Why the state wants to stop you wandering off with your cash

The government wants to keep tight tabs on what you do with your money, says Merryn Somerset Webb. That might well mean the death of cash.


Stick close and no wandering off

When I lived in Japan, I, like all other foreigners, was deeply impressed by the astonishing freedom granted to small children. Every morning hordes of them would set out, often alone, to make their way to school. Isn't it amazing, we would say, how safe Japan is, how independent the children are, how brave the parents are. What a thing!

Given that I lived in Japan for six years, I'm slightly embarrassed to have to tell you that I've subsequently discovered it is not quite as amazing as I thought. A friend explains that Japanese schoolchildren are in fact working within strict commuting parameters: they follow preset paths (tsugakuro); local volunteers stand watch along the routes; and parents work in rotas as crossing guards.

Tsugakuro "violations" (stopping in shops etc) are not allowed. The children might look amazingly free range to the rest of us, but they aren't really exercising any free will. They are simply walking the way the authorities have told them they will walk. There isn't a choice.

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You maythink that's fine. But what if I told you that it isn't just Japanese kids whose lives are bound to a tsugakuro? It pretty much applies to everyone in the Western world with a bank account.

Back at the beginning of the financial crisis, there was much talk about financial repression the ways in which policymakers would seek to control the use of our money to deal with out-of-control public debt. It isn't mentioned asmuch these days, but it is well under way.

We've seen capital controls in the periphery of the eurozone; these prevent you from withdrawing your money from banks or sending it across borders as and how you like. Interest rates everywhere have been at or below inflation for seven years and negative interest rates are now snaking their nasty way around Europe: no one expects to make a real return on a deposit account these days.

This makes debt interest cheap for governments, and is partly how George Osborne found that £27bn down the back of the sofa last week. It should eventually drive the inflation they need to devalue their debt, and it and forces once-prudent savers to move their money into the kind of risky assets that are supposed to drive growth (and tax receipts).

At the same time, tax authorities have become increasingly keen on tracking everything and everyone to make absolutely certain that no assets slip under their radars. The Greeks have been told that, come 2016, they must begin to declare all cash over €15,000 held in safes or mattresses, and all precious stones, gold and the like worth more than €30,000. Anyone else think there might be a new tax coming on all that stuff?

But to me, the most worrying development in the building of the repression tsugakuros is the rising anti-cash rhetoric of central bankers and tax collectors.

Back in September, the Bank of England produced a report on cash and how we use it. It was full of mildly interesting statistics, but what really came through was the furious frustration the number-crunchers feel about the way cash works. They are maddened by the fact that even as we are provided with lots of simple digital payment methods we still like to use cash: the demand for £20 and £50 notes has been rising. But given that just 25% of the cash in issue is used for ordinary honest transactions, it shouldn't be.

They are maddened because "as untraceable bearer instruments, it is not possible to locate where banknotes are being held at any one time" and because all numbers on cash usage are "illustrative and not possible to validate given the untraceable nature of cash".

See the point? People might be hoarding their assets at home; they might be wandering off the tsugakuro but if they have cash, the Bank of England can't know about it, can't stop them, and can't control it. Gah!

A few days after this report came out, the Bank of England's chief economist, Andy Haldane, weighed in with a speech on the future of monetary policy. Towards the end of it, he suggested something quite shocking as a solution to the control problem noted in the first paper the abolition of paper currency altogether.

If you make interest rates negative (making it expensive for people to hold digital cash in banks), they can just withdraw it and hold it physically. That's irritating if what you were trying to do was make them spend or invest it. However, if you take the option of takingphysical cash away from them, you can then impose whatever negative rates you like and change people's behaviour as you like. Perfect!

Better still, said Mr Haldane, this would have the "added advantage of taxing illicit activities undertaken using paper currency such as drug dealing at source". This last bit was particularly interesting. The public might not much fancy paper cash being abolished so that negative interest rates can be imposed on their savings, but they might just go for it if they are told that it has to go to keep them safe to prevent terrorism, drug dealing, local garages that don't declare the proceeds from fixing the steering columns on the nation's Passats. That sort of thing.

No surprise then that last week, HMRC entered the fray with a call for evidence on "cash, tax evasion and the hidden economy". This is a campaign gathering steam. I give cash 20 years tops. Does it matter? I think it does. Go back to the September paper. It discussed why (if they weren't criminals) people might be irrational enough to hoard cash when they would be so much better off with a nice deposit account: "to provide comfort against potential emergencies" things such as negative interest rates, bank failures or likely cyber attacks on the financial system, perhaps. That seems rational to me.

Without recourse to physical cash, we are all 100% dependent on the state-controlled digital world for our financial security. Worse, the end of cash is also the end of privacy: if you have to pay for everything digitally, every transaction you ever make (and your location when you make it) will be on record. Forever. That's real repression.

Something to think about or maybe sign our petition. In the meantime, if you are holding cash at home, you might pop down to Selfridges where (assuming you can fight your way through the Greeks in the queue), you can buy lovely little safes disguised as Pringles packets and Coke bottles (I've put a picture on Instagram for you @merrynsomersetwebb).

Otherwise, if you really think cash is doomed, you might do what Hutch Vernon of Brown Advisory told me to do earlier this year. Buy shares in the best of all anti-cash investments Visa.

This article was first published in the Financial Times.

Merryn Somerset Webb

Merryn Somerset Webb started her career in Tokyo at public broadcaster NHK before becoming a Japanese equity broker at what was then Warburgs. She went on to work at SBC and UBS without moving from her desk in Kamiyacho (it was the age of mergers).

After five years in Japan she returned to work in the UK at Paribas. This soon became BNP Paribas. Again, no desk move was required. On leaving the City, Merryn helped The Week magazine with its City pages before becoming the launch editor of MoneyWeek in 2000 and taking on columns first in the Sunday Times and then in 2009 in the Financial Times

Twenty years on, MoneyWeek is the best-selling financial magazine in the UK. Merryn was its Editor in Chief until 2022. She is now a senior columnist at Bloomberg and host of the Merryn Talks Money podcast -  but still writes for Moneyweek monthly. 

Merryn is also is a non executive director of two investment trusts – BlackRock Throgmorton, and the Murray Income Investment Trust.