ACKNOWLEDGMENT

I would like to sincerely thank the Imperial Institute of Higher Education and University of Wales for providing an opportunity for me to study towards earning this degree in Master of Business Administration. I would like to thank the entire administrative staff and academic staff at IIHE for guidance and support shown right from the start till the very end, especially, to Dr Tilak Weerakoon, Mrs Mallika Manuratne, Mr Hussain Moosajee, Mr Ajith Colonne, Mr Dilshan Rodrigo, Mr Prasanna Perera, Mr Trevor Mendis, Mr Mangala Fonseka, Prof Gamini de Alwis, Mr Parackrama Jayasuriya, and Ms Gayathri Ediriweera. I would like to thank all my friends and colleagues for the wonderful times and for enriching me, especially, to Dimantha Mathew, Virajith Basnayake, Samantha Bombuwalage, and Aysha Riffsy for the fabulous team work. I would like to thank the librarian and library staff for browsing through all indexes to provide necessary texts & scripts whenever it was required. I would like to specially thank Mrs Mallika Manuratne for having confidence in me and for the guidance given to me towards the completion of this dissertation. I would like to gratefully and sincerely thank my father for being the tower of light & the pillar of strength in my life, and to my sister for the strength & courage she resembles. Finally, I would like to dedicate this to my mother for the everlasting love she blessed me with.

ABSTRACT

The Bill of Monetary Management: Cost of Managing Coins and Notes in Sri Lanka is a research study intended to bring to light problems faced by the monetary system in Sri Lanka due to coins and notes. A Literature Review will revisit ideas and knowledge expressed since 13 th century perception of embrace the abstraction without worry, which invented paper money and how it is contributing to modernize present day advancements in monetary world across the globe with its relevance to Sri Lanka. A qualitative methodology was applied to reveal critical data from in-depth interviews with crucial decision makers. This was followed by a comprehensive data analysis bringing out new findings in cost of production, cost of logistics, & cost of managing coins and notes, and findings on stagnant alternatives to cash, issues with perception towards money & unwarranted priority given to coins and notes. Importantly to understand that currently lack of confidence among users of coins and notes in Sri Lanka is an added burden on the monetary system. A comprehensive discussion is then followed on having a modern monetary system capable of sustaining confidence and growth, and a movement towards initiating a lesscash society for a prosperous economy.

TABLE OF CONTENTS

1. ACKNOWLEDGMENT... 2. ABSTRACT... 3. TABLE OF CONTENT... 4. LIST OF TABLES ....... 5. LIST OF ABBREVIATIONS...... 6. CHAPTER 1: INTRODUCTION... 7. CHAPTER 2: LITERATURE REVIEW.. 8. CHAPTER 3: RESEARCH DESIGN ... 9. CHAPTER 4: DATA ANALYSIS & PRESENTATION ....... 10. CHAPTER 5: DISCUSSION... 11. CHAPTER 6: CONCLUSION & RECOMMENDATIONS... 12. LIST OF REFERENCES ...

01 02 03 04 05 06 13 30 39 72 77 84

LIST OF TABLES

Table 2.1: Monetary Aggregates in Sri Lanka - 2008-2012

Table 2.2: Financial Sector Development Indicators

Table 3.1: Operationalization

Table 3.2: Perceived Differences in Quantitative and Qualitative Methodology

Table 4.1: Supply of Coins & Notes in 2012

ABBREVIATIONS

CBSL/CB FB ATM TRC NTC ICT IFC Rs. NFC CCD GDP CRD CCTV POS

Central Bank of Sri Lanka Feeder Banks Automated Teller Machines Telecommunication Regulatory Agency National Transport Authority Information and Communication Technologies - International Finance Corporation - Sri Lanka Rupees - Near Field Communication - Central Cash Department - Gross Domestic Product -Currency Department - Close Circuit TV - Point of Sale

CHAPTER 1 INTRODUCTION

1.1 BACKGROUND OF THE STUDY Man in his long journey in reaching todays sophistication has evolved though times with unending amount of acquiring and satisfying of growing needs and wants. Beginning from days in caves to animal hunt, as farmers to merchants, by colonization to industrialization, and entering into virtual space and outer space, unsatisfying nature and eagerness towards acquisitions have helped him to evolve into modern complexities. (Rupasinghe, 2010)

He would acquire and satisfy his needs and wants through his own toil, exerting superior force, or by way of exchange. The growth of means of exchange has come through barter or swap of goods and services, to use of gold, precious metals & coins, and arrived at complex financial tools of virtual money of modern age. Hence, transactions are as old as the mans long journey in time and have played an integral part in his transformation over time. (Rupasinghe, 2010)

In this exchange of value the most frequented invention is coins. Coins have been made and used for millennia, as each new archeological finding betters the age known use of it. As coins became costlier in production, heavier in distribution, higher in usage volumes, and hassle in use, the innovation of notes came to replace the coin. Coins remained for micro payment, and notes were added on for larger payments. (Rupasinghe, 2010)

As consumerism grew higher, society moved into an era of large volumes of transactions. The availability of coins and notes for payments from day to day transportation to

grocery to other merchandise has become one of the most troublesome areas for any monetary system to deal with. (Rupasinghe, 2010)

Micropayments, or small transactions, which are generally not supported by cheques, or electronic debit or credit, but needs to be carried out couple of times a day requires a great deal of coins and notes. As the demand grows the production, distribution, security, storing, etc adds on, and adds on heavily on specifically the management of this monetary aspect by the system. The real value of coins and notes are there only when it is accessible and liquid enough to make a transaction. Accessibility and Liquidity of the monetary sector plays a pivotal role in a dynamic nation. It simply drives the pace and direction of any economy or society. In an economy it is a fundamental infrastructure necessity for growth. In any society it is the primary linkage of payments, goods or services. Mobility of people and goods are key success factors of any country. Accessibility and Liquidity of monetary sector transforms stagnant economic activity into resilience.

1.2 STATEMENT OF THE RESEARCH PROBLEM As an example, in Sri Lanka, one of the important sectors of liquid cash is used is transportation. Commuters or goods transported are charged according to the distance travelled, which is segmented in intervals, and for category of transport (intercity, luxury, semi-luxury etc). At present the first segment, or startup, fee would be Rs. 9.00, and increments thereupon are according to aforesaid criteria. The maximum charge on a single passenger on a bus ride in Sri Lanka is still under Rs. 1000.00. Thus, in monetary terms these payments are considered as micropayments. Micropayments with regard to mass transportation, about 10 million passengers a day, (Lanka Private Bus Owners Association) is almost absolutely made by currency notes

and coins issued by the Central Bank of Sri Lanka, the regulatory body and sole authority on monetary matters in Sri Lanka. Throughout history and throughout the world, monetary authorities have faced great difficulty in finding the perfect range and variation of denominations, and their availability to carry out a transaction in complete. Since, almost all transactions in transport sector are carried out with coins and currency, then and there, the issue is even worse. Commuters find it difficult to manage the right denominations to pay the exact fee. Conductors, or operators, find it difficult to be ready with exact change money to settle any dues pending from transactions. Nonpayment of dues pending unfairly taxes passengers. This harms trust and excellence between commuters and operators. The days collection of payments is in liquid money. However, there is no guarantee of records for each and every transaction, or issuing of receipt/tickets for each commute. Similarly, there is no record of accumulated extras as change made from nonpayment of dues to passengers. Owners, on a day to day basis, pays expenses on fuel, oil, tires, insurance, other maintenance, etc by giving a cash advance to the driver and conductor. In the annual publication of Lanka Private Bus Owners Association its owners complain of pilferage by conductors and drivers, and at times as staggering as 20% of the days collection of a industry which totals LKR 100 million a day. They also suspect misappropriation of money given for fuel, oil etc. On the other hand, passengers complain about short of change money given after making payments, and about the hassle of carrying coins or notes as change money. (Lanka Private Bus Owners Association) Therefore transportation sector requires a smooth functional payment mechanism, where proper records are available on each and every transaction, where payments guarantee due change, where daily collection in full goes to the hands of the owner, hassle free payment for users, conductors, and operators. This is just one example of how the current
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use of coins and notes has turned out to be a problem for both the commuter as well as the service providers. It is obvious that most transactions done through coins & notes are cumbersome, yet, users have no alternative. The rising demand for coins and notes also creates difficulties for Central Bank of Sri Lanka, which is responsible for producing new coins and notes to meet the demand. Cost of this supply is a burden to the economy, given huge payments that need to be made for designing, producing, distributing etc, the whole management of them. As clearly experienced in successful global outcomes, Cashless Payments or E-Wallets will boost the economy and its society by increasing and driving productivity through enhancing operational efficiencies, and enabling a range of innovative new business models. Cashless Payments will importantly enhance trusted consumer convenience through the potential to replace the hassle of analog life designed to convey money or information (credit cards, loyalty cards, transit cards, tickets, passes, etc.) with a single, secure, more powerful digital solution, which will drastically reduce intricacies, inconveniences, and expenses rising from day to day management of conventional monetary payment. In this backdrop, this study focuses on the factors affecting the cost of using conventional notes and coins.

1.3 JUSTIFICATION OF THE STUDY Implementation of none-physical money, or cashless payments, will naturally have its advantages and disadvantages. Complete transformation into none-physical money will call for an advanced system at this point of time in Sri Lanka, and will rightly be full of audacity. Of course, it will be a groundbreaking initiative in the field of technology in Sri Lanka, but at the same time the monetary system, as well as, the society at large will

embrace its novelty only with caution. Hence, it is bound to leave an impact, both positive and negative, on many stakeholders involved directly and indirectly. One such stakeholder, an important one, is the banking sector. It is the most trusted and readily available intermediary between the issuer, the Central Bank, and the user, the general public. Banking sector is the chief momentum of the monetary system in any economy. Therefore; 1. This is an untouched area 2. The entire economy will be affected by any changes 3. For convincing the authorities as well as the public, research based findings are necessary Hence this research, an assessment in terms of a research study, needs to be carried out to bring light to aspects in the management of coins and notes by banks in Sri Lanka.

1.4 OBJECTIVES Objective of this research study would be set as follows; 1. To understand current eco-system which exists with issuing coins and notes to customers; 2. To understand the costs incurred by banks in managing this service on behalf of the Central Bank and for use of customers; 3. To analyze the current concerns with issuing of coins and notes; 4. To determine the effectiveness of implementation of an cashless or e-wallet scheme to overcome the issues encountered in managing coins and notes;

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1.5 SIGNIFICANCE OF THE STUDY Banking sector is organically one of the most researched and documented industries. However, it is important to understand the reason of existence and costs of managing coins and notes in an era where non-tangible money [electronic, mobile, virtual money etc] is becoming the most innovative mode of payment. Therefore, this research study hopes to produce following as deliverables; 1. Contribution to the Central Bank, especially to understand management cost of coins and notes from been introduced to the monetary system till its exit from it; 2. Contribution to the Banking sector, especially as the intermediary between the issuer and user of coins and notes; 3. Contribution to the average user, especially in terms of convenience and security is use of coins and notes; 4. Contribution to ocean of knowledge, especially to the banking sector;

1.6 SCOPE The scope of this study will cover the monetary system of Sri Lanka, which include the Central Bank of Sri Lanka, authorized commercial banks in Sri Lanka, and the average citizen and entities- users of coins and notes- in Sri Lanka. Officials from the relevant organizations and a purposive sample of users that include different levels will be interviewed using in-depth interview method to collect data for this study.

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1.7 ORGANIZATION OF THE RESEARCH CHAPTER 2-LITERATURE REVIEW CHAPTER 3-RESEARCH DESIGN CHAPTER4-DATE ANALYSIS & PRESENTATION CHAPTER5-DISCUSSION CHAPTER6-CONCLUSION & RECOMMENDATIONS

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CHAPTER 2 LITERATURE REVIEW

2.1 INTRODUCTION TO CHAPTER 2 This literature review will bring forward ideas and knowledge, derived from secondary sources published by scholars and researchers, which at presently contributes to the discussion related to the research topic presented in this paper. Presentation of ideas and knowledge will guide the discussion towards identifying issues concerning and adopting alternative money is not as expensive as the use of coins and notes in present day.

2.2 RESEARCH PROBLEM/ LITERATURE REVIEW In Sri Lanka, fuel is not the only liquid asset which runs public transport but essentially liquid cash as well. A total of 8 million transactions per day are made purely by use of coins and notes. Similarly, 6.4 million transactions per month are made on utility payments with use of coins ad notes. These figures exclude standing orders, bank transfers, card payments and cheque payments. Almost 85% payments for merchandise purchases in Sri Lanka are made through coins and notes. This speaks of the rising demand for notes and coins. A demand for coins and notes directly creates difficulties for Central Bank of Sri Lanka, which is responsible for producing new notes and coins to meet the demand, but also to the banking sector, which acts as intermediary agents in managing coins and notes for public use. Not only cost of supply is a burden to the economy, but huge expenses for designing, producing and distributing coins and notes needs to be absorbed into the actual face value
13

of physical cash. Similarly, cash management has to be met with by employing secure transportation, secure vaults, secure & efficient counting and bundling process, and machines & human resource to administer the entire operation. It is in this backdrop that new and successful global outcomes have found cashless payments or e-wallets to boost economic growth and thereby advance society by driving productivity, enhancing operational efficiencies, and enabling a range of innovative new business models. Less-cash payments initiatives will importantly enhance trusted consumer convenience through potential to replace the hassle of analog life designed to convey money or information (credit cards, loyalty cards, transit cards, tickets, passes, etc.) with a single, secure, more powerful digital solutions, which can drastically reduce intricacies, inconveniences, and expenses rising from day to day management of conventional monetary payments. Therefore, this study will initially focus on evolutionary facts, theoretical arguments, innovation breakthroughs, and global comparisons affecting the use of conventional notes and coins.

