In recent days, pundits have asked plenty of theoretical, abstract questions about what a eurozone bank run might look like. Peter McNamara lives with that issue, up close and personal, every day. The reason? After a career as a banker and analyst, he is now executive chairman of NoteMachine, a company that runs ATMs across much of the eurozone. So, with political tensions rising in the region, McNamara and his team are now in a state of high alert, battling to ensure that the ATMs will always be stocked, in case consumers ever panic and rush to grab paper notes. After all, as McNamara recently explained to me in a TV studio, if, during a crisis, cash-laden trucks suddenly arrive at ATMs, that in itself can spark alarm. And if those ATMs actually run out of cash, it is doubly worse. Thus, companies such as his are working to keep the machines constantly full – but in a manner the public never sees, or even has reason to think about.
It is a massive, fascinating – and secretive – logistical exercise. But in some senses it is also an endeavour that might seem quaint, if not paradoxical. As the anthropologist Jack Weatherford observed more than a decade ago, in his brilliant book The History of Money, “Throughout history, money has become steadily more abstract.” Most wholesale (or non-consumer) financial operations today operate in cyberspace with electronic payments, as do many consumer finance transactions. Indeed, these days you can even use plastic in a New York cab (which means, to my profound relief, that the days of scrabbling around in a handbag searching for grubby dollar bills are gone). As Weatherford noted: “By moving at the speed of light, electronic money has become the most powerful financial, political and social force. Money has become like God: totally abstract and without corporeal body.”
And yet, perversely, that “body” – paper – refuses to wither away. In recent years, the amount of cash in circulation in Europe and the US has risen at a slower pace than virtual credit. But it has still grown; ATMs are now stocking and dispensing more cash than ever. One reason is that the current climate of low interest rates and low inflation creates less “penalty for holding cash” for consumers or ATM operators, as McNamara says.
Another factor is convenience. Four decades ago, consumers generally had to plan carefully if they wanted to get cash, since it was only dispensed when banks were open. But the invention of the modern ATM in 1972 transformed this – so much so that Paul Volcker, the former chairman of the Federal Reserve, considers the ATM the most “significant financial innovation” of recent decades, eclipsing things such as derivatives. And today, with an estimated 2.2 million ATMs operating across the world, it is widely assumed that cash will always be there. To put it another way, if paper ever stops coming out of those ATM machines, that produces existential shock – even if cyber bank accounts are full. Which is why men such as McNamara matter.
Another reason why cash usage may have risen in the past couple of years is that faith in modern banking and cyber finance has been crumbling. In some cases, panic has sparked a temporary grab for paper: during the 2007 and 2008 banking crises, there were queues outside the ATMs at Northern Rock and Wachovia. But in other countries the impact has been more long-term. When, for example, Japan suffered its own banking crisis back in 1997, households increased the cash they held at home “in the tansu” (cabinet) and purchases of safes surged. Fifteen years later, those tansu are still bulging: scepticism about banks and cyber finance has never quite disappeared.
The banking authorities in Europe are now frantically trying to prop up their own banking system to prevent any such repeat. And while companies such as NoteMachine have surprisingly few dealings with central banks, they are also determined to prevent any panic.
The good news is that in some respects, the logistics are easier than they were a decade ago: today, computers can track in real time across a vast region where money is being withdrawn, and they have extensive data runs on “normal” ATM patterns. (Withdrawals on Friday nights, for example, are typically five to six times higher than on weekday nights.) That helps them plan ahead and respond quickly to aberrations.
But the bad news, of course, is that crises are inherently unpredictable. And groups such as NoteMachine are already noticing some ominous behavioural swings. In the past two weeks, for example, the value of money that Greeks have been withdrawing from their ATMs has risen sharply (although the frequency of withdrawals has not changed as much). Similar value increases have occurred in Italy, McNamara says.
That might presage a bigger run; or it may be temporary (McNamara says there was a similar swing late last year, which then reversed). Either way, as those ATM operators go on to a “war” footing, it is a timely reminder that “progress” in history does not always go in a straight path. Even in the cyber age, we sometimes need to touch something tangible to believe.
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