Cash is no longer king. Although the Bank of Englandunveiled a new, polymer-coated £5 note last week, the seemingly unstoppable march towards paper-free transactions continues.
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Electronic payments overtook notes and coins last year in the UK, according to the Payments Council, an industry body representing the banks and card machine industry. They now account for 52 per cent of transactions, compared to 48 per cent from cash. Consumers have taken to contactless payments with gusto, and the limit for each transaction was raised to £30 in 2015.
If anything, the UK is lagging behind. Scandinavia is leading the way into the cashless world, with Sweden the most cash-free society on earth. Only 20 per cent of retail transactions are made with physical money, according to the central bank, Riksbank, while half the country’s banks don’t hold cash or accept deposits.
Denmark is close behind. Its central bank has stopped printing fresh notes, while the government has proposed dropping the legal requirement for shops to accept cash – although essential services such as hospitals and post offices would still have to take notes and coins. It’s not an unusual proposal in the region.
The power of cash is slowly being eroded all over the world. The €500 note will soon no longer be issued, while the UK government mooted phasing out cheques. In the US, people can order food automatically through their fridge, courtesy of technology from MasterCard and Samsung. There’s a “Bitcoin Boulevard” in Amsterdam, a street where vendors accept crypto-currency as payment. The list goes on.
It’s a combination of technological advancement alongside legislation. But it hasn’t happened without the tacit approval of ordinary people.
“The cashless society is happening already and it’s happening regardless of whether central banks or governments push it. It’s being driven by consumers,” says Jim Leaviss of M&G Investments.
“As individuals we want to move to a cashless society as it’s convenient and we are used to it. There would be a lot of resistance from society for removing cash in a compulsory way.”
VISION OF THE FUTURE
A cashless society is “no longer an illusion but a vision that can be fulfilled within a reasonable timeframe”, Michael Busk-Jepsen of the Danish Bankers Association told CNN. But a vision of what?
To some a cashless world means more transparency – lower tax evasion is Sweden’s rationale for heading this way, while the European Central Bank says larger denominations such as the €500 note are more readily used by criminals to launder their ill-gotten gains. Digital transactions leave a traceable footprint – but the jury’s out on whether it reduces crime.
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Carrying cash can feel like a liability and “cities with a high proportion of residents using cash are more vulnerable to crime,” says Scott Abrahams of MasterCard. But interestingly, Sweden has also found electronic fraud rates have more than doubled in the last decade. “Digital wealth is subject to power outages, infrastructure and exchange collapses, hackers and online theft,” argues author James Rickards in his book The New Case for Gold.
Digital money also removes the costs involved in handling notes and coins. The United Nations and the Bill and Melinda Gates Foundation advocate cashlessness for these reasons.
Indeed, some economists say cash is a drag on the economy, as someone has to bear the cost of counting, storing and safely transferring it from vault to customer. On the flipside Keynesian economists might say managing cash provides employment – which is a positive for the economy.
For all its benefits, there’s another side to cashlessness and it’s possible to look at it through a sinister lens. There are still over 1m adults in the UK without a bank account, and vulnerable social groups – the elderly, poor or homeless – could be further marginalised by the shift to cash-free. Londonerscan’t even take a bus without a contactless payment card.
“Often, those who rely on cash and branch services are among the most vulnerable within our society, such as the elderly, disabled or economically deprived. These people are often presented with barriers, both habitual and practical, to making the leap to digital services,” says Nick Kennett of Post Office Financial Services.
ACCESS TO CASH
While cash is still in use, people’s access to it is restricted. Once deposited in a bank, only small amounts can be withdrawn daily and in many jurisdictions, frequent withdrawals of the maximum sum will attract the authorities’ attention.
“Honest citizens cannot get access to large quantities of cash without being suspected of drug dealing, terrorism or tax evasion,” says Rickards.
“If you had $1m you literally could not get to it without being reported to the authorities.”
He argues the daily £250 withdrawal limit is very modest. What’s to stop the government from restricting access to your money further during times of stress – as happened in Greece and Cyprus in recent years? While academics talk of a war on cash, Rickards says they fail to notice it’s already been won – by the government.
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Norwegian academic Trond Andresen has written about a futuristic world where cash doesn’t exist and everyone’s money is held either with the government or central bank. When the economy is slowing, the government could impose negative interest rates – effectively a charge on deposits held in the bank – in a bid to encourage spending and stop people saving avidly. This would stimulate the economy.
Then, when the economy is overheating, the bank charge will be dropped and a charge could be applied to transactions. That would be a disincentive to spend. It’s an interesting idea which gets to the heart of ideas about liberty and obligation – to whom does my digital cash really belong? And should I be forced to use it to benefit society?
It’s unorthodox, but worth noting that one part of the plan – negative interest rates – are already in place in Japan, Switzerland and Sweden. They’ve been branded a “dangerous experiment” with “insidious effects”.
The cash-free world is coming, but it poses more questions than it answers – let’s hope we consider them carefully.