2.2.1 CASH STILL IS THE KING? In this modern age having passed space age and information age, even still cash is holding on as king. D Wolman cites I hopped on a train When the conductor came around took out my credit card and waved it at him Then he said two words CASH ONLY (Wolman, 2012). This speaks how some systems are still unwaived amidst advances made in contemporary society. While Wolman was taking the train from New York in that same year 2012, the historical inventor of cash and todays biggest market - China, still makes an attempt to put breaks on virtual currency. in 2009, an explosion in the trade of prepaid cards for online
14

services and the selling of gaming currency prompted Chinas Ministry of Culture and Minsitry of Commerce to issue a rule banning the exchange of virtual currency for real goods and service (Courtland, 2012) So is cash the real the king? Or, is it the stubbornness of authorities, backwardness of & loopholes in systems, lack of technological or financial resourcefulness, or simply as a part of culture still makes cash the undisputed essential in monetary transactions? In order to understand the complete role, dynamic functionality, and very existence of money, it is important to understand the idea of todays money.

2.2.2 IDEA OF TODAYS MONEY To get an idea of todays money, it is important to go back in time to understand the inventor of modern paper money Kublai Khan, the Chinese Emperor from 13 th century, who was bold enough to live ahead of times with actual use of his invention. He enforced exchanges to be made over mere pieces of paper against precious metals or coins which was popularly in existence at the time. The underlining principle of the emperor was to embrace the abstraction without worry. When studying the evolution of this innovation over the past eight centuries, What matters most about money is not what it looks like, or even what it is backed by, but whether people believe in it enough to use it. (Sorowiecki, 2012) This is the fundamental principle and reality as far as todays mode or form of money is concerned. Today, that concept is the foundation of all modern monetary systems, which are built on nothing more than governments support of and peoples faith in them. Money is, in other words, a complete abstraction one that we are all intimately familiar with but whose growing complexit y defies our comprehension. (Sorowiecki, 2012) Even the fundamental existence of physical money, or the monetary commodity, carries the risk of breakdown as any other commodity as put forward by Economist Milton
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Friedman; Private promises to pay the monetary commodity are as good as the monetary commodity itself so long as they command confidence that they will be fulfilled and far cheaper to produce, since the issuers can meet possible demand for redemption by keeping on hand an amount of the monetary commodity equal to only a fraction of their outstanding promises. A pure commodity standard therefore tends to break down. (Friedman, 1965) As long as the physical money is cheaper to produce and manage it will stand a chance. The moment the existence of physical money is cumbersome, any monetary system will find alternatives to replace it.

2.2.3 BREAKDOWN OF TODAYS MONEY When a money scheme arrives at the point where its production and or management is more of a burden than its returns it is either withdrawn or collapses. Explaining this critical factor, an essay published in technology magazine Wired goes on to report what the cost an average tax payer has to pay in order to maintain physical cash-todays money in the United States. To maintain our stock of hard currency, the US Treasury create s hundreds of billions of dollars worth of new bills and coins each year. The cost to taxpayers in 2008 alone was $848 million, more than two-thirds of which was spent minting coins that many people regard as a nuisance. (The process also used up more than 14,823 tons of zinc, 23,879 tons of copper, and 2,514 tons of nickel.) In an era when books, movies, music, and newsprint are transmuting from atoms to bits, money remains irritatingly analog. Physical currency is a bulky, germ-smeared, carbon-intensive, expensive medium of exchange (Wired, 2009) The author goes on to the extent of brining a new definition to coins by stating coins that many people regard as a nuisance. It clearly shows how fundamentals are hurt as faith

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or believe people have in money is compromised against the cost of production to put them into their hands. As society changes and advances people take-up to believe in money that is a less hassle less costly, but not as something nuisance. Just as much Emperor Kublai Khans bold innovation centuries ago, new mode of money should not worry whether it is made up of atoms or bits. Bits?

2.2.4 BITS TO MAKEUP TOMORROWS MONEY All forms of monetary transactions carried out via electronic networks as series of bits devices from point-to-point, by use of mobiles, in virtual space, or in any similar form is money made-up of bits. Since, this money is not made-up of physical entities it is not made-up of atoms. Thus, bits not atoms have invented tomorrows money. This is also in parallel to the drawbacks recorded in breakdown of fundamental elements in hard physical currency and the cost of having it. Electronic form of money is an alternative that is already in effect and tried out by various economies around the globe. A study carried out on one such alternative in Sweden establishes groundbreaking facts on use of electronic money in new age; "Sweden is rapidly moving towards a cashless economy. Bills and coins represent only 3 percent of Sweden's economy, compared to an average of 9 percent in the eurozone and 7 percent in the U.S. The Swedish Bankers' Association says the shrinkage of the cash economy is already making an impact in crime statistics. The number of bank robberies in Sweden plunged from 110 in 2008 to 16 in 2011 the lowest level since it started keeping records 30 years ago. It says robberies of security transports are also down. The prevalence of electronic transactions and the digital trail they generate also helps explain why Sweden has less of a problem with graft than countries with a stronger cash culture, such as Italy or Greece, says economics professor Friedrich Schneider of the Johannes Kepler University in Austria. (Slashdot, 2012)
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Also, this establishes the fact that societies of developed economies have already began its transition in use of new schemes of money abandoning conventional money even for social factors affecting their lifestyle changes in todays world . Todays world is ever more defined by global connectivity. It is in this backdrop that the presence and behavior of financial world is even more interdependent on new money schemes. In keeping with advance pace of modern financial world, less-developed and developing economies will soon have to follow suit and enter into new money schemes, as explained in Flying Geese Paradigm by eminent Japanese scholar Akamatsu Kaname. (Rupasinghe, 2010)

2.2.5 SRI LANKAN CONTEXT ON MONEY Therefore it is important to understand the Sri Lankan context. Having moved from a less-developed economy into a developing economy during the past ten years, Sri Lanka doesnt seem to consider in modernizing its financial system, and importantly its monetary schemes. The Annual Reports published by the Central Bank of Sri Lanka tabulates the Monetary Survey for past 60 years, including the amount of currency held by general public in terms of notes and coins. Table 1 below, formulated with extracts obtained from annual reports, show the amount of coins and notes held by general public in past five years from 2008 to 2012, with an annual year on year increase. (CBSL, 2008-2012)

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Table 2.1: Monetary Aggregates in Sri Lanka - 2008-2012 Year Reserve Money LKR Billion Currency Held by Public LKR Billion Commercial Bank Deposits with CBSL LKR Billion 2008 2009 2010 2011 2012 268.4 303.5 360.5 439.5 484.4 155 181.9 216.6 242.9 251.5 82.3 86.1 104.9 146.3 166.3

(Source: Annual Reports of Central Bank of Sri Lanka 2008-2012)

*Reserve Money = currency outstanding (ie, currency held by public + currency with commercial banks) + commercial banks' deposits with the central bank + government agencies' deposits with central bank

During this period of time, it is quite clear that more than 50% of currency is held by public. Savings in banks ranged between Rs30 billion been lowest and Rs70 billion been highest (10-14%), indicating that most of physical money is consumed as exchange in transactions, and most of it is to pay for merchandise, transport, and utility bill payments. Similarly, nearly one-third of cash deposits belonging to commercial banks are held with Central Bank, whereas the required deposit is half that amount- around 15%. Notes and coins are only denominations of value, and in this case idling in large chunks. But carries a huge opportunity cost as the process and resources put into its making is invariably exhausting. The same amount could have been easily met by bits created specifically to serve the purpose. Therefore, at minimum at least one alternative scheme of money (such as cheques, bank orders, bonds etc) were introduced to facilitate transactional needs, made between people, organizations, businesses, banks, and governments. However, this in todays world can now be converted to bit-money; which has shown strong promise to replace use of not

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only hard currency but also archaic alternative schemes of money. So why is Sri Lankan monetary schemes not changing?

2.2.6 IS THERE AN OPPORTUNITY COST OF CONVERTING ATOMS INTO BITS? No matter how complex or dynamic the world is out there, there are only three basic payment instruments; pay before, pay now, and pay later. Most electronic payment solutions fall into pay before or pre-paid category of payment. If the liquidity effect sets in prior to receipt of the good, the buyer incurs opportunity costs in the form of lost interest income. (Fernando, 2001) In traditional form money held in hand would reduce if bank interest rates are attractive, this means opportunity cost of holding on to that money in hand is more than having drawn an interest on it. Similarly, most pre-paid solutions are smart enough to create a brand new scheme of points or perceived value in terms of bits for users willing to take the bold step forward. Maintaining sophisticated bank reserves and logistical arrangements to count, bundle, transport, stack, secure, issue, account, over and over again with physical money made of atoms is an immense cost of resources and without argument an even more enormous opportunity cost.

2.2.7 BECAUSE CASH IS GODFATHER OF MONEY? The very existence of physical money over any other mode of monetary to carry out a transaction is primarily due to its capacity of anonymity. anarchists, drug dealers, politicians, prostitutes, dog walkers, and nannies all have reason to prefer cash

(Zorpette, 2012) simplifies the actual reason of existence of physical money even in modern age.

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However, Bitcoin turned a golden fresh page in history of electronic transaction with a solution fully embedded with privacy. A system like this, which restores privacy to electronic payments, could do more Bitcoin or another system like it will give political dissidents a new way to collect donations and criminals a new way to launder their money while causing headaches for traditional financial gatekeepers. (Peck, 2012) By putting to rest a golden worry and taking up a brand new way, Bitcoin and similar solutions now levels the playing field for electronic money to be in par with cash currency notes and coins- and opens up a whole new league of transaction possibilities. Modern world awaits the arrival of the new godfather of tomorrows monetary transactions. But, is everybody wants it?

2.2.8 AFRAID OF INVASION OF INNOVATIONS? As the network of interconnected electronic machines are now wanting to take total control of the monetary world, step by step, measures, systems, tools, solutions, and more innovations are making their way into day to day lives in human society. It is said these will circulate electronically, by means of the mobile phones that are increasingly part of the dress of every person on the planet (DGW Birch, ieee) and it is precisely why E Strickland asks ATMs in Japan already scan your veins. Is this the first step to a cashfree, card-free world? (Strickland, 2012). As an endless stream of innovations are rolled out to erase lethargy and inconvenience caused to people in use of money, where enhanced comfort in making transactions are facilitated in wearable essentials and biological readings with an assurance of security. The golden fundamental embrace the abstraction without worry is now given a brand new makeover. All these advanced systems and solutions will always leave behind gaps, especially creating disparity among segments of human society. Some may feel left behind due to convention, another not been able to grasp rapid changes, others not been able to afford
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new developments, and even making some inferior. Social dogma and diversity in cultures always adds on the resistance to changes.

2.2.9 NEW CULTURE IN MONEY History records an unaccounted times how money from its inception simply drove and changed cultures across the globe, while bringing down great civilizations and building brand new empires. Similarly, culture too plays a predominant role in money of a given time or society. Over centuries money was a distinct and important form in carrying an identity of a particular society in face of rest of the world. However, with bits taking over from atoms, it has no real means of carrying identity of social groups. Instead individuality and connectivity now defines money. This is as a result of complex and exponential changes that take place in todays social texture and global interconnectivity. Anthropologist Bill Maaurer at University of California in Irvine find as he goes on to explain People can go for a whole day without their wallet and not freak out. But if they are missing their smartphone, its another story. This is the very reason for marketers to couple these two essentials together, and to come out with devices that can also serve as a wallet. Across the world staggering amounts of moneys is now invested to fix terminals that recognizes the tap-tap and returns a beep-beep with a near field communication (NFC) enabled phone or similar device coupled in as an essential wearable or accessory for the next transaction. (Ross, 2012) While individuality and connectivity defines new global culture, the discussion continues on setting up frameworks which could work beyond boundaries. Importantly when there is a failure of systems or users in violating morality, ethics, and accepted norms in putting new age money to use. If found violated can they be compensated or corrected?
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2.2.10 LEGAL WORRIES IN GLOBAL CONTEXT Another obstacle is importantly the fear associated with international monetary regulations. How monetary regulations could be jammed by electronic transactions due to the possibility of the cross-border use and issuance of network money. It is feared that this will help trigger a monetary system error as residents will use money issued by a non-resident for domestic purchases and if they coincide with rising holdings of money abroad monetary aggregates would probably lose some of their productive power regarding future inflation trends comments the State Bank of India, but goes onto highlight recent changes as network money circulation is increasingly becoming independent of monetary policy (Fernando, 2001) (emphasis by author) Just as the existing monetary system which is built on physical money, electronic (and alternative schemes of) money will also carry the risks of loss, theft, counterfeit, etc. This would require a brand new set of legal and procedural framework, and operational support. This is something present monetary establishment either mistakenly fears very much or is incompetent in dealing with. Kublai Khan would have gone through the same process as even historically China was the major supplier and trade hub in Silk Route. Yet, he was bold enough to embrace the abstraction without worry as advancement requires innovative thinking to bring comprehensive new systems into place.

