Advertisement

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.

Advertisement - Article continues below

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.

Advertisement
Advertisement - Article continues below

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.

Advertisement - Article continues below

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.

Advertisement
Advertisement

Recommended

The coronavirus is scary – but it's irrelevant to your investments
Investment strategy

The coronavirus is scary – but it's irrelevant to your investments

The spread of the coronavirus is causing alarm around the world. And, while it could be a serious short-term threat to human health, it’s not somethin…
24 Jan 2020
Beyond the Brexit talk, the British economy isn’t doing too badly
Economy

Beyond the Brexit talk, the British economy isn’t doing too badly

The political Brexit pantomime aside, Britain is in pretty good shape. With near-record employment, strong wage growth and modest inflation, there is …
17 Oct 2019
Businesses must be bold if they want to survive
UK Economy

Businesses must be bold if they want to survive

It’s a difficult time for companies, but battening down the hatches is the wrong approach, says Matthew Lynn.
2 Aug 2020
How Russia’s dirty money sullies Britain
UK Economy

How Russia’s dirty money sullies Britain

Russia’s kleptocrats have grown used to laundering their money and reputations in London. The government has promised change, but how serious is it?
1 Aug 2020

Most Popular

BP has slashed its dividend – and markets love it
Income investing

BP has slashed its dividend – and markets love it

BP has bowed to the inevitable and cut its dividend in half – and its share price promptly rose. John Stepek explains what it means for shareholders …
4 Aug 2020
Listed companies are dying out, and that could have serious consequences
Stockmarkets

Listed companies are dying out, and that could have serious consequences

Private equity is taking over from public stockmarkets as the biggest provider of capital to companies. That’s bad for investors and bad for society a…
3 Aug 2020
Can the recent rally in sterling continue?
Sponsored

Can the recent rally in sterling continue?

A "double top"  – a very recognisable pattern – is forming in in the US dollar. Dominic Frisby explains what it is, and what it could tell us about st…
3 Aug 2020