Denmark’s new rules on cash mark the beginning of the end for physical money

Should you hoard cash? We wrote about this here and here last week. But there’s been a new development in Denmark.

The Danish government is concerned that cash puts too many “administrative and financial burdens” on shops and that it acts as a drag on GDP growth. (A McKinsey study recently suggested that if you could get rid of the stuff in the US, you could push up America’s total GDP by 0.47%.) So, as part of a wide group of proposals to boost economic growth, it is to allow shops to stop taking cash.

This makes sense in all sorts of ways. As M&G’s Jim Leaviss points out, handling cash is expensive – you have to process it, give people change for it, provide security for it, take it to the bank, etc.

Cash is also a bore for governments because it is the main facilitator of the black economy – anything paid for via the banking system can be taxed; anything paid for in cash can be missed. Plus, physical cash often means physical crime, so getting rid of cash could mean less crime and less tax evasion. That’s all good.

And getting rid of cash isn’t likely to bother the Danes much. Denmark’s central bank has already stopped printing notes and producing coins; many banks don’t carry cash; two million people out of 5.6 million use Danske Bank’s mobile payment system; and almost everyone has a debit card anyway.

But that doesn’t mean there’s nothing to worry about. There is.

Danish interest rates are negative: put your money in the bank and it’ll cost you 0.75% in interest (yup, you pay them). The idea here is that to avoid paying this you will either invest or spend your money, boosting the economy along the way.

But as long as cash exists as a medium of exchange, ordinary people have an option. Instead of keeping their money in the bank, they can withdraw it and keep it under their mattresses or in a safety deposit box. That, as Leaviss points out, is why 60% of bank notes in negative-interest-rate Switzerland are held in CHF1,000 notes – they are more  efficient to store.

There is no problem for the hoarders. But there is for the government: if people hold cash in this way, the state can’t fully control monetary policy (the holders of cash don’t care how low rates go).

If the government wants to full control how money is used via monetary policy it has to do away with physical money and make sure that all means of exchange are held within the electronic money system they can control. That’s not really something I like the sound of much.

But, driven partly by technology and partly by state policy, it is on the way. As this paper on the matter puts it “the certain eradication of physical currency is only a question of time.”

Hang on to your gold…

  • Jimmy O’ Goblin

    Keynesian economic theory regards the hoarding of money under the mattress as ‘idle money’, of course, making no contribution to increasing economic output. If we all were to keep our money like this owing to negative bank rates, you can imagine what would happen to the economy. Hence, another reason for governments to abolish cash.

    I know most commentators at MoneyWeek regard JM Keynes in a poor light, but I find it remarkable anyone should think that our current economic policy is following Keynes’ principles. Whenever did Keynes advocate that a central bank should print money and buy its government’s bonds? And a 90% level of debt to GDP ratio at this stage of the economic cycle?(Indeed, a 90% level at all). The poor bloke would weep if he knew this was being done in his name.

    JOG (expecting debt monitization at some stage (partly here already)).

    • J Corfield

      “Partly” obviously a very understated sort of fella Mr Goblin!!

      And as for hoarding money well back in the day they used to call it saving money I believe.

      • Jimmy O’ Goblin

        Yes, using the word ‘hoarding’ does have an air of greed implied when, in fact, the mattress money was people’s hard-earned savings in those days. But, as you know, Keynes’s idea that such money not being in a bank or building society (for example) – and, in turn, not being leant to others to buy houses or start businesses or whatever -, made this money economically idle.

        Indeed, part of the 1920’s Treasury View (Hawtrey) effectively implied that economic expansion by government borrowing would only occur if this idle money was used i.e. economic output could only be increased up to the limit of idle money balances.

        I suppose one could argue that modern Britain has very little idle money – most people save in banks or building societies. Would this change if people were charged for deposits? What would be the economic effect of people holding idle money?

        Watch this space.



        • Sunfire

          Here in the UK we are not going to be moving to a cashless society any time soon despite the efforts of the banks and card processing companies (e.g. contactless payments).
          Many small retailers here do not accept card payments especially because of the high fees charged by the card companies to process the payments.
          I compare this to New Zealand where I lived for a few years where almost everywhere accepted card payments even for small amounts. I only found three retailers which were cash only during my time there.
          The UK is way behind the times in moving to a cashless society.

    • Rollo10

      The Economy is nothing like in Keynes day. Today we have a Trade that is in tatters, dropped from 28% of GDP in 1997, to just 7% today. Our nations income comes from ‘LOANS’ created from thin-air by Banks. Because Corporations force down wages, less and less is spent into the Economy from ‘Earned’ Income. Our manufacturing was sent off shore for less wages and brought in ‘Free Trade’ sold on our ‘fixed market’ at the expense of local jobs!
      Iceland, besides jailing their bankers, have just announced a Debt ‘forgiveness’ on all Mortgages.

