Why you can never be paranoid enough: Downing Street’s plans to complete the war on cash

Last year, MoneyWeek wrote quite a lot about what we called the “war on cash” – the way in which central banks and governments seem determined to stop us using actual cash for any transactions at all.

We noted the way in which cash transactions over a few thousand euros were outlawed in much of Europe; we watched the way in which the €500 note was demonised as being the note of choice for all manner of criminals; observed that the Bank Of England website has no timetable on it for the introduction of a new £50 note; and reported at length on a speech in which the Bank’s chief economist Andy Haldane reflected on how much easier modern monetary policy would be if only people were forced to stop using cash.

Lots of you accused us of mild paranoia. Turns out we weren’t anywhere near paranoid enough. The deputy head of Downing Street’s policy unit, Daniel Korski, put forward a pretty radical proposal on the matter.

The aim is to make the UK an entirely cashless society by 2020 with a view to stopping it fuelling the criminal economy; pushing up productivity; and making the UK “the centre for innovation for money in the future”. There’s a large body of thought that reckons this is a pretty good idea – after all, cash does facilitate crime to a degree (although I can’t imagine that without it there would be less crime).

But it is worth remembering the two main reasons why abolishing it is a bad idea. The first is that it removes all privacy: without cash you can never buy or sell a thing or a service without anyone knowing about it. The second is that it opens up the way for the state to confiscate your cash at will. One of the reasons why it is hard to make negative interest rates work (ie to get away with effectively charging people for bank deposits) is that, when pushed, people demand bank notes and store them elsewhere (see my previous blogs on this).

Abolish cash, force everyone to keep their money in digital accounts at the central bank and that problem is gone: the state can take rates as negative as it likes in the happy knowledge that there is nothing the general population can do about it. The last financial defence of the individual against the state is gone. That (for the avoidance of doubt) is not a good thing.

  • Ron Bentham

    I’m surprised you didn’t make the connection between the war on cash and the rise of digital crypto currencies like Bitcoin. If they do succeed in abolishing cash, then those desiring privacy will simply convert their money into Bitcoin and then spend it anonymously as they like. Similarly, money laundering will at a stroke become far more easier in the digital realm than in the physical. There is no end to the ingenuity of the digital criminal mind!

    • marylyn ford

      People will go back to barter, and instead of cash in hand, will do each other’s shopping, or pay their rent and call it a loan, I could go on, but all the government would do would be be to make itself irrelevant, everyone would live outside the system, and claimants would be rioting in the street because there would not be any money.

  • James Glover

    Even a small criminal organisation (less than £1m a year), does not use cash. They’re well equipped for cloning existing personal and business accounts for funnelling completely untraceable payments which are transferred thru a multi-layered structure coming out clean at the end.
    Criminals don’t like cash, it’s harder and more labour-intensive to launder.
    It’s a red herring for governments to blame criminal activity as a reason to scrap cash.

    • Argus

      In Canada, criminals launder wads of cash through the casinos.

  • Hugh Jarsse

    You can take a horse to water but you can’t make it drink, as the saying goes, and so with savings. For individuals who do are deferring their consumption by saving, pushing interest rates negative to induce spending will more completely force these individiuals into assets (often inappropriately), in the same way low interest rates are forcing savers to search for yield in other asset classes now. As pointed out below, such further warping of the monetary system would likely produce many unintended consequences such as avoidance through direct swapping of goods/services (reducing tax take), the rapid rise of cryptocurrencies, increased criminality, asset bubbles, further grotesque misallocation of capital, etc. Most politicians haven’t got two brain cells to rub together so it’s hardly suprising that some are enthusiastically suggesting such changes without actually thinking through the consequences. And ultimately who are the people most likely to keep any savings they do have in the form of cash? – the poor and less well-off – who will be disproportionately penalised.

  • FriarStuck

    I fundamentally don’t get why these people (those in government) have to meddle.

    Everything the government regulates, subsidises, fixes prices upon, is slowly poisoned and ruined, causing intractable problems that rumble on and on, without end.

    The mess that the government have caused with the monetary system in creating huge asset price bubbles, particularly in housing is only just starting to receive main stream attention (despite the housing bubble raging out of control for over 15 years now. Made even worse by not being measured in the inflation numbers.).

    And it’s only receiving attention because long term issues are starting to occur, like falling birth rates, economic stagnation, and rising government debt made worse by demographics.

    And the answer to all of this, is to introduce a currency system that is even more liable to manipulation, dishonesty, and criminality, by those that control it!? That can be used with impunity by the elite to rob blind ordinary people’s savings through inflation.

    Whilst citing “curtailing criminality” as the motivation for doing so.

    Words fail me.

  • azazel

    Gold and silver will just become stronger as the war on cash escalates.

  • Aztec

    Good article but missed another good reason why you need cash. Through the banking regulator banks can be instructed not to deal with certain businesses the government of the day does not approve of.

  • Simon Peacock

    Abolition of cash will inevitably lead to the adoption of an alternative value medium. Charlie Shrem’s experience in prison where tins of fish were used as ‘money macks’ and ‘eating macks’ is a perfect example. India’s attempt to exorcise criminal cash was a complete flop. Rogoff’s book on the subject is breathtakingly elitist. Do the higher-ups really think the prols will allow their liberties to be eroded in such an egregious manner? You cannot proscribe all human ambition, skepticism and self-expression. Andy Haldane et al are driving people into the arms of cryptocurrencies and gold. The only difference between toilet paper and plastic fiat notes is the fact that once the underlying value of fiat is exposed to a disbelieving populous, toilet paper will retain a value based on utility.