2.2.11 REVISIT SITUATION SRI LANKA Some of the sentiments expressed above were relating to foreign economies rather than Sri Lankan economy. Therefore, it is important to revisit and understand the context of Sri Lankan monetary situation, in terms of cost of production, cost of opportunity, and advancement in times. In a research study on Sri Lankan context Prof Srirmevan Colombage publishes a brand new set of data and issues identified in use of physical money and alternative money
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including electronic schemes. He publishes that in Sri Lanka from 2005 to 2009 among all non-cash payments cheques use fell from 94.3% to 87.7%, with a year on year decrease. Whereas use of credit cards more or less stayed at flat rate of 1.3%, but observed a steady growth in internet banking from 1.3% to 4.9%. This is amidst increased amount of new money printed over the same period of time. (Colombage, 2011l) The report continued to show that out of available electronic schemes, awareness and knowledge of use among household members in using ATM machines is 70% with 23% using the facility, internet banking at 37%, with 3.2% using the facility, and sms banking & mobile cash at 30% with only 1% using it for transactions (2008/09). (Colombage, 2011) In summarizing his argument a series of reasons for not using mobile phone technology for banking is shown, where 8% of households cite high costs, 2.3% says it is due to less security, and 9.4% difficulty in use, but 40% cite no understanding and 15% says never heard, while 25% says not necessary. It concludes that out of those who sees a necessity a staggering 75% of households lack basic knowledge in its use, and another 25% has issues with devices or methods used. (Colombage, 2011) Helping society on familiarization with modern technology helps to fill the gap in the digital divide. New trends brings in changes to the existing social texture and easy accessibility to devices & solutions within rapid innovative technology developments are only a matter of time, and just around the corner waiting to knock on the doors of Sri Lankan society which will be swept by waves of electronic money.

2.2.12 FURTHER TRENDS IN THE MAKING IN SRI LANKA In Sri Lanka, Automated Teller Machines (ATMs) have played a key role in bridging the digital gap. Increased use of ATMs means more use of access to fulfill demand for

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conventional money by use of automated network machines for financial transactions. This help to erase the digital gap. From being a simple cash dispenser ATMs have systematically grown to become facilitators of electronic transfers and with new generation roll-outs even capable of providing facility for live online transactions directly from personal bank accounts or personal cards - prepaid, debit or credit. CBSL periodic bulletin publishes that the number of ATMs in Sri Lanka is growing rapidly, with 2221 at end of 2010, 2607 in 2011, and 2845 in 2012. During the same periods total volume of financial transactions carried out through ATMs have grown from 28 to 32 to 37 million amounting to Rs 178 to 216 to 282 billion. (CBSL, 2010-12) These statistics talk of two important matters relevant to this paper. Firstly, that public use of ATMs has grown in cash withdrawals and deposits confirming the trust placed in convenience of around the clock accessibility to money, whereby limiting hand held amounts of cash. Secondly, public use of ATMs to do transfers, utility bill settlements, and to make online payments have increased indicating a tendency towards accepting hassle-free cash-less payment methods. Similarly Electronic Fund Transfer at Point of Sale (EFTPOS) statistics presented in the same report shows transaction volumes and amounts carried out at such point of sales in 2010 was 6 million amounting to Rs 30 billion, in 2011 it was 7.5 million amounting to Rs 39 billion, and in 2012 it was 9 million amounting to Rs 48 billion. All these payments were carried out by cards -prepaid, debit, or credit. Once again this proves and highlights the tendency in Sri Lankan society in accepting hassle-free cash-less payments method. (CBSL, 2010-12) Payments handled through electronic systems shows mobile phone banking in 2010 at 49,881 transactions amounting to Rs 1.3 billion, in 2011 at 48,275 amounting to Rs 1.2 billion, & in 2012 at 58,264 amounting to Rs 1.3 billion, and internet banking in 2010 at

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1.2 million transactions amounting to Rs 68 billion, in 2011 at 1.5 million amounting to Rs 98 billion, & in 2012 at 2 million amounting to Rs 166 billion. (CBSL, 2010-12) It is noteworthy to highlight that during the same period mobile technology grew into 3G (third generation) technology facilitating high data speeds for live online banking. This new development stalled traditional mobile banking gateway which was in existence for nearly 15 years, but instead used similar principles for greater internet banking via mobiles through wider, faster, and convenient overage of 3G solutions.

2.2.13 NUMBERS TALKING ABOUT TRENDS IN SRI LANKA Another interesting research done on popularity of e-banking in Sri Lanka (Jayasiri, 2008) indicates that nearly 48% of users of e-banking are from age category 26-40 and this amounts to 82% of total customers in that age group. Similarly, nearly 31% are from 41-55 age group amounts to 46% of customers in that age group, and 7% from 55 and above age group amounts to 24% of customers in that age group. Among users 46% says its convenience is what attracts them to go e-banking, while 20% says it is cheaper and 34% says time saved is the main factor that makes e-banking preferred over conventional banking. The IFC Mobile Money Report of 2011 publishes on perception of Sri Lankans on relative expense of mobile money against conventional banking in a comparison drawn between user and nonusers of mobile money. Among user of mobile money more than 60% says it is cheaper compared to 35% disagreeing with it. Among nonusers of mobile money more than 75% says it is cheaper against 25% either disagreeing or unaware of such service. (IFC, 2011) Age and earning capacity has is clearly shown in use of e-banking solutions. As the new generation becomes more and more entangled in advance technology, traditional banking would come more alien to them than the generation which founded the ideas of physical banks. Further, it echoes demands of new labor force (age group 26-40) to call
26

convenience, times saving, and less costly to be essence in modern age hectic lifestyles. This shows steadily and increasingly bits are winning over atoms in money schemes in Sri Lanka. So, where does Sri Lanka stand in the global picture?

2.2.14 SRI LANKA IN GLOBAL CONTEXT In a report published by the International Finance Corporation on Mobile Money Study in 2011, Sri Lanka is compared with six other countries drawn from four different regions and economic conditions including United States, Japan, Brazil, Thailand, Kenya, and Nigeria. Analyzing potential transactions in mobile money in Sri Lanka, the report presents possibility of 264 million transactions in public transport, 4.7 million transactions in payrolls & informal sector usage (as in postal money orders), 1.6 million transactions in government sector welfare payments and 6.4 million transactions in utility bill payments in a given month. All most all of above at present is done through hard currency, cash or coins. Here, mobile money can be substituted by any of new age alternate money schemes as all such is based on bits and not on atoms.

27

Table 2.2: Financial Sector Development Indicators Sri Lanka Thailand

Nigeria

Kenya

Brazil

Japan

Indicator Bank account penetration (%) POS devices/million inhabitants ATMs/million inhabitants Payment cards/million inhabitants 2.7M 0.17M 889 55 16,606 80 43 21

59

80

100

19

1,173

3,933

9,742

66

88

526

1.070

21

0.28M

0.94M

6.4M

0.04M

(Source: IFC Mobile Money Study 2011)

2.2.15 SRI LANKA STILL GOING CASH Seen all positive signs and clues of a inevitable drastic change, it is interesting to find as to why the Sri Lankan monetary system continues to invests heavily on systems supporting physical money and increase the supply of physical money. Why is Sri Lanka still banking on old money? When researching Sri Lankan condition it is important to realize and give higher priority to local culture and economy. While it seems aspects related to conventional momentary schemes and new electronic schemes are been studied, it also important to research and understand the cost of existing system in place. This actual study on cost and burden of

US 93 17,277 1,317 6.9M

28

the existing cash society will provide the final frontier in support of the dawn of a lesscash society. Therefore it is important that the research question presented in the next section is an aggregation of concerns the researcher is left with including the following; Whats the cost of producing these extra moneys introduced to the system each year? Whats the storing and distribution cost of it? Whats the cost of various new and unique inclusions on them? And even, how can it be reduced annually rather increased?

2.3 CONCLUSION OF CHAPTER 2 This literature review has brought forward ideas and knowledge, derived from secondary sources published by scholars and researchers, which at presently contributes to the discussion related to the research topic presented in this paper. While ideas and knowledge presented has guided the discussion towards identifying issues, the main focus has strengthen the argument of a less-cash society will contribute to economic growth, and to understand the exact cost, both financial cost and opportunity cost, of the current cumbersome hard currency system.

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CHAPTER 3 RESEARCH DESIGN

3.1 INTRODUCTION TO CHAPTER 3 Chapter 3 will focus on converting the research problem into a research question. Employing and considering the literature review & the preliminary inquiries that were conducted to device a conceptual framework, which would then be used to structure the proposition. This chapter will then provide research methodologies available and the best suited methodology will be identified. Finally, mode of collecting data for the research methodology will be decided.

3.2 THE RESEARCH QUESTION What are the factors affecting the Central Bank and banking sector of Sri Lanka on managing coins and notes in Sri Lanka?

3.3 CONCEPTUALIZATION Problem - Costs of management of coins and notes Possible causes1. Cost of Production 2. Cost of Storing and Distribution 3. Cost of Including Unique security, identification, verification, etc features 4. Cost of Exit of coins and notes from the monetary system
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3.4 RATIONALIZATION Cost of Production Sri Lanka monetary system is unique that each time a new coin or note is introduced to the system it has to be done from scratch, from the designer boardssize, color, value, material, series-to its total volume. Each and every aspect of this long tedious process contributes to the production of a specific coin or note. The actual minting of coins and printing of notes is primarily carried out overseas and then brought back to Sri Lanka. Cost of Storing Once minted/ printed, coins /notes are valid as most liquid monetary form to carry out any transaction. Hence, primarily it is important to store them in a secure manner, secondly store in a manner its easy to dispatch, and thirdly to keep proper account of volumes. This is something the entire banking sector, from the Central Bank down to average commercial bank branch has to undergo. Cost of Distribution For a sound eco system to prevail in the banking system as well as the entire monetary system it is important that the distribution of coins/ notes needs takes place across the board. From central bank to commercial bank HQs, from commercial bank HQs to regional and zonal branches, from region and zonal to grassroot branches, the entire process needs to happen more on a daily basis, in a secure manner, and with absolute accuracy. Cost of Including Unique security, identification, verification, etc features Each new round of coin or note, irrespective whether it is of the same denomination or not, requires a brand new set of security features, identification, verification and features. This continuous change and unique inclusions are essential for the particular coin or note to be recognized of its belonging, in this case as Sri Lankan money, and also not been able to reproduce by a third party as long as it is in valid circulation. Cost of Exit Wear and tear due to increase in use of coin and notes, necessity of functional adaptability with new machines, and importantly the increase threat of counterfeit money results in the forceful exit of coins and notes to be replaced only to be
31

replaced by new money in circulation. Exit of money from the monetary system and its proper storage or destruction itself is a meticulously carried out process.

3.5 DEFINITIONS OF THE CATEGORIES For the purpose of this research Cost of Production is defined as the cost purely involved with minting of coins or printing of notes. For the purpose of this research Cost of Storing and Distribution is defined as the secure storage and readily availability of coins and notes at dispose of its users. For the purpose of this research Cost of Security, identification, verification and features is defined as the unique inclusions that separate it from other batches of the same money or differentiate from other currencies. For the purpose of this research Cost of Exit is defined as the safe removal of coins and notes from the monetary system. For the purpose of this research Cost of Management of coins and notes is defined total cost of all of above.

