Dear Editor,
I welcome Mr Clinton Urling’s response to my article in Stabroek Business of November 16, 2007 captioned “The payment systems in Guyana are still too cash based” in his letter captioned “Guyana is not ready for electronic commerce, few have computers” (07.11.18). However, I totally disagree with all his assumptions.
First, Mr Urling states that “the cash system in Guyana is not antiquated and is an even more efficient and effective payment method than its digital and electronic cousins.” No evidence or data is provided by him to support this strange proposition. However, Chuck Martin (1999) pointed out that the cost of a commercial bank transaction on the internet is roughly one US cent, dramatically less than that of any other distribution channel ie a cost of US$1.07 by bank branch, US$0.73 by mail, US$0.54 by telephone payments, US$0.27 by ATM and US$0.01 by internet. If Mr Urling could provide the evidence based on his so called “efficient cash transactions” in Guyana that are superior then I would accept defeat.
The externalities from the use of only cash are even more worrisome as they can create fertile conditions for criminal activities. Moving around with cash in Guyana is not only a high risk but could be fatal. One top businessman told me large sales and cash on holidays are his worst nightmares. The risk of conducting business in cash is certainly higher than all other means of payments and fertile grounds for money laundering and tax evasion. I do not argue that credit cards are free from criminal activity but it can more easily be traced than cash.
Mr Urling further stated that “persons using cash for payments don’t have to wait for sellers to verify card and user legitimacy, no user and provider fees are charged, no interest charges, no bogus web pages and are less prone to confusion and mistakes”. My experience with a Citibank credit card for more than two decades is different, I don’t have to verify anything since my photograph is on my credit card, pay no interest charges since I pay my bill on time, pay only for the cost of the product, and any mistake can easily be corrected. I was never subjected to any bogus web page since I deal only with a regulated financial entity.
Mr Urling argued that “it is impractical and uneconomical for local companies in Guyana to invest in costly technology for domestic use.” Investment in information technology has a large start up cost, but once the system begins to flow there is little additional cost as profit margin increases. Bill Gates’ book Business @the Speed of Thought is good reading for a business that hopes to be part of the age of global network intelligence. Nortel network estimated that electronic business grew by 86 percent to reach $1,300 billion annually by 2003. Further daily foreign exchange transactions increased from US$80 billion in the mid 80s to US$1.9 trillion in 2006, over fifty times the level of world trade, with less than a fraction in cash. Investment in information technology is the cheapest and only way for small business to extract higher returns and integrate with economies of scale (international markets).
Further, Mr Urling quoted an article in Fortune Magazine (12/11/2007) that identified the high levels of consumer credit card debt at $915 billion, an unprecedented high rate of delinquencies and increase in credit card loss reserve by 45% in the US to support his argument. The increase in credit card loss reserve by US commercial bank is a prudentially sound decision that will mitigate risks to the banking system. Second, the level of credit and consumption drives growth not only in the US economy, but the world economy. Further, credit will always include an element of risk be it credit card or cash, no other financial system is better able to such absorb such risk than the US. The ability of Wall Street to rise just days after the September 11 attack with no financial panic is an indication of the superiority of the financial structure in the US.
The diffusion of information technology (ICT) has been greatest in developing countries in the past 15 years. Charles Amo Yartey (2006) pointed out that in 1992 only three percent of the world internet users were from developing countries, today it is 40 percent. Roderick Sanatan from the Centre of International Studies at UWI in Barbados in a lecture on Trade in Services sponsored by IDS/UG provided statistics to show that Guyana ranks among the highest internet users per 1000 people in the Caribbean, higher than the high income Barbados (55.9), Bahamas (54.9), and even Trinidad and Jamaica. He pointed out that Guyanese are quick learners and apt students so the arguments by Mr Urling that Guyanese are not computer literate and that few have computers is totally erroneous.
The nexus between finance and economic development is well established; Hicks (1969) argued that on the basis of economic history the British industrial revolution was made possible by a developed financial and capital markets. Charles Amo Yartey (2006) in a research paper concluded “that financial development is an important determinant in ICT diffusion and countries with underdeveloped financial markets may sink even further in the information poor and non communicating side of the digital divide.” Does this have any lesson for the private sector in Guyana?
Finally, Mr Clinton Urling began his response to my article by stating we are a cash economy and “so what,” a tone typical of the arrogance of those in the seat of power be it economic or political, especially in small societies. He concluded that electronic commerce is good but we have to wait. Well we have been waiting for four decades since independence and while waiting I must point out that today electronic commerce is estimated at 10% of the World GDP and rising. What is Guyana’s stake in this is anybody’s guess.
Yours faithfully,
Rajendra Rampersaud