  • Jim Rawlins

    There are no negative interest rates for retail customers at Danish banks. And while the central bank has indeed stopped printing banknotes, it has outsourced that, not halted the process entirely as this article implies.

  • Emailonly

    Interest rates aside, I for one, am not happy about the slow march from tangible things and cash towards e-banking, e-money, e-stock brokers etc. For one you are at the mercy of hackers, computer viruses and goodness knows what else. I’d rather take my chances with burglers thank you very much.
    Also what happens if there is an emergency? Anything from a prolonged powercut to terrorism to war. How would our society, with our dependence on e-banking etc. cope under WWII conditions (for example)? Not particularly well I should think…

  • Michael Pace

    I have been talking for years that money is obsolete. Everybody has a bank card and or using checks. Ever since the debit card came into existence checks are no longer needed especially when the check asmount is automatically deducted from the account once the check is scanned by the vendor. 99% of the time I do not carry cash on me. The times I do carry cash I hate it. I cannot wait when the US takes the same measure. There is a Walmart in the south that does not take cash. Go Walmart!!! 🙂 I can make several points why currency is bad and not one good reason to keep currency. Keep in mind that we would still need exchange rates. I cannot wait for the day when they too become obsolete.

  • Brucie

    Worries me: on the one hand you have people like Bill Bonner intimating we should hold a lot of cash for safety & now we hear it is to be eliminated – perhaps.
    It will be local charity groups who will really suffer as, up & down the land, much of what they raise is in the form of cash or cheques (something else being targeted). Just how, Mr. Pace, do you expect these small groups to take donations via debit card ?

  • loads2

    “hang on to your gold” actually means

    you have lost a fortune because you bought gold on moneyweek’s many previous recommendations over the many years since 2011 (money week has been ‘tipping’ gold “as an insurance” ‘against monetary breakdown’ etc).

    fact is gold has slumped 30% and if you are still “hanging onto your gold” you are nursing the losses from following previous moneyweek tips since 2011

    by the way – i dont remember ever reading moneyweek telling us to sell gold before the slump,

    fact also is the value of “hanging onto your gold” is constantly being eaten away by the storage charges / fees / whatever (even bullion vault charge to hold the stuff)

    and the fact also is now the value of your gold in GBP now only seems to move in line with the USD:GBP exchange rate – since the price of gold which has been flattish at around 1200 USD for ages… and some people still say gold is drifting (down) in value.

    rather than put money into something (ie gold) that most people have lost loads on (and continue to lose even more by holding it), perhaps moneyweek ought to state some of the hard facts of what comes of following moneyweek tips.. (buyer beware etc.)

    i read mervyn your other post suggesting china is about to soar (again); thats fine, we respect your knowledge, but..


    • 4-caster

      Merryn did tell us that she was selling some of her gold, in MoneyWeek on 17th December 2011. On the same day, John Stepek’s MoneyMorning email said: “Certainly, if gold on its own accounts for 30% or more of your portfolio, I’d suggest you at least consider moving some of your money into other assets (maybe some of the high quality blue-chips we’ve been tipping for a while now).”
      Those without good memories should keep a good filing system!

      • loads2

        I’m actually referring to money week and Mervyn continuing to tip gold in 2012 2013 2014 and even now in 2015.

        I hadn’t heard of money week or Mervyn in 2011 but I do remember her and others tipping it heavily in 2012 and 2013. I still have something from them in early 2013 categorically stating gbss (gbp based gold etf) would “double in value in 12 months”. In fact it has lost 35% over the same period. Then of course there were all the silly miner recommendations they made, for example pog which has lost 98% since their first tip. I don’t recall reading definitive sell recommendations on pog gbss or gold,… Time speaks volumes…

        • I wouldn’t hold your breath for any tips from ‘Mervyn’ !! he left the bank of England a long time ago.
          or are you thinking of Merryn? (;-))

        • Rollo10

          It hasn’t ‘lost’ Fed has spent a small fortune keeping the price pegged. Twice last summer they had to bail-out German bank overnight, as German Bonds collapsed.

    • Rollo10

      Gold prices have been up and down since it’s high in 2011, this is because the Fed Res have been fixing the price. This is why China…and Russia have been buying at such low rates. China is particularly peeved at US and UK setting rates on something it doesn’t own. This is why the banks are sweating now, their system has ran it’s course and is about to blow up in their faces. As China angle to issue gold backed Yuan.

  • Peter Brand

    Hi Merryn, Hi John Stepek.

    Could you consider an article on the launch of BitGold CVE:XAU please.

    It hits both your interest areas, gold + Blockchain tech, and should be of interest to your readers who want an asset backed (non-fiat) alternative to PayPay…

  • Andrew Benn

    This is frightening stuff.