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3.6 OPERATIONALIZATION Table 3.1: Operationalization Concept Cost of Producing National identity Printing Variety Cost of drafting with every issuance Cost of printing variety of currencies Minting new coins Transport Secure passage Cost of transport from printers Variable Designing Indicator Distinguishable Measure Cost of differentiation

Cost of storing cash

Storing at Central Bank

Maintaining quality and standards of currency

Cost of space and infrastructure

Cost of providing physical quality Maintaining security Ensure accuracy Storing at main branch of banks Maintaining quality and standards of currency Cost of providing physical quality Maintaining security Ensure accuracy Storing at Maintaining Cost of providing security, systems and man power Cost of counting and time spent Cost of space and infrastructure Cost of providing security, systems and man power Cost of counting and time spent Cost of space and infrastructure

33

regional branches

quality and standards of currency Cost of providing physical quality Maintaining security Ensure accuracy Cost of providing security, systems and man power Cost of counting and time spent Cost of safety and find of actual change

Individual user

Maintaining security and accuracy

Cost of Distribution

From safe vault to safe vault

Transport

Cost of transport from vault to vault

Provide security Ensure accuracy

Cost of security from vault to vault Cost of counting from vault to vault

Security, identification, verification etc

Automated systems

Ensure genuine, non-counterfeit

Cost of equipment and systems, for each new currency

Manual processes

Ensure genuine, non-counterfeit

Cost man power and specialization, for each new currency

Exit from monetary system

Removal/dest ruction

Ensure safe exit

Cost involved in destruction and or storing of exit money

34

Costs of management of coins and notes

Monetary Cost

In foreign currency

Trend in growth (%)

In local Currency Labor Cost Storing & issuing labor cost Distribution & security related cost

Trend in growth (%)

Trend in growth (%)

Trend in growth (%)

(Source: Developed by the Researcher)

3.7 PROPOSITION The cost of production, storing, distribution, inclusion of security, identification, verification, features etc and cost of exit of coins and notes exerts are the factors having an impact on the cost of management of coins and notes, an added burden on the monetary system in Sri Lanka.

3.8 METHODOLOGY The two main types o f research methodology consist of Quantitative Research Method and Qualitative Research Method (Sarantakos, 1993). Further, quantitative research can be defined as methods employed with quantitative theoretical and methodological principles together with its techniques and statistics. Whereas, qualitative research can be
35

defined as methods of social research that employ no quantitative standards or technique, and purely based on theoretical and methodological principles of symbolic interactions, hermeneutics and ethno methodology. Following presents a guideline in order to differentiate the two methods of research; (Sarantakos, 1993). Table 3.2: Perceived Differences in Quantitative and Qualitative Methodology Features Nature of reality Quantitative Methodology Qualitative Methodology

objectives; simple; tangible; Subkjective; holistic; senses impressions; single Problematic; a social construct Nondeterministic; no case effect linkage; mutual shaping Normativitism; Value bound inquiry Natural and social sciences are different; ideographic; no strict rules; interpretations; inductive qualitative with less emphasis on statistics, verbal and qualitative analysis

Causes and effects The role of values

nomological thinking; cause effect linkage value neutral; value free inquiry

Natural and social sciences

deductive; nomothetic; model of natural sciences; based on strict rules

Methods

quantitative; mathematical; extensive use of statistics

Researchers role

rather passive; dualism;

active; knower and unknown are

separate from the subject-the interactive and inseparable known; the knower Generalization analytical or conceptual inductive generalization; nomothetic statements

generalizations; time and context specific

(Source: Sarantakos, 1993) This research paper needs to be structured on opinions, preferences or values expressed by different users of physical cash systems already in place in Sri Lanka. Trust and convenience are two important psychological factors in opinions, preferences or values
36

expressed in regards to using of cash, and it purely depends on the individual whos making the decision. This construes nature of reality to be subjective, problematic and a social construct. Similarly, it construes the research to have a value based impact, to have an understanding of opinions or preferences of users. Since the research requires a clear understanding of different segments of society who uses physical cash in Sri Lanka, psychological measurement such as opinions, preferences, and values needs to be researched. Hence, previous research into such emotions or habits of cash uses in Sri Lanka is almost-nil. This makes the research even more difficult in absence of availability of data or information in emotions or habits among segments dealing with physical cash in Sri Lanka. Thus, the researcher could not find any previously published research on the same topic of similar problem. Decisions made by different segments using physical cash over others within or counterparts outside their segment vary immensely. Hence, this research will focus on a non-exhaustive list where opinions, preferences or values of individuals matter in order to come to a conclusion on the full list of reasons. Denzin and Lincoln (2000), stresses that participants are often more willing to open up when the interviewers are free to answer questions and express feelings, and Sproull (1995) believes individuals presenting their own opinions, preferences, or beliefs as facts are the best source of information. (Sarantakos, 1993) Therefore, the methodology adopted for this research is inductive method where qualitative data is collected through in-depth interviews. The main reason to adopt this approach is the lack of local research on psychological factors on mining cost of the management of coins and notes in monetary system in Sri Lanka.

37

3.9 METHOD OF DATA COLLECTION Data collection is through in-depth interviews with executive and managerial level officers in charge of the actual responsibilities with coins and money, from the Central Bank and commercial banks. In addition in-depth interviews with institutional head of a pioneer transport sector authority, an expert of electronic networks solution provider for banks, and few users of coins & notes

3.10 CONCLUSION OF CHAPTER 3 Chapter three of this research paper framed the research question, built conceptual framework and constructed the proposition. This chapter further helped with research design and identified the qualitative research method is best suited for the research at discussion. Finally, it justifies occupying of in-depth interviews from different uses and user of physical cash in Sri Lanka as the method of data collection.

38

CHAPTER 4 DATA ANALYSIS & PRESENTATION

4.1 INTRODUCTION TO CHAPTER 4

Objective of Chapter 4 will be to analyze the data that was collected mainly by in-depth interviews with 10 critical respondents, and also data published by Central Bank of Sri Lanka and derived from couple of newspaper articles. The 10 critical respondents are individuals who are directly and critically involved in the monetary system of Sri Lanka. Chapter 4 will also include demographics of the 10 respondents, data analysis and presentation, findings and categorization. Finally, a re-visit to the conceptual framework will show necessary whether modification needs to be made.

4.2 DEMOGRAPHICS OF THE RESPONDENTS R1 Respondent 1 is a male from the age group 40-50 years. Married and has young children. He is the head of central cash at a leading private commercial bank in Sri Lanka. He is qualified with bachelors level education and professionally quali fied as a banker. He carries over 20 years of work experience in the banking sector. R2 Respondent 2 is a male from the age group 50-60 years. Married and has children. He is the head of central cash at a leading government commercial bank in Sri Lanka. He is qualified with masters level and professionally qualified as a banker. He carries over 30 years of work experience with exposure in local and foreign banking sectors. R3 Respondent 3 is a male from the age group 50-60 years. He is married and has children. He is the head of central cash at a leading government commercial bank in Sri

39

Lanka. He is qualified with bachelors level education and professionally qualified as a banker. He carries over 30 years of work experience in the banking sector. R4 Respondent 4 is a male from the age group 60-70 years. He is married and has children. He is the head of a state bank and a member of the Monetary Board of Sri Lanka. He is qualified with a doctorate and professionally qualified as a banker. He carries nearly 40 years of experience in finance and bank sectors and consulted as an expert both locally and internationally. R5- Respondent 5 is a male from the age group 50-60 years and married. He is the head of central cash at monetary statutory institute. He is qualified with a masters and professionally qualified as a banker. He carries over 30 years of work experience at a leading regulatory institute dealing with monetary system in Sri Lanka. R6 Respondent 6 is a male from the age group 40-50. He is married and has young children. He is a technocrat at an international electronic financial system provider. He is qualified with a masters and professionally as a computer networks engineer. He carries over 15 years of experience in computer networks and over 10 years of experience as a solution developer for bank networks. R7 Respondent 7 is a male from the age group 50-60 years. He is married and has grandchildren. He is the head of finances at a pioneer transport sector institute. He holds a bachelors and professionally qualified as a senior administrative officer. He carries over 40 years of experience in administrative service in transport sector in Sri Lanka. R8 Respondent 8 is a female from the age group 30-40 years. She is married and has young children. She is works as a private secretary to an institutional head in Colombo. She holds a higher diploma and professionally qualified as a secretary. She lives in the outer periphery but works in the capital city. This makes her travel to Colombo on a daily basis and she resort to public transport for her commuting. R9 Respondent 9 is a female senior citizen from the age group 60-70 years and unmarried. She is retired and works as a consultant. She holds a masters and other
40

qualifications in the academic sector. She lives in the sub-urban sector and commutes by public transport and private vehicle. She lives by herself and manages household chores by herself. R10 Respondent 10 is a male from the age group 20-30 years and unmarried. He is newly employed as an accountant in a leading private firm in Colombo. He holds a bachelors and professional qualification as an accountant. He comes from a rural area but boarded in suburban sector and travels to Colombo by rail, bus or taxi. He lives and manages chores by himself.

4.3 DATA ANALYSIS

Data is analyzed using the content analysis method. Both similar and opposing views expressed are recognized and presented. Categories are formulated based on similarities in responses, or on opposed views.

4.3.1 CATEGORY 1: PERCEPTION OF MONETARY WORLD TOWARDS THE ROLE OF CASH Socio-economic momentum of a country also depends on the monetary system that is in place. A monetary system is made-up of an array of eclectic modes of cash, and since modern times primarily it is physical cash (notes and coins). Apart from physical cash other alternatives such as cheques, money orders, certificates, coupons etc are issued for varied values as physical alternatives. Similarly, electronic sequences used via online, mobile, telegraphic and other mediums are used as virtual alternatives. Irrespective of era, new alternates have always found to replace existing schemes with change in socio-economic condition. This is to minimize cost and hassle in managing the entire system. That is how todays coins and notes were put in place of gold, silver, precious stones & metals, etc. Less cost & less hassle builds efficient use & enhance

41

confidence. This directly helps to drive socio-economic momentum. All respondents, those who were interviewed, were well aware of this reality. Nevertheless, R2 being in charge of the senior most position in one of the leading commercial banks in Sri Lanka, said Being a bank, we do an intermediary activity. Central Bank (CB) is the issuer and we take the money from CB and give it to normal users. These same remarks were shared by respondents R1 & R3 all coming from leading commercial banks in the country. They have already taken their role solely granted to be only an intermediary in managing demand & supply of physical cash. When asked if banking sector considers physical cash as a burden, R4 a head of a state bank stated It is views and fancies of the CB and other people. Banks have to recount bundles etc. This is all work of CB. There is nothing we could do. Further, confirming this general perception held by those in monetary sector, a senior official at a monetary related statutory institute R5 went onto say We are a statutory institution. We have to provide notes and coins to carry out all possible transactions in a convenient and trusted manner. And as the governing authority (in Sri Lanka) we have to supply money in physical form. While knowingly highlighting the convenience and trust as essentials, R5 goes on to say that his institution believes it can do its job just by managing physical cash. This echo system, or equilibrium, seems to be the accepted norm within the banking industry in Sri Lanka. This is the perception of Sri Lankas monetary world towards role of cash.

Finding 1:

Monetary sector including commercial banks and apex body the Central Bank considers monetary management is primarily managing physical cash (notes & coins).

42

None of the respondents wants to revisit possibility of transformation by introducing efficient and less costly alternatives to better manage monetary schemes. They continue to consider that what is in existence is best, and improvement is neither needed nor possible.

4.3.2 CATEGORY 2:
MONETARY SYSTEM

CONCERNS OF GIVING PRIORITY TO PHYSICAL CASH IN A MODERN

Growth in public held cash in Sri Lanka has always increased, and some even draw parallels to economic growth as its cause. If Sri Lanka was living few decades back or if Sri Lanka was categorized as an under developed economy this would have been an accepted norm. However, since Sri Lanka is a part of modern world especially with recent achievements in socio-economic spheres it is important to reconsider this position in building a dynamic economy. When looking at expressions of respondents it is clear that demand for notes grows by the year. In a response R1 stated that It is growing year -on-year. It is growing 20% annually, with around 40% growth seasonally. Apart from that the branch network is also growing. So is the ATM network. Withdrawal amounts have become unpredictable (high) during seasons. Latest (Traditional New Year) was about 12 billion rupees worth of notes. Respondents R2 & R3 coming from different commercial banks but with similar large networks shared similar concerns on above matter. These sentiments are clearly visible when studying relevant sections in the annual report of CB. CB reports indicate that cash held by public in 2008 was Rs.155 billion and went on to grow annually to show that by 2012 this figure was at Rs. 251.5 billion. R6, a leading technocrat and consultant in electronic financial systems, commented A large number of ATMs are now dispatched in Sri Lanka. Numbers are not just growing,
43

because these machines are expensive, but return on investment seems positive because customers are carrying out more transactions with ATMs. CB periodic bulletins publish that the number of ATMs in Sri Lanka is growing rapidly, where 2221 ATMs at end of 2010 has grown to 2845 by 2012, facilitating financial transactions worth to grow from Rs 178 to 282 billion. An absolute majority of these transactions account for withdrawals. R4 who is not only a head of a state bank but an expert on the banking was asked if physical cash was a burden he went on to say I dont know whether it could be called a burden. Cash is always there and banks accept cash. The panel summoned by R4 went onto add contradictory views trying to draw parallels with the economics condition saying It also could be increase in GDP. Due to inflation, value of currency is less and therefore the CB has to issue more currency notes and coins. GDP growth and depreciation of value of currency may have contributed to this increase. However, when it was highlighted that issuing of more new money went unchanged amidst drastic fluctuation in inflation (ex: during 2006-2012) they resort to say You should ask the CB. R5, while occupying a seat at helm of a monetary statutory institute, goes onto state When an economy grows, or as a result of GDP growth or inflation, cost of goods and services increases. So it helps to have notes with bigger values. He fails to answer the obvious contradiction yet sees growth of physical cash is parallel to economic growth and is the accepted norm.

