How the coronavirus pandemic is killing cash

Covid-19 is making a huge difference to the way we live, work and do business. One of its less obvious effects, says Merryn Somerset Webb, is to accelerate the death of cash.

There is much talk about how Covid-19 will change the world. There is less about how it is simply accelerating trends that were already underway (think everything from a cold war with China to rising levels of home working). One to keep a particular eye on is a theme we have been watching for some time – the death of cash.

No one wants to touch cash today. It’s always been known to be pretty filthy stuff; now it isn’t just grubby, it is potentially lethal. No wonder, then, that the use of cash has halved in the last week and that “card only” signs are appearing everywhere. Some large chains stopped taking card payments altogether (even before lockdown) and the contactless upper limit has been moved from £30 to £45.

You might think this is no bad thing. After all, cards are quicker, easier and cleaner than notes and coins – as are all the many ways to use phone apps to pay. Central bankers will agree with you.

Back in 2015, Andy Haldane, chief economist at the Bank of England, made a speech in which he explained what an irritant the likes of you and me holding cash is for him and his colleagues. It would be much easier if we weren’t allowed it; that way, the Bank could have significantly more control over how and when we spent our money.

We would all hold our wealth electronically. So if they wanted us to spend more, they could charge us negative interest rates (effectively confiscating our unspent money – note that we spend more when we use non cash money anyway). If they wanted us to pull back they could pay us interest at whatever level they fancied. Much easier – particularly in times of crisis when banks would like monetary policy to work faster than it currently does.

Getting rid of cash also suits HMRC down to the ground: the tax gap is largely about the cash economy. No cash equals no cash-in-hand work equals no tax avoidance.

Anyone who thinks the chancellor isn’t thinking about this hasn’t been concentrating: his four-week amnesty for those who have not filed last year’s tax return is a clear message to cash workers (see my last blog on this).

We have never been mad for the idea that cash is a burden, not a benefit. Cash allows us some degree of financial freedom and privacy; 100% digital money removes both completely. We are moving into a world in which the authorities can force the speed of change. There is a good chance this will be one of the things that gets forced.

Recommended

April price hikes - these are the bills going up in April
Personal finance

April price hikes - these are the bills going up in April

Households will be hit with a series of bill increases from April - here’s what they are and how you can save money.
31 Mar 2023
Where will house prices go in 2023?
House prices

Where will house prices go in 2023?

We explore what could happen to house prices in 2023 as the market continues to slow down.
31 Mar 2023
Investors flock to NS&I savings after SVB scare
Savings

Investors flock to NS&I savings after SVB scare

Investors are increasingly pumping their cash into the safety-net of NS&I - lured by increased rates and the security of a government-backed savings a…
31 Mar 2023
Nationwide: UK house prices decline at the fastest pace since 2009
House prices

Nationwide: UK house prices decline at the fastest pace since 2009

UK house prices fell for the seventh month in a row in March, Nationwide’s house price index showed.
31 Mar 2023

Most Popular

Will energy prices go down in 2023?
Personal finance

Will energy prices go down in 2023?

Ofgem’s price cap is now predicted to fall to around £2,000, based on average typical use, for the first time since 2022. We have all the details.
31 Mar 2023
Best areas for buy-to-let in the UK
Buy to let

Best areas for buy-to-let in the UK

If you’re thinking of getting a buy-to-let property you’ll want to know the areas in the country with the highest rental yields
29 Mar 2023
The best one-year fixed savings accounts - March 2023
Savings

The best one-year fixed savings accounts - March 2023

Earn over 4% on one-year fixed savings accounts.
30 Mar 2023