India is banning large notes. The 500 euro note has been withdrawn. Venezuela is withdrawing its highest bills. Central bankers around the world have started to make serious speeches about abolishing cash, while tech companies are investing millions getting us to use cards and phones instead. The war on cash has never been more intense.
To listen to many of the reports, and to follow the trend among regulators, you might imagine that it was only a matter of time before the notes and coins in our pockets went the way of the typewriter or the horse and carriage – historical curiosities, to be found only in museums.
To its growing army of critics, cash is a pointless relic. It is costly and inefficient, both to manufacture, process and protect. Even worse, it mainly exists to facilitate crime, to finance the black economy, and to help people avoid tax. On top of that, it prevents central banks from driving interest rates significantly below zero, and so traps the economy in a recession. The sooner we get rid of it, the better.
The trouble is, ordinary people don’t seem to see it that way. They like cash more than ever. A new study of 18,000 people in seven countries in the International Journal of Central Banking found that cash was still overwhelmingly the dominant method of payment.
Its usage ranged from 46% of transactions in the US, the country with the lowest ratio, to more than 80% in Germany, the country with the highest. Nowhere outside of the US had it fallen below 50%. And in no country did it seem to be in any significant decline. According to Bank of England figures, the number of notes and coins in circulation in the UK rose by 8% in the last year alone.
One reason the Bank introduced the new plastic five pound note was because demand was so strong it needed something more hard-wearing. Cash is proving durable. Instead of being phased out, it is more and more popular.
There are four reasons for this. First, cash is convenient. There is no simpler way of paying for small items. You don’t have to log in to anything, there aren’t any fiddly passwords to remember, it doesn’t crash when you most need it, and the machinery doesn’t ever break down. You simply hand over the note, collect the change, and you’re done. Secondly, it is secure. True, you might get your wallet stolen from time to time. But it will never be hacked, nor does it expose you to identity fraud or demand you phone a call centre in India.
Thirdly, we can’t know for certain, but mass migration and the gig economy may well mean the informal economy is growing – and that is cash-based. It is never easy to measure the black economy, for the simple reason that it is meant to be hidden, but in the UK it is estimated to account for around 10% of GDP. In other countries it is much larger – and it may well be starting to grow.
Finally – and admittedly this is conjecture – people sense that purely electronic money hands too much power to governments and regulators, and hang onto cash because they value its relative freedom. Cash is not just relatively secure compared with the alternatives, it is also very hard to trace. Not many of us are money launderers or drug dealers.
But lots of people might well have a sense that a world where there was no cash, and every payment was made by card or on the phone, would also be one where everywhere they went and everything they did was logged and recorded. They don’t feel comfortable with that – and rightly so. People like cash – it just won’t be possible to get rid of it.