Finding 2:

A simple notion like introducing of notes & coins was primarily an alternative remedy to address the growing concerns of a bulky

44

monetary system is still understood by Sri Lankan monetary experts as notes & coins as the only remedy. It is quite apparent that growth of physical cash is always considered a positive factor in Sri Lanka, and it is the norm to have more notes & coins produced to facilitate growth of its monetary system parallel to the economy, even if it has no positive impact on the system. Even today new physical cash is still injected. This will only burden the entire monetary system and soon leave an outdated colossal mess hampering much needed dynamism in the monetary system & economy.

4.3.3 CATEGORY 3: COST OF PRODUCING PHYSICAL CASH The Monetary Law Act No. 58 of 1949 (MLA), Section 48 to 59A provides the Monetary Board with the authority to issue currency as a means of payment in Sri Lanka. Within this given mandate, the Currency Department (CRD) of the Central Bank of Sri Lanka (CBSL) is assigned with the responsibilities of issuing notes and coins to facilitate the payment system, accepting currency deposits from LCBs to maintain the statutory reserve requirement, withdrawing unfit notes and coins from circulation and taking necessary measures to prevent offences related to currency, including counterfeiting. Table 4.1: Supply of Coins & Notes in 2012 Item Notes Coins New Rs 74.8 billion Rs 747.3 million Serviceable Rs 280.6 billion Rs 1.4 million Total Rs 355.4 billion Rs 748.7 million

(Source: CBSL, 2012)

45

In order to meet the demand for currency notes and coins in the economy and ensure good quality notes in circulation, the CRD made arrangements to print 215 million pieces of currency notes and mint 197.5 million pieces of coins during 2012 . (CBSL, 2012) R5 a senior officer at a statutory monetary institute explaining the human resource employed at his department I am the head of the currency de partment. There is about 100 staff under me, including two sub-superintendents, others are managerial and lower staff. R5 goes onto explain the actual print arm of money in Sri Lanka Money is printed by a joint venture between the Treasury of Sri Lanka holding 40% and with a British firm having 60%. Its locally printed. All these years they decided on the material, quality, size, colors, etc. And we dont consult the commercial banks on these issues. However, he did agree that all necessary ingredients for printing money are imported from outside Sri Lanka. R5 on explaining the role of his institute and department comments Sri Lankan culture, maybe it is not just our culture but even most of the world out there, is happy and when one sees and feels money. As long as thats the case there will be a demand. And as the governing authority we have to supply money in physical form. But yes, theres certainly a heavy burden. But we have to bear all costs and efforts to win trust and happiness of the ultimate user, certainly even brushing-off the increasing use of cheques as an alternative physical means of cash. An array of requirements needs to be met before the final note or coin comes out to hands of the public. A strenuous effort is put to finalize size, colour, designs, & security features, and still being sensitive to public opinion as R5 divulge Like on the 2000 note there were so many complaints from the public regarding the size as it doesnt fit the wallets used by Sri Lankans. So thats why we decided to come out with a smaller size series.

46

Commenting further R5 says Central Bank of Sri Lanka believe s that currency plays two dominant roles. Most important service, or use, is that it is the most trusted mode or medium of exchange in carrying out transactions. Therefore we have to provide notes and coins to carry out all possible transactions in a conve nient and trusted manner. And Also, notes and coins are a good vehicle to be used to inculcate cultural values, themes, or policies as it travels and exchanges hundreds and thousands of hands in any given moment. The new series is themed as prosperity and development. Likewise, we issues different coins and notes. A senior officer of Central Bank comments to Sunday Island newspaper saying Unlike high value notes, low denomination currency notes in circulation are disfigured at a swift pace because of their steady movement in diverse transactions. Hence, they need to be replaced faster and at tremendous cost, for that matter. Coins are more durable and easier to handle. As they last much longer, there is a big saving on printing currency notes". (Perera, 2013) Finding 3: A large amount of resources are employed in production department of physical money in Sri Lanka. A laborious process both demanding and consuming is required for the production of physical money. Most of production expenses are paid to outside parties, including offshore. Production is not necessarily a new series of money or bulk amounts, but also replacement of unserviceable. Printing of notes and minting of coins are tremendous costs at any scale.

47

4.3.4 CATEGORY 4:

COST IN MANAGING LOGISTICS IN SUPPLY

&

COLLECTION OF

PHYSICAL CASH WITHIN THE NETWORK (OF BRANCHES & ATMS)

With recent socio-political developments in Sri Lanka all commercial banks, both public and private, are in a competitive drive to make their presence seen in the market place while increasing accessibility to their services. This is a key factor of growth individually, for banks, and collectively, for the economy. R1, R2 & R3, disclosed strengths of their network of branches respectively as they stand at 255, 300, and 350 (& 380 service centers for Bank3). Similarly speaking on ATM networks R1, R2, & R3 disclosed that Bank1 has more than 300, Bank2 has more than 300, and Bank3 has more than 480 ATMs. They all confirmed that their networks will continue to grow as expansion programs are already in place. When looking at the massive network of branches and ATMs spread around the country, as mentioned above, it is not difficult to establish how complex is the logistical arrangement needed to satisfy this integral part of a monetary system. Though caught in this complexity banks cannot move out from it since their existence is very much dependent on it. Detailing this situation R4 divulge Even Bank2 currency requirement has gone up. Three or four years back they had around 11 billion cash in hand and now it is 19 billion. If they use magnetic form we dont need to keep that much money. The said growth is almost a double. In order to be profitable commercial banks have to make sure that their supply of cash is ready to meet the demand of their customers. Similarly physical cash coming into respected banks needs to be properly invested for higher returns. A breakdown in this balance will cut back profits for the respected bank. Panel of experts summoned by R4 went o nto explain this scenario in their own lingo If you take Rs.100/- deposit 8% has to be kept in the Central Bank. That is fee of cash. 4% we have to keep in cash form. From 12% of the Rs.100/- there is no income. Only from
48

Rs.88/- we can earn something. 88% is the way to earn the cost of Rs.100/- as well. There is a cost on that and What we feed to ATMs also clean money. I heard that earlier the rate of bad money in circulation is 3% and now it is 6%. That means if you give 100 notes, 6 are bad. In order to tackle this issue Bank1 & Bank2 employs a centralized distribution of physical cash (for notes & coins) to all branches and ATMs, bank3 employs a decentralized distribution with a regional and specialized feeder centers. Responding to the question of cash feeds to ATMs respondent R3 said 380 ATMs are in main branches. In addition, busy service centers too are given ATMs. Total ATM network is 480. Around Rs 400,000/- is loaded (per machine) for a weekend. Even here the amount loaded is too much. Most of it idles inside the machine. For convenience officers load this amount, because, if not, they have to come during the weekend to reload cash. On average there is around Rs 1.3 billion in our ATMs during weekends. R3 represents the bank with largest network of ATMs in Sri Lanka. Nevertheless, respondents R1 & R2 shared similar experience but with total amounts been relative to their network strength. Yet, idling amount of cash is staggering. A staggering amount of notes are idling inside ATMs. What about coins? Responding to the demand for coins R1 said Not many coins come back to banks. Circulation is going down. Customers are also reluctant to accept coins. Counting and managing of coins are considered as a hassle. Central Bank has no system to accumulate coins. So coins must be getting accumulated at some place other than banks. In a response R3 states Coins get retained in various places such as religious places, at homes, in shops etc. If CB issues 100 new coins not a single one come back. The value of the metal used for making coins is more than the value of the coin (denomination). In boutiques and shops they horde coins in tills. While the management of commercial banks and senior officials of Central Bank are aware of hassle and costs incurred with supply, distribution and collection of physical
49

cash, they have never considered of any overall alternative measures to overcome visible and hidden costs in managing logistics of the physical cash system in Sri Lanka. Logistics includes supply & collection of physical cash, transportation solutions, security while in transit, insurance against failure of delivery, and additional customized information while in transit. Responding to the question R1 states Transport is by another company and the cost is about Rs10 million per month, this means entire supply is outsourced to a third party by Bank1 and the logistical contract includes all requirements mentioned above. R2 confirms that Bank2 employs a similar logistical arrangement for cash supply & collection. R3 details a different measure employed by Bank3 as Regions have transport facilities. They go to branches, collect the cash and bring to feeder banks (FB). This facility belongs to the Bank. We have our own security under the regional office. We use our vehicles and get down the cash, and yet it is expensive. There is dedicated transport in the regions. This means all logistical complexities are handled as an in-house operation by Bank3. Giving out more details about the complex operation, R3 goes onto say On 8 th, 9th & 10th we dispatch money for paying pensions. Between 18th and 20th cash should be sent for paying salaries. From 23rd onward cash comes from shops etc. to the branches. However, the entire amount dispatched does not come back as deposits. 1 st to 9th and 12th to 18th we receive cash. It is 14 billion for every month a response given by R2 gives a gist about the ac tual amount that is discussed. Rs.14 billion is what is supplied to 300 branches & 300 ATMs within a given month. This is only one side of the coin as collection is needs to be looked at separately. However, it is not only banks that are tossed in the cost of managing logistic of physical cash. Transport sector in Sri Lanka more less 100% is dependent on notes and coins.
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Respondent R7 is a senior administrative officer in charge of finances at a pioneer transport system in Sri Lanka. Following facts were exposed when explaining how his institution was managing notes and coins 99% of ticket or coupon payments are made with notes and coins. 100% of change is given with notes and coins. Daily collection is counted, sealed, and brought to the center. It is recounted before entries are made to accounts. Actual cash is then taken to the bank for deposit. They count again. On a daily basis we deposit few hundred million rupees. And it is growing fast like never before and further commented it is not profitable when you look at staff numbers, total resources, delays, and routines. Either regulations must change or we must introduce new advance systems.

Finding 4:

Logistical cost of distribution & collection of physical cash is relatively high, irrespective whether this complexity is handled by an in-house operation or by outsourcing to a third party. Cost incurred for logistical arrangement by non-financial institutions is also very high due to physical cash systems. Invisible aspects such as the idling of cash while in transit, in vaults, and inside ATMs. It is a huge opportunity cost since it cannot be invested to bring financial returns. It is not only the money, but when idling of resource meant for physical cash is not in operation or use it is also an opportunity cost. Vaults, ATMs, and transits are not always utilized to their maximum capacity. In a monetary system an opportunity cost is both a financial cost and an economic cost.

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4. 3.5 CATEGORY 5: COST OF MANAGING PHYSICAL CASH AT BANKS & BRANCHES As the issuer and owner of all negotiable money in Sri Lanka, the Central Bank has laid down regulations to manage cash collection and distribution. There are various types of rules and regulations applicable to banks and other institutions. Types vary as to how a bank or role of a bank is recognized. This extends even to other institutions dealing with large amounts of physical cash. All institutions, including central bank, commercial banks and other institutions dealing with large amounts of physical cash, have to make sound decisions as to how the collected physical cash needs to be dealt with in order to bring maximum returns to the respected outfit. R3 explains this practical aspect saying Maximum of cash we should retain is Rs.5 billion. Anything above that tends to make losses. The excess is always deposited at CB. We should not have cash idling in hand because it could be invested and earn to meet the interest we should pay to the customers that make deposits. The moment we get extra cash from the branches immediately they are invested in Repo etc. Above statement explains the movement of physical cash towards deposits of CB by a bank, or collectors of large amounts of physical cash. A similar movement in the opposite direction is also out there from CB. This is revealed by R2 as he explains the following. We have to make an order to the CB. The process is as follows: The branches ask for cash from the head office cash department. The cash department assesses the position of cash received by them. If the cash received is inadequate to meet the requirement then a request is made to the CB at least two days prior the date of requirement. CB allows us to request for 100 million twice a month. If we need over and above this amount we have to make a request with one day notice. If we make an emergency request without 1 day notice then we have to pay a penalty.