    It might sound like a good idea to get rid of cash but is it really? No more transportation of cash – so what? Less crime – perhaps? But less tax evasion – really? Are we now to allow Governments to snoop into our bank accounts to find out what we have been doing with our digital money? Perhaps this is what GCHQ is already doing under the guise of counter-terrorism.

    Then, once we’ve entirely gone over to a digital currency and got rid of cash, you then add in this idea from Iceland: where Government takes over the fractional banking system (and fractional banking is under attack from many academic quarters at the moment) you will have then created a virtual Stalinist state. The Government will decide how much you can borrow and what you can spend it on and will keep tabs on your bank account to make sure you do.

    Be careful what you wish for.

    • KB

      Even though I use credit card do do most of my shoppingand paying for things, It is still nice to feel some cash in my wallet, and I feel the same about a cashless society, is that Government will have more control over our spending and saving. That is whjat they are driving towards.

  • harrythespyder

    i doubt isis will sign up for it.

  • Rãvî

    As the Welfare State safety net ‘below which none can fall and above which all can rise’ slowly becomes a keep net -into which the many will be inveigled- the need for disposable money will not be an issue. The Governments will pitch the taxation such that one will have enough to pay for necessities and get to work on time. Tax free amount increased, as wages are driven lower and minimum wage is raised higher, means inevitably workers will all be paid the same, except for card-carrying party members that is.

  • Charles Newall

    Nothing to stop governments from confiscating cash, they just have to declare older that a range banknotes or no longer valid, could be done with £50, €500, or CHF 1000 notes, this would effectively knock out most of the hoarders.

    Must be lots of Precedents, done in France after the war to confiscate all the ill gotten gains made through the black market.

    • Galahad Threepwood

      The end of cash means the end of freedom

  • NG

    The pound is not backed by gold – it floats against the dollar and the Bretton Woods guarantee to redeem dollars against gold at the rate of 35$ against a troy ounce of fine gold was cancelled in 1971. The BoE has invented £375 billion electronic funds for QE quantitative easing. There is no real separation of retail banks and the rest – shadow banks, mechant banks, investment banks. Retail banks operate using fractional reserve banking and the reserve ratios are next to nil. The Government has undertaken to guarantee retail deposits placed in all manner of “banks”. Many “banks” have issued derivatives to the tune of trillions which they cannot possibly cover or hold highly leveraged, illiquid or overvalued assets. Now factor in a skyrocketting £1.36 trillion gross national UK debt. Anyone who puts his trust in “electronic money” or even paper “fiat money” under these circumstances needs his head examined.

  • Colin Laverick

    Good idea. Would stop cash in hand builders and drugs dealers in their tracks , save for barter . Perhaps they’ll use cowrie shells?

  • KB

    Be careful of going down the road of a cashless society, anytime any Government comes up with ideas about how we should save or spend our money, They have an hidden agenda.

  • Dunnyveg

    Let’s see….Danes will no longer be able to keep cash, but instead will have to keep all of their money in banks that will charge them interest to keep it.

    Does anybody still doubt that liberalism is the state at war with its own citizens?

  • George Oikonomidis

    I would like to bring your
    attention towards an idea presented for the first time (that I know of)
    in 1975 by the late American lawyer Stuart M. Speiser :

    Congressman Polis in USA also proposed the very same thing:

    have slightly adjusted the idea into todays technological possibilities
    (mainly mobile communications) and you can find it in brief at the “American-Hellenic Chamber of Commerce” Business Partners magazine: , while in the there-mentioned blog of mine, you can also find the rest of the material on the idea.

  • So now the Danish government will have a database of ALL transactions to analyze. Once they make a determination that many purchases are “unnecessary” for some reason or other, they will make a move to restrict or ban that particular transaction. In addition, they now have an easy way to increase taxes as they can cross-check purchases made by individuals compared to income and capital gains tax returns. Shaming such individuals becomes part of the deal.

    In short, the government will become far more active into determining your purchasing history, and negating your liberties something fierce.

  • Rollo10

    First, we need to ask why bank rates are going ‘negative’? The fact that the system is fixed and failing, is being used against the people as a ‘tool’ of mass control. The people ‘with’ money have nothing to invest in, rates are low, and the market is fixed. Those without, rely on friends with surplus to borrow from, interest free. Banks want to charge ‘everyone’ interest, at present they only charge companies with excess of €100,000.(?)
    IF digital comes in, we will be controlled, we will be taxed if we save [over a limit] we will be stopped from ‘buying’ if we speak out of turn [i.e.against Government] and Poverty will surge! Anyone promoting this, needs shooting!

  • bill14224

    Since when is saving money an unhealthy crime? Perhaps our feckless leaders should stop doing things to make us worker bees not trust them. Ever think of that, Pencilneck?? Stop the world. I want off. I don’t belong here anymore. I’m no genius but its obvious to me worldwide tyranny is closing in on us all.

  • danielholeman

    I wonder how they would deal with power outages or systems going down.