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.