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This forward and backward movement needs to be well supported by a long chain of decisions and actions taken at each and every time physical cash is involved. Hence, an enormous amount of effort and systems goes into assure & certify that this process is still governed by the rule of trust. They all come as sealed bundles. It is all on trust. Even with other banks. B undles are strapped and then bags are sealed. It is double work we have to do to ensure right counts. Bank seals are generally trusted by all summarizes R1. Parallel to the requirements at CB individual banks have to employ a similar system in place, firstly, to deal with CB and, secondly, with their own large networks, both for collection and distribution of physical cash. This means twice the process. And the demand on human resource component alone is heavy. Detailing precisely the demand of work that a central cash department of a bank has to do R1 tells We are handling machines and engaged all the time. We start from 6am. There are two shifts. We have to work around the clock. Otherwise we cannot meet the demand. Weekends are twice as much busy. And paydays are thrice as much busy. We have 5 officers and 25 clericals and 5 minor officers. They have to also attend to cash drops or cash collection at CB. They are paid general bank salaries starting at Rs.35000 for clericals. Even trainees are paid basics of Rs.15000, of course with added benefits. Integrity is the most important, and output is also important. So we have to pay them better to retain them. R2 in a similar supporting statement say We have to employ one cashier, one officer and security staff at all times. At Central cash we have 23-25 employees and with security and drivers it is about 50 employees, all of them are in the permanent cadre. Permanent cadres in a state bank will enjoy all benefits including job security. Commenting further R2 goes onto explain We have a big machine that can make 100 bundles per day. An employee could do 20-25 bundles a day. All 23 people are not counting and bundling. We use them for delivering cash as well. There are few working
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only on counting and bundling. Counting alone is done by 12 people. We have only one machine. There are small machine for counting only. Among many responsibilities their main job is to deal with sorting of cash that is collected from customers by branches & service centers. It is a cumbersome process and with a fair amount of manual applications in it. R3 gives a detailed account of this process. Let me explain first. Our bank has 340 main branches and 380 service centers with a total of 720. We collect all that at branch level. Branches have to keep 2% of cash for meeting the withdrawals. Maximum cash we could retain in a branch is 4%. There are 24 Regional Offices altogether and 720 branches are working under them. Each Region has a Feeder Branch (FB). Whatever the cash that are in branches excess over 2% is collected to FBs. There is at least one FB in each Region and some have two FBs. There are about 40 FBs. Such cash is transported to the Central Cash Department (CCD). Around 2 billion comes from FBs. But it fluctuates. Like during festival times we have to send cash to branches. Sorting is done at the central cash department (CCD) and we have about 25 staff members. We sort it and send the cash to CB. Sorting process is manual. For counting we have machines, and sorting is done manually. Only sorting is done manually. We are going to buy a very effective machine for Rs. 5 million. If it is good we will buy another two or three. And to rub more salt into the wound, R1 explain how they have to also deal with coins Coins, we dont weigh. We have to count. We use machines. Machines are not that expensive. But it takes more time and hassle, so more cost to count coins. Operators capacity decides output. Similarly the quality of coins matters. Still undone, they have to deal with another costly and tricky encounter. Though, banks go by the rule of trust customers seems to violate it not so rarely. As a result a separate

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process needs to be employed to eliminate unserviceable and counterfeit physical cash from the system. R1 contributes to explain the situation as Unserviceable, about Rs.1-2 million a day, all these goes into a trunk. And once the trunk is filled it is then supervised by CB officers. Then only it is sent to CB. Quality of our notes is poor. People and culture of notes in Sri Lanka is not clean. CB recently introduced a new policy for clean currency notes. Unserviceable notes need to be printed again. More cost to maintain the balance. And Teller counters are provided with cash counting machines. Double counts are encouraged. And o f course it consumes more time. Describing how banks deal w ith counterfeit notes, R2 comments We have a mechanism for identifying counterfeit notes. One is a machine and the other is the experience of employees. More than the machine, the people detect counterfeits. Human resource is very important in identifying the counterfeit notes. This is done while handling Rs.14 billion cash in a day. R2 revealing the cost of the machine used says Cost of the machine is Rs.30 million and it was bought one year ago. It can detect forged notes, do sorting and counting and then the procedure adopted Once a counterfeit is found we have to make a complaint to the CID. Sometimes we recover the value from the cashier or we claim from insurance. If insurance refuses the cashier has to pay that amount, so much for putting trust in line with customers. R3 shares that Mostly unserviceable notes are in low denominations such as Rs.10, Rs.20, Rs.50 and Rs.100 etc. The number of unserviceable notes is rising. All unserviceable notes have to come out of the system and new notes have to be introduced to the system. In order to guesstimate the colossal loss, numbers dealt by Bank2 is divulged by R2 as he shares We have to deposit all u nusable and damaged money at CB, on average Rs.30 million per month.

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At the same time banks must maintain facilities and systems at all their branches - current and planned expansions- to deal with physical cash that is collected and sent. Explaining these requirements within Bank1 network R1 shares that; Sorted money is kept inside chubs, inside walls, or kept inside vaults. Maximum security is employed with new systems and time locks. It includes human resource that is part of our bank. And also most advanced systems with cameras in every sensitive area. We have to upgrade all systems, software and hardware too. We have to be in par with these changes, else we incur huge costs. R2 sharing similar views also contributes saying All branches are given machines. We can identify new features in currency notes. When size of the currency note is changed we have to get adjusted. We have to adjust the ATMs and the trays of ATMs. The trays are of a specific size. If different types of new notes are issued, then we find it difficult to adjust. Money is kept in vaults and it is a capital cost. We are introduc ing CCTVs to all the branches. Counting and bundling process is handled by Branches. They seal all the bundles and then send them to the Central Cash. We have to recount. Even to the branches we have given small counting machines. Those machines can count, sort, and detect forged notes. Now we are increasing the number of machines. The cost of a machine is Rs. 250,000. R3 sharing similar views go onto add Each bundle is counted three times. There is no cash management in Sri Lanka. We just the collect cash and give. Cash management is totally a different process. What we are doing is simply not cash management. Even negotiating with clean serviceable notes is not an easy task. R1 says For serviceable notes deposited at central bank there is a cost per bundle. They charge something like Rs.100 per bundle, so most banks exchange among banks and among branches. That way we try to cut down on cost. This reveals unseen complexities in negotiating with physical cash collection.
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Revisiting the fundamentals of a commercial bank, R3 states It affects cost of funds. We must have a system for overnight investing for all the excess cash. In USA they invest all the excess cash in every branch. We invest only if it comes to CCD. Here again it reveals another unseen problem with physical cash collection. At present day another unique problem exists with Rs.1000 denomination. During the last five years Sri Lankan monetary systems was supplied with three different types of Rs.1000 denominations. Each one is different to one another in size, color, and other attributes. Thus, complicating use of the most frequently used denominations in Sri Lanka. R1 explains how Bank1 is over burden by this lapse With Rs.1000 notes, system is only programmed to catch similar ones. Rest of it gets rejected. So we have to run it at least two times, almost three times to sort Rs.1000. So output is slow. Cost is more. A similar view was shared by R3 With Rs.1000 notes, same work is done three times. It takes more time. There is no standard in cash in Sri Lanka. In USA there is only one design. People dont like the new notes. R2 explains an extension of the problem With Rs.1000 notes, our ATMs have to first change the size of the tray. Then it is a cost. We cant put currency into any tray. Also we have to fill these trays. When there is a new type of currency, the ATM has to be changed. We only put one type of currency in each denomination into the ATM. It is essential to reiterating a section from the previous category to further confirm that the issues are not only solely faced by the banking sector, but also by other institution dealing with large collections of physical money. R7 commenting on the transport sector said 99% of ticket or coupon payments are made with notes and coins. Daily collection is counted, sealed, and then brought to the center. It is recounted before entries are made to accounts. Actual cash is then taken to the bank for deposit. They count again. On a daily basis we deposit few hundred million rupees. And it is growing fast like never before. it is not profitable when you look at staff
57

numbers, total resources, delays, and routines. Either regulations must change or we must introduce new advance systems.

Finding 5:

CB needs to equip itself to deal with each and every physical cash movement, requiring more space to receive, store and release physical cash. Cost includes very tight security measures for arrivals & departures of physical cash and for money that is in storage. Cost includes sophisticated machines and systems capable of handling large volumes, in swift time, and with absolute accuracy. Cost includes competent and trusted human resource capable of making decisions and actions rightfully serving the rule of trust. T o retain this alone is a massive expenditure. Similarly all banks and other institution dealing with large some of physical cash have to install itself with all of the above at a staggering cost. Cost of replacing unserviceable physical cash, and procedural costs dealing with counterfeit cash. Cost multiplications due to lapses by CB such as with Rs.1000 denomination. Cost in loss of opportunity due to lack of foresight by CB in regulations dealing with excess amounts of physical cash.

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4.3.6 CATEGORY 6: ISSUES FACED BY USERS OF NOTES & COINS An important role of cash, physical or otherwise, is to provide convenience to those who use it and maintain it. It loses appeal and requirement for existence when it is considered as something full of hassle or cumbersome. A successful mode of cash must always maintain its popularity among all quarters. R5 talking on behalf of his monetary related statutory institute stated Therefore we have to provide notes and coins to carry out all possible transactions in a convenient and trusted manner. While the later part of his disclosure confirms the essentiality in convenience, the former highlights that they consider it is demanded of them. R1 commenting on coins said Not many coins comes back to banks. Circulation is going down. Customers are also reluctant to accept coins. Counting and managing are considered hassles. Central bank has no system to accumulate coins. So coins must be getting accumulated at some place other than banks and It takes more time and hassle. So more cost to count coins. Similar views were share by R2, R3, & R4 on hassle of coins and how it has gone down in circulation. R7 representing a sector with high usage in coins and notes comments exact change is a big problem. Commuters find it difficult to come up with exact change. Conductors and counters find it difficult to give correct change back. Due to this we lose lot of time and confidence between us and them, both ways. R8 travels to and returns from Colombo on a daily basis states It is always a problem. I never get correct change back. Sometime due to this I cant give correct change, so waste of time to find change money, o r I lose money. Small amounts daily add up at the end. She further states Other problem is buying food items and other small items. We never get change back. So we hardly have correct change to give. This is ok for rich people. But not for us. And it is also trouble for a woman. Coins are heavy, noisy, and take space inside the purse. Notes and also coins are very dirty. But most importantly I feel unsafe to

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take money these days. So many robberies and murders. It is because we take money with us. R8 brings concerns associated with merchandise purchase. What is generally termed as micro payments, payments less than Rs.100. This same concerns were highlighted by R9 when she stated I am in retirement. Every rupee counts. On the other hand with age it is difficult to carry bulky coins. There were plenty of times I missed counted notes and coins. A better system must come now. I am also concerned about me safety. In todays world carrying cash is very risky. However, R10 shared a different view I hardly use notes or coins. My salary is directly deposited to my account. I have an online bank account. I pay my utility bill online. For merchandise I pay via mobile or debit card. I use a coupon to take the rail to work. I transfer money to a guy who actually does the transaction on my behalf. If I take a taxi I pay by debit or mobile. It is very convenient and saves me money. Elaborating on statistics related to use of ATMs R6 states People consider ATMs as an extended wallet, because they simply dont like to carry too much physical money with them. So they use ATMs to draw just the right amount and at the precise moment they need it. Its 24/7. Same goes for debit and credit cards. We lack is a prepaid card . The Island newspaper reported that A garment factory director in Ekala who was relieved of Rs. 7.5 million by an armed gang recently died of a heart attack, and further reported He had withdrawn money for the wedding expenses, but a five-member gang robbed it near the garment factory on May 28. According to the police Mr. David was planning to pay an advance for the reception hall after withdrawing the money. What was robbed was not just physical cash, but a valuable human life. What was missing was a simple facility to transfer funds without taking the risk of carrying a heap of physical cash to make a payment without inviting trouble. (Palihawadana, 2013)

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Finding 6:

All quarters of monetary sector consider that maintaining of physical cash is cumbersome. All users & uses of physical cash is a hassle, inconvenient, bulky, & unhygienic. Shortage in proper denominations leads physical cash payments to financial loss or time loss. Carrying physical cash is considered risky and life threatening. Alternatives in place of physical cash is now used and trusted than ever before.

4.3.7 CATEGORY 7: COST OF NOT GOING BEYOND ATMS & BANKCARDS Presently in Sri Lanka there are few alternatives to physical cash. Cheque payments lead the physical alternative for non-cash payment. However, in the latest study carried out on this topic in 2005-09 Prof. Colombage publishes that in Sri Lanka among all non-cash payments cheque use fell from 94.3% to 87.7% amidst a three-fold growth in electronic alternatives during the same period of time. (Colombage, 2011) The two major drawbacks in cheque payments, time it consumes to realize and availability of funds, makes it very unpopular. Nevertheless, it also pave the way for electronic alternatives such as credit cards, debit cards, ATM cards, online banking, mobile cash, and prepaid cards. R1 summarizes the total picture as he states More products must come to Sri Lanka. Right now we have only debit and credit cards. It is also mostly in urban sector. Not in rural sector. It will help cash management. It will help teller counters. It will reduce the hassle of counterfeits. Less deposits to be made at Central Bank mean less costly. The entire process will weigh less. And help the bank systems.
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R2 explaining trends observed says Now you have the alternative of credit cards and debit cards etc. Use of cards is also rising. There is a big change towards electronic & mobile forms. Electronic banking is growing. Last two years there was a huge rise. But from the rural community there is a requirement for currency. We were trying to encourage other people also to use the card but there is no big pick-up from that end. People in Urban areas use credit cards, debit cards and internet facilities, but we dont get it in rural areas. R2 goes onto share his experiences with the mindset of users by saying Even in urban areas they go to banks etc. to pay the water bill. My own brother was not sure whether the money goes to the right place and wants to pay to a bank. I have paid thousands of payments, yet nothing has gone wrong. There are people who dont believe in this technology very much. It will take some time for our society to come to that level may be with the education and other things. Anticipating changes in future R2 says We prefer working for electronic cash. Customers cant do third party payments with ATMs but could do their own transactions. Even utility bill payment is not possible through ATMs but possible through internet banking. But soon we are going to introduce it to ATMs. However, R3 is optimistic only with concerns regarding electronic money. He says People use ATM cards and over time they will go electronic. Because of hacking issues people are scared to deal with credit cards. We try to issue cards, so that they can buy goods at POS centers. The young generation likes online and electronic transactions. A common switch would come soon and with that there will be less usage of cash. Yes, this will bring gains to the bank.

