the payment system, in particular financial trans- actions at the stock exchange, were severely hit by the Great Depression. The economic climate between the two World Wars was not conducive to the introduction or spreading of new financial technologies. The economic boom in the Second Austrian Republic, the rapid increase of production, employment and hence income resulted in a wider use of banking services. The Oesterreichische Nationalbank (OeNB) acted primarily as the central clearing house for bank-based payments. The spread of electronically based systems in banking changed the payment process as the use of automated teller machines, point-of-sale terminals and credit cards increased. The introduction of the euro in Austria in 1999 had a fundamental influence on the structure of the Austrian payment system, which had to be aligned with the system used in the euro area. The duties of the OeNB as regulator and supervisor of payment systems in Austria were laid down in an amendment to the Nationalbankgesetz (National- bank Act) in 2001. JEL classification: E42, E50, E58 Keywords: economic and banking history of Austria, development of bank-based payment systems, role of the Austrian central bank For Austrian households, cash payment transferred over large-value systems, is still the preferred choice for settling on the other hand, add up to 90 to 100 transactions: in 2011 more than 82% times GDP in most developed countries of transactions (65% of the transaction (Kahn et al., 2014, p. 1). The dramatic volume) were paid in cash, hardly less increase of the “payment intensity” i.e. than 15 years ago. The use of point-of- the relation between the transaction sale (POS) terminals increased in this volume and nominal GDP during the period from 2.4% to 25.8% in terms last decades has created enhanced re- of volume, whereas in 2011 only 5% sponsibilities for policymakers, reg- of the transaction volume was settled ulators and supervisors, as failures of through credit cards (Mooslechner et payment systems could have dangerous al., 2012, p. 66). knock-on effects within the financial Retail transactions of households sector and beyond. The collapse of Her- are limited by the amount of private statt Bank (1974) and the difficulties consumption, which represents about encountered in September 2001 in the two-thirds of GDP. Annual payments U.S. large-value system Fedwire have 1 Vienna University of Economics and Business, [email protected]. The author would like to thank William Refereed by: Roberds (Federal Reserve Bank of Atlanta) and Clemens Jobst, Helmut Stix, Markus Pammer and Walpurga Köhler-Töglhofer (OeNB) for their valuable suggestions. The author would also like to thank Douglas Deitemyer William Roberds, and Susanne Steinacher for valuable language support. Federal Reserve The views expressed in this paper are exclusively those of the author and do not necessarily reflect those of the Bank of Atlanta OeNB or the Eurosystem. 120 OESTERREICHISCHE NATIONALBANK Cashless payments in Austria: the role of the central bank demonstrated the liquidity risks and tems in banking from the mid-1970s the risks presented by the nonfinality of onwards revolutionized the payment payments. Most central banks, and in system, too. Wages, salaries and pen- particular the central banks of the euro sions were increasingly paid out cash- area, nowadays bear responsibility for less; cash dispensers, automated teller the smooth operation of payment sys- machines (ATMs) and POS termi- tems. This is seen as a prerequisite for nals – accessed via bankers’ cards and conducting monetary policy and main- credit cards – were used with grow- taining the stability of the financial ing frequency. The OeNB acted as a sector, while prior to the tremendous central clearer in the payment system growth of electronically transferred and was involved in the supervision of funds the tasks of central banks for the the participating institutions (section payment system were more or less re- 4). In preparation for the introduction stricted to the production of banknotes of the euro, the large-value payment and coins and to stocking banks with systems of the participating countries the necessary cash reserves. were modernized and harmonized, as This paper deals with the his- a secure payment system is necessary tory of cashless (or cash-saving) pay- for financial stability in general, and in ments in Austria and the specific role particular for a smooth distribution of of the Oesterreichische Nationalbank base money within the euro area. In ad- (OeNB) in this process. Section 1 deals dition, the mushrooming of the finance with the beginning of giro and clearing sector and – as mentioned above – the trans actions in Austria. The low degree concomitant increase of payment inten- of monetization in general and the am- sity created new challenges for operat- ple supply of banknotes in the first de- ing a safe payment infrastructure. Core cades of the 19th century were respon- principles for systemically important sible for the slow start of this business payment systems were developed by a in Austria compared with other West- committee of the Bank for International ern European countries. Encouraged Settlements (BIS). The responsibilities by the Ministry of Finance, the initia- of the OeNB as operator, facilitator and tives of the Nationalbank to propagate supervisor of the Austrian payment sys- giro transactions were successful only tem were defined in more detail in a after the foundation of the Postal Sav- 2001 amendment to the Nationalbank ings Bank in 1882 and changes in the Act (section 5). 1887 central banking law regulating the coverage of banknotes by precious 1 Tentative beginnings of cashless payments in the first half of the metal (section 2). The breakup of the th Habsburg monarchy after World War I 19 century (WW I) and the restructuring and cri- Its rules of procedure dating from 1817 ses of the Austrian banking sector in authorized the Nationalbank, inter alia, the interwar period were not conducive to operate the giro business, although to the spreading and improvement of the relevant charter was very restric- financial technologies (section 3). The tive regarding this line of business: only exuberant economic growth after the shareholders resident in Vienna were stabilization of the Austrian currency at permitted to open a giro account at the the beginning of the 1950s, the strong Nationalbank. Account holders could increase in demand and savings depos- deposit banknotes, silver coins and bills its and the soaring use of electronic sys- of exchange denominated in the cur- MONETARY POLICY & THE ECONOMY Q3– Q4/16 121 Cashless payments in Austria: the role of the central bank rency of the bank. The deposit could be and banknotes because money orders used for cash withdrawals or trans- could be executed quicker and safer. ferred to other accounts at the bank The government paid lower fees than (Bubenik, 1888, p. 2). The giro busi- private firms. In the 1830s the National- ness was not activated during the first bank’s fee income derived from money privilege of the Nationalbank, which orders amounted to fl. 30,000 to fl. was granted for the period from 1816 40,000 per year (around 1% of net to 1841. Baron Carl Joseph Alois von profits) (Lederer, 1847, p. 174ff). Lederer, Governor of the National- The slow start of cashless payments bank, justified this in retrospect by the and banking in general in Austria was, business community’s lack of interest in as mentioned above, attributable to the bank-based payments (Lederer, 1847, relative economic backwardness of the p. 234). However, the restriction of the Habsburg monarchy compared with giro business to Viennese shareholders the countries in Northwestern Eu- seems to be a more convincing argu- rope. A reliable quantitative compar- ment for the subdued interest of enter- ison of economic levels in Continental prises in banking with the National- Europe in the first decades of the 19th bank. century is not possible for lack of data Right from the beginning of its op- and would in any case have to take into erations, the Nationalbank was active account the huge economic discrepan- in the execution of money orders, i.e. cies among the various provinces of the transfer of cash from the head of- the monarchy. “The vast majority of fice in Vienna to branches2 in provin- producers,” writes Gross (1983) in his cial towns and vice versa. In the period essay on Austria-Hungary’s role in the from 1818 to 1829 the transfer of cash world economy, “were still chiefly en- for private firms from branch offices to gaged in subsistence farming, and the Vienna was about three times as high estimation of this type of output and as the reverse, whereas from 1830 to of peasant productivity is a frustrating 1841 the amounts in both directions exercise even in our age of worldwide were more or less equal.
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