R4 with a broader policy perspective looks at electronic money schemes and shares Now, for instance, salaries and payments are done electronically by most of the people. Or they withdraw at an ATM or use credit or debit cards where appropriate. There is a
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large number of trading places that do not accept cards. People use debit or credit cards. Yet people need cash depending on their habits and requirements, they definitely have to deal with non-card transactions. He then goes onto say how electronic use is promoted in remote sectors Accordi ng to records 1.5-2 million people are abroad. All earnings of such blue collar workers send their small earnings to the country to their parents or family. Usually they come from a faraway place and withdraw all the money. But we have given ATM cards and say withdraw only what you want. Day and night they could go to an ATM, not only from our bank, but from any bank ATM to withdraw. Further elaborating this he says We are trying to see a guy working in another country and working with another bank. At home, while watching TV they can initiate the transaction through the internet. Money comes to our bank. Immediately the money is here. Irrespective of time differences, whether we work or not, immediately it comes. That way the work is reduced. No hassle to the bank and to the customer. That is the kind of thing we are looking for the blue collar worker workers living abroad. Then we can ensure that we get money to the country than we get now. We are now missing 30%-40% of what should really come to the banks. 4-5 billion dollars are still outside. We need that money for balance of payment and everything else. There are different dimensions and I dont think there is one text book answer. R4 then introduces a grassroot problem saying If the person wants to buy two eggs, some food and a bag of fertilizer using debit card is not possible. It will take a very very long time for the changes to take place to have that type of society. Even in Britain, money transactions are there. All the corner shops, the underground and some of the buses also request cash. Sri Lankan private buses also tried it. The bus owners were willing to accept cards. I dont know when cash less kind of things are totally implemented. It will take a long long time, not in my life time.

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R4 finally rests stating A less cash society may not happen immediately, but it is the trend. Everyone is trying to attempt to do that. We are working through electronic media with less manual transactions. The ultimatum is less cash or cashless. R5 representing the view of a statutory institute in monetary sector says We are for it. We support and help any initiative towards it. The recent launch of mobile cash was encouraged by us. Of course it was the mobile operator, who wanted our stamp as a scheme approved by us, but we have set all guidelines and regulations for anyone to come and try alternative schemes. Our blessings are always there. It will grow slowly. Like the mobile phone market. We are still a growing economy. Once our economy reaches a certain milestone these things will come out. Till then we have to supply physical money. R6 in his views states The common switch is important. It will make a world of changes. This will open-up many door and clear lot of barriers. It will facilitate live, then and there, transactions simply with anyone with no hassle but at lightening fast speed. Regulatory agencies and banking sector leaders must drive it. In todays world you cant sit back and let things happen. Obviously things will eventually happen, but only with a huge cost and a total mess. So they have to take control of the wheel. Simply saying it will improve bottom lines of all- government, banks, businesses & people. ATM numbers are growing. New generation machines come with loaded live faci lities. We have passed debit & credit era. Now it is prepaid. Once you top-up it is your money that is in there. Use it to make micro-payments or even large sums. First unit of a bus ride is nine rupees. If we are paying that with a prepaid card, I want to buy a kimbula banis (a local sweet delicacy) for Rs.20 with electronic money. It will revolutionize the society totally.

Finding 7:

Cheque use has declined, and electronic alternatives are increasing.

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Less physical cash means, less hassle, less counterfeits, less costly operation, and more savings. Trend among younger generation is for electronic money. Banks are encouraging electronic alternatives and banks are also facilitating utility bill payments electronically. A common switch linking all electronic gateways to a single platform is essential. This can bring banks, mobile operators, internet service providers, and other institutions authorized to work with electronic money. Initiatives taken to introduce alternative money to rural and remote areas by use of bankcards. Importance in tapping into remittances of over US$ 3billion not coming into Sri Lanka by means of electronic transfer schemes. Policy makers and regulatory chives still going slow and allowing time to drive the necessary changes socio-economic spheres want. Prepaid electronic card for micro payments will revolutionize the entire monetary system and society.

4.4 CATEGORY FORMULATION Based on the content analysis following categories are formulated as having an impact on the cost of managing physical cash in Sri Lanka: Category 1: Perception of monetary world towards the role of cash Category 2: Concerns of giving priority to physical cash in a modern monetary system

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Category 3: Cost of producing physical cash Category 4: Cost in managing logistics in supply & collection of physical cash within the network (of branches & ATMs) Category 5: Cost of managing physical cash at banks & branches Category 6: Issues faced by users of notes & coins Category 7: Cost of not going beyond ATMs & bankcards

4.5 FINDINGS OF THE DATA ANALYSIS 4.5.1 FINDINGS 1. Monetary sector including commercial banks and apex body the Central Bank considers monetary management is primarily managing physical cash (notes & coins). 2. None of the respondents wants to revisit possibility of transformation by introducing efficient and less costly alternatives to better manage monetary schemes. 3. They continue to consider that what is in existence is best, and improvement is neither needed nor possible.

4.5.2 FINDINGS 4. A simple notion like introducing of notes & coins was primarily an alternative remedy to address the growing concerns of a bulky monetary system is still understood by Sri Lankan monetary experts as notes & coins as the only remedy.

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5. It is quite apparent that growth of physical cash is always considered a positive factor in Sri Lanka, and it is the norm to have more notes & coins produced to facilitate growth of its monetary system parallel to the economy, even if it has no positive impact on the system. 6. Even today new physical cash is still injected. This will only burden the entire monetary system and soon leave an outdated colossal mess hampering much needed dynamism in the monetary system & economy.

4.5.3 FINDINGS 7. A large amount of resources are employed in production department of physical money in Sri Lanka. 8. A laborious process both demanding and consuming is required for the production of physical money. 9. Most of production expenses are paid to outside parties, including offshore. 10. Production is not necessarily a new series of money or bulk amounts, but also replacement of unserviceable. 11. Printing of notes and minting of coins are tremendous costs at any scale.

4.5.4 FINDINGS 12. Logistical cost of distribution & collection of physical cash is relatively high, irrespective whether this complexity is handled by an in-house operation or by outsourcing to a third party. 13. Cost incurred for logistical arrangement by non-financial institutions is also very high due to physical cash systems. 14. Invisible aspects such as the idling of cash while in transit, in vaults, and inside ATMs. It is a huge opportunity cost since it cannot be invested to bring financial returns.

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15. It is not only the money, but when idling of resource meant for physical cash is not in operation or use it is also an opportunity cost. Vaults, ATMs, and transits are not always utilized to their maximum capacity. 16. In a monetary system an opportunity cost is both a financial cost and an economic cost.

4.5.6 FINDINGS 17. CB needs to equip itself to deal with each and every physical cash movement, requiring more space to receive, store and release physical cash. 18. Cost includes very tight security measures for arrivals & departures of physical cash and for money that is in storage. 19. Cost includes sophisticated machines and systems capable of handling large volumes, in swift time, and with absolute accuracy. 20. Cost includes competent and trusted human resource capable of making decisions and actions rightfully serving the rule of trust. To retain this alone is a massive expenditure. 21. Similarly all banks and other institution dealing with large some of physical cash have to install itself with all of the above at a staggering cost. 22. Cost of replacing unserviceable physical cash, and procedural costs dealing with counterfeit cash. 23. Cost multiplications due to lapses by CB such as with Rs.1000 denomination. 24. Cost in loss of opportunity due to lack of foresight by CB in regulations dealing with excess amounts of physical cash. 4.5.7 FINDINGS 25. All quarters of monetary sector consider that maintaining of physical cash is cumbersome. 26. All users & uses of physical cash is a hassle, inconvenient, bulky, & unhygienic.

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27. Shortage in proper denominations leads physical cash payments to financial loss or time loss. 28. Carrying physical cash is considered risky and life threatening. 29. Alternatives in place of physical cash is now used and trusted than ever before.

4.5.8 FINDINGS 30. Cheque use has declined, and electronic alternatives are increasing. 31. Less physical cash means, less hassle, less counterfeits, less costly operation, and more savings. 32. Trend among younger generation is for electronic money. 33. Banks are encouraging electronic alternatives and banks are also facilitating utility bill payments electronically. 34. A common switch linking all electronic gateways to a single platform is essential. This can bring banks, mobile operators, internet service providers, and other institutions authorized to work with electronic money. 35. Initiatives taken to introduce alternative money to rural and remote areas by use of bankcards. 36. Importance in tapping into remittances of over US$ 3billion not coming into Sri Lanka by means of electronic transfer schemes. 37. Policy makers and regulatory chiefs still going slow and allowing time to drive the necessary changes socio-economic spheres want. 38. Prepaid electronic card for micro payments will revolutionize the entire monetary system and the society.

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4.6 REVISITING THE CONCEPTUAL FRAMEWORK Data analysis paved way to new findings a new set of categories. Some of it was identified at research design stage. Therefore new findings need to be added to the conceptual framework after revisiting Conceptualization in Chapter 3.3. What was presented in Chapter 3.3 was as follows; Problem - Costs of management of coins and notes Possible causes 1. Cost of Production 2. Cost of Storing and Distribution 3. Cost of Including Unique security, identification, verification, etc features 4. Cost of Exit of coins and notes from the monetary system With new findings conceptual frameworks needs to be modified as follows; Problem - Costs of management of coins and notes Possible causes 1. Perception of monetary world towards the role of cash 2. Concerns of giving priority to physical cash in a modern monetary system 3. Cost of producing physical cash 4. Cost in managing logistics in supply & collection of physical cash within the network (of branches & ATMs) 5. Cost of managing physical cash at banks & branches 6. Issues faced by users of notes & coins 7. Cost of not going beyond ATMs & bankcards
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4.7 REVISITING THE PROPOSITION In respect to modifications done to conceptual framework, a revisit original proposition in Chapter 3.7 needs to be made to make relative modification to the proposition. Original proposition presented in Chapter 3.7 is as follows; The cost of production, storing, distribution, inclusion of security, identification, verification, features etc and cost of exit of coins and notes exerts are the factors having an impact on the cost of management of coins and notes, an added burden on the monetary system in Sri Lanka. Having made relative modifications, revised proposition should read as follows; Cost of production, cost of logistics, & cost of managing coins and notes, stagnant alternatives to cash, the perception towards money, & priority given to coins and notes, and lack of confidence among users of coins and notes, are an added burden on the monetary system in Sri Lanka.

4.8 CONCLUSION OF CHAPTER 4 After carefully analyzing the revelation made through in-depth interviews with critical respondents supported by other relevant data, the research indicates the system in place, perception, and lack of confidence among segments connected adds an extra burden on the monetary system in Sri Lanka. These findings will be used in Chapter 5 to assess the relevance between assumptions made and outcomes found through data analysis. Chapter 6 will discuss recommendations to be made based on the findings.

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CHAPTER 5 DISCUSSION

5.1 INTRODUCTION TO CHAPTER 5 Chapter 5 will revisit the objectives outlined in Chapter 1.4 with new findings through the data analysis. This will lead to a discussion on progress made in relation to the objectives and also where possible relate findings to literature review. Chapter 5 will also revisit proposition and the conceptual framework for a verification on the modifications made.

5.2 ACHIEVING THE OBJECTIVES Objectives of this study and the extent in which they were achieved through this research are as follows; 1. To understand current eco-system which exists with issuing coins and notes to customers; Analyzing data revealed through in-depth interviews with decisive respondents in the entire monetary eco-system resulted in achieving a comprehensive understanding of the entire eco-system on issuing note and coins to users, thus, achieving objective 1.

2. To understand the costs incurred by banks in managing this service on behalf of the Central Bank and for use of customers; Analyzing data revealed through in-depth interviews with decisive respondents in the entire monetary system resulted in achieving a comprehensive understanding on the costs incurred by banks in the total
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management of coins and notes related services. Further, categories were also formulated parallel to this objective, thus, achieving objective 2.

3. To analyze the current concerns with issuing of coins and notes; Analyzing data revealed through in-depth interviews with decisive respondents in the entire monetary system and data obtained through relevant publications resulted in achieving a comprehensive understanding on current concerns related to issuing coins and notes. Further, categories were also formulated parallel to this objective, thus, achieving objective 3.

4. To determine the effectiveness of implementation of an cashless or e-wallet scheme to overcome the issues encountered in managing coins and notes; Analyzing data revealed through in-depth interviews with decisive respondents in the entire monetary system and data obtained through relevant publications resulted in achieving a comprehensive understanding to determine the effectiveness of implementation of a less cash society leading to a cashless or e-wallet schemes. Further, categories were also formulated parallel to this objective, thus, achieving objective 4 will be based on these finding and recommendations will be made in Chapter 6.

5.3 RE-CAPPING THE OBJECTIVES AND THE PROPOSITION Objectives of this research study are concentrated on finding the total burden incurred by coins & notes on Sri Lankas monetary system, and whether a less-cash initiative could be a remedy for it. Purpose of developing a proposition was to setup a basic structure to guesstimate how coins and notes are an added burden on the monetary system in Sri Lanka. Analyzing data reveled through in-depth interviews with decisive respondents in the entire monetary system and data obtained through relevant publications resulted in
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achieving a comprehensive understanding on current concerns related to issuing coins and notes. Final outcomes indicate that the proposition made at first in order with the objectives remains without much deviation after the research analysis.

5.3 RELATING FINDINGS TO LITERATURE REVIEW In Chapter 2 in Literature Review it was quoted that What matters most about money is not what it looks like, or even what it is backed by, but whether people believe in it enough to use it. (Sorowiecki, 2012). This statement precisely states how dynamic economy should look at the changes need in a monetary system. However, following findings seems contrary to the above, and confirms that part of the problem is lack of this perception. Finding1-Monetary sector including commercial banks and apex body the Central Bank considers monetary management is primarily managing physical cash (notes & coins). Finding2-None of the respondents wants to revisit possibility of transformation by introducing efficient and less costly alternatives to better manage monetary schemes. Finding3-They continue to consider that what is in existence is best, and improvement is neither needed nor possible. Revisiting the literature review we find that To maintain our stock of hard currency, the US Treasury creates hundreds of billions of dollars worth of new bills and coins each year. The cost to taxpayers in 2008 alone was $848 million, more than two-thirds of which was spent minting coins that many people regard as a nuisance. (Wired, 2009) Finding7-A large amount of resources are employed in production department of physical money in Sri Lanka. Findings8-A laborious process both demanding and consuming is required for the production of physical money. Findings9-Most of production expenses are paid to outside parties, including offshore. Findings10-Production is not necessarily a new series of money or bulk amounts, but also replacement of unserviceable. Finding11Printing of notes and minting of coins are tremendous costs at any scale.
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Further, Chapter 2 recalls In an era when books, movies, music, and newsprint are transmuting from atoms to bits, money remains irritatingly analog. Physical currency is a bulky, germ-smeared, carbon-intensive, expensive medium of exchange (Wired, 2009) This is further confirmed by Finding25-All quarters of monetary sector consider that maintaining of physical cash is cumbersome. Finding26-All users & uses of physical cash is a hassle, inconvenient, bulky, & unhygienic. Finding27-Shortage in proper denominations leads physical cash payments to financial loss or time loss. Finding29Alternatives in place of physical cash is now used and trusted than ever before. In literature review Professor Friedrich Schneider was quoted The prevalence of electronic transactions and the digital trail they generate also helps explain why Sweden has less of a problem with graft than countries with a stronger cash culture . (tech.slashdot.org) This is the exact reflection of Finding28-Carrying physical cash is considered risky and life threatening. As shown in Chapter 2 Prof Colombages research states a new trend towards a decline in use of analog money and increase in use of digital money. These sentiments are reflected in the following findings. Finding30-Cheque use has declined, and electronic alternatives are increasing. Finding31-Less physical cash means, less hassle, less counterfeits, less costly operation, and more savings. Finding32-Trend among younger generation is for electronic money. Finding35- Initiatives taken to introduce alternative money to rural and remote areas through.

A report published by the International Finance Corporation on Mobile Money Study in 2011 was included in the literature review. Analyzing potential transactions in mobile money in Sri Lanka, the report presents possibility of 264 million transactions in public transport, 4.7 million transactions in payrolls & informal sector usage (as in postal money
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orders), 1.6 million transactions in government sector welfare payments and 6.4 million transactions in utility bill payments in a given month. (IFC, 2011) This is further supported by Findings33-Banks are encouraging electronic alternatives and banks are also facilitating utility bill payments electronically.

5.5 RE-EXAMINATION OF THE CONCEPTUAL FRAMEWORK In Chapter 4 conceptual framework was revisited with categories formed from new findings that emerged through data analysis. Modification to conceptual framework was done in parallel to categories formed to include new findings. The proposition was also revisited and accordingly modified, to agree with changes made to conceptual framework.

5.5 MODIFYING THE CONCEPTUAL FRAMEWORK In Chapter 4 modification to conceptual framework was done in parallel to categories formed to include new findings. The proposition was also revisited and accordingly modified, to agree with changes made to conceptual framework.

5.5 CONCLUSION OF CHAPTER 5 In Chapter 5 it was confirmed that objectives 1, 2 & 3 as set out in Chapter 1 was achieved through a comprehensive data analysis and presentation. Modification to conceptual framework was done in parallel to categories formed to include new findings. The proposition was also revisited and accordingly modified, to agree with changes made to conceptual framework. Objective 4 will be established in Chapter 6.

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CHAPTER 6 CONCLUSION & RECOMMENDATIONS

6.1 SUMMARY The research study was initiated with a focus on studying the cost of production, storing, distribution, inclusion of security, identification, verification, features etc and the cost of exit of coins and notes exerts an impact on the cost of management of coins and notes and whether this in turn burdens the monetary system in Sri Lanka. Following an in-depth data analysis new findings paved the way to arrive at that the cost of production, cost of logistics, & cost of managing coins and notes, stagnant alternatives to cash, the perception towards money, & priority given to coins and notes, and lack of confidence among users of coins and notes, are certainly an added burden on the monetary system in Sri Lanka.

6.2 FINDINGS OF THE STUDY The research study was able to find thirty-eight (38) different factors related physical cash coins and notes contributing to the burdening of the monetary systems in Sri Lanka. These 38 factors can be summarized into the following segments;

6.2.1 FINDINGS IN SEGMENTS 1: COST OF PRODUCTION, COST OF LOGISTICS, & COST OF

MANAGING COINS AND NOTES

Starting from design templates, using natural resources to print notes or mint coins incurs is an immense cost. Human and machines employed for sorting, counting, strapping,

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bundling, storing, & transporting, all under precision of zero errors & maximum security incurs an immense cost. Human resource employed to make the right decisions to send and recall physical cash to and from Central Bank to Central Cash, or to and from Central Cash to network nodes to get the maximum returns on physical cash incurs an immense cost. Further, idling of any of the above resources, human, machines or otherwise is an added cost incurred.

6.2.2 FINDINGS IN SEGMENTS 2: STAGNANT ALTERNATIVES TO CASH, THE PERCEPTION

TOWARDS MONEY, & PRIORITY GIVEN TO COINS AND NOTES

Stagnation comes from relying on atom based alternatives like issuing cheques that lacks real time realization and availability of funds, to primary bit based (electronic) alternatives like ATM cards. There seems no momentum to move beyond. This is purely due to the colonial mindset giving priority to notes and coins. Centuries ago notes and coins were the ultimate medium to express the value of a transaction. During the last four decades global population has doubled, number of transactions has multiplied in few folds, and the values have grown pass figures trillion. Times have changed, but change has not come. This is due to the wrong perception. Physical cash is only a medium, not the value. Value is governed by the trust that is placed on the medium.

6.2.3

FINDINGS IN

SEGMENTS 3:

LACK OF CONFIDENCE AMONG USERS OF COINS AND

NOTES

The trust that is placed on the medium gives it the value. People are increasingly distrusting notes and coins. They feel it is hassle. They feel insecure with it. They feel it is not the best solution to make precise payments. They feel it is slow and taxes time. They are ever more converting into bit (electronic) money. Electronic money is fast. It has no physical presence. It is ever more secure. It can make precise payments. It can be

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used round the clock and over physical boundaries. Public is asking for more of less-cash initiative in the monetary system leading to e-wallets and possibly cashless transactions.

6.3 RECOMMENDATIONS This research study was able to bring known and unknown facts and figure on the same table of discussion on burden of coins and notes have on Sri Lankas monetary system. There had been no similar research study done to bring known and unknown facts affecting the regulator, banking sector, day-to-day users and other related institutes on burden of coins and notes have on them. Therefore, following recommendations are made in best interest of all segments connected to the monetary system in Sri Lanka and are affected by the burden of coins and notes.

6.3.1 RECOMMENDATION 1 ON PERCEPTION As the sole regulatory agency for monetary related matter in Sri Lanka, the Central Bank of Sri Lanka (CBSL) should take a bold step forward to lose the convention and to bring change the perception to embrace the abstraction without worry. CBSL must take the lead to advocate this change of perception within banking sector and general public.

6.3.2 RECOMMENDATION 2 ON REGULATORY MEASURES CBSL should take the lead to introduce necessary policy & regulatory framework supporting a less cash society. The authoritarian style regulatory presence will never allow change to come from bottom-up. It has to be top-down. Policy and regulatory changes should necessarily include priority given to national security, new laws &
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regulations in par with technological advances, and financial encouragement for new initiatives.

6.3.3 RECOMMENDATION 3 ON COLLECTIVE DRIVE Central Bank of Sri Lanka (CBSL) & banking sector, Telecommunication Regulatory Commission (TRC) & telecommunication sector, and National Transport Commission (NTC) & transportation sector, Information and Communication Technologies Agency (ICTA) & ICT sector are important cornerstones on managing a new age monetary systems. A joint mechanism needs to be formed with all these partners coming together to realize positive changes.

6.3.4 RECOMMENDATION 3 ON SOLUTIONS Introduce a prepaid card as the first initiative to envision a less-cash society. Expand it over to mobile phones with near-filed communication (NFC) technology introducing an e-wallet. Finally, lead it to couple itself on to a biometrics network. At each phase assure total security and convenience in accessing finances.

6.4 CONTRIBUTION TO THEORY & PRACTICE A resilient nation like Sri Lanka cannot afford to have a stagnated economy at present. Economic dynamism must come from all possible direction, including from statutory and regulatory institutes. In an economy monetary system is the critical supply of blood. Only a clean warm supply of blood can assure proper healthy functional organs. Right now Sri Lanka needs a vibrant monetary system in place. A monetary system should always study what burdens it most and apply remedies to rectify it. Winning the trust of institutions and individuals involved in actual functionality
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of a monetary system is a prime necessity. Winning the confidence of the ultimate user is the only way to keep the circulation intact. It must always reinvent itself to cut back on unnecessary expenses, because cutbacks on expenses are a saving that always improves the bottom line. It must reinvent itself to reduce cost from unwarranted waste, because reduction of waste is a saving that always improves the bottom line. It must reinvent itself to save time, because time saved is another opportunity won for an investment. Sri Lankas monetary system must first help the Central Bank to free itself heavy, conventional, and bureaucratic procedure to ready itself to embrace the abstract without worry. Otherwise it will end up being another colonial institutional mess. Sri Lankas monetary system must help the banking sector to free itself from procedural conventions and create an environment free of red tapes to try new alternatives that could add more efficiency to the system. Sri Lankas monetary systems must help the average user to find more time and savings, rather than being recognized as a hassle and a time tax just for using the system. World population has gone past 7 billion. Sri Lankas population has doubled during the past four decades. Geographical boundaries are put to rest by lightning fast communication networks. Accessibility is a thing of the past with sophisticated advancement in infrastructure. With all these increases in numbers and with time becoming more valuable in essence, a monetary system in an economy is the last place to be stagnant and to carry a burden. Transactions must be made with confidence and must reflect immediately in true value. With such a demand, electronic (or bit) money becomes ever more popular and powerful. Electronic money having won over speed and confidence now threatens the reign of money as king of cash.

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A less cash society will collectively save time, unwarranted expenses, and will be free of hassle to contribute more towards the economic development. Banking sector will less procedural red tapes and better bottom lines will try an innovate new measures which will trigger economic progress. A cutting edge regulatory system is always in top gear ready to drive the economy into new heights.

6.5 LIMITATIONS OF THE STUDY The research accounts for cost and thoughts on burden of coins and notes on the monetary system and data was collected through in-depth interviews. Therefore, accessing sensitive information was limited and collecting sensitive feedbacks was also limited. Therefore, on certain occasions all figures and numbers would not have come out, and some would have held back on their thoughts.

6.6 DIRECTION FOR FUTURE RESEARCH This research did not include data from religious institute, merchants, boutique businesses, bus conductors, till savers, and similar individuals who deals with large amounts of small money including coins and notes on a daily basis. Further research could include data from above segments. Also, it can collect date on different attributes of uses and users of new electronic money schemes.

6.7 CONCLUSION OF CHAPTER 6 This research study brought to light problems faced by the monetary system in Sri Lanka due to coins and notes. How different segments including the statutory institutes, commercial banks, other institutions, and individuals have started to lose confidence in coins and notes. The convention that money has to be physical (as in coins and notes) is
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deeply rooted within our mindset and colonial structures. The 13 th century perception of embrace the abstraction without worry which invented paper money is ever more relevant today. The importance of having a modern monetary system capable of sustaining confidence and growth is clearly spelt. A movement towards initiating a lesscash society is a brand new beginning with an assurance for a prosperous economic development.

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