Cash is becoming scarce. And business would like to be rid of it. From a tax perspective I can share their view. From society's perspective that is harder to justify: too many do not have access to banking.
The Access to Cash Review has reported this morning:
The Access to Cash Review — Final Report calls on the Government, regulators and banks to act now or risk leaving millions behind.
The Review's action plan to protect cash access calls for:
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Government and regulators to step in urgently to ensure cash remains viable
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A “Guarantee to Cash Access” for all, including those in remote and rural areas
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Those providing essential services to be required to allow consumers to pay by cash
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A more efficient, effective and resilient wholesale cash infrastructure to ensure that cash remains viable as its use declines.
So, how can cash work?
And do we need anything bigger than a £10 note?
Discuss......
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In 1970 before Thatcher’s financial deregulation of the 1980s half of the money in the economy was cash – i.e. a BOE “hypothetical debt” – and half was created as true debt by commercial banks either for loans or to buy treasury bonds. Now, half a century later, only 2.5% is cash and – before QE – 98% was debt created by commercial banks. No wonder debt became a problem and the world economy crashed – with mainstream economists, who do not consider the source of money in their misguided models, stuck with their fingers either in their mouths or scratching their heads! £425bn QE could have addressed that problem and reduced that debt halfway back to the successful post war norm at 75% . Instead it cascaded , via banks and pension funds, into inflating existing assets creating bubbles in shares and property. No wonder economies are stagnant and still weighed down by debt; and governments or central banks are unable to create any inflation in the real economy to inflate way that debt!
Excellent comment Peter . There are two forces at work to eliminate cash . One is the conflation of big banks and government . The other is all those who are fooled into thinking that ‘ convenience ‘ equals freedom . Taken together they align to demonise cash as something old fashioned and dirty and they are aided and abetted in this by those who think that anyone ( except if you are old like me ) handling cash is something nefarious. That old brown nose Ken Rogoff even wrote a book with the title ‘ The Curse of Cash ‘ to prove my point . Well we ain’t done with it yet and if you can hover between the two realms I urge you to do so .
Can I just add : I’ve just read the paper by one Paul Asplin OBE FCA President of the ICAEW on tax digitalisation in which he says ‘ While certainly the main aim of taxation is to collect the resources the government needs in order to enact its policies ‘ . Yes read it again. This guy, president of the Institute of Chartered Accountants of England and Wales, doesn’t have the faintest idea of how money is created and what the purpose of tax is . Good job he’s just a president of something and not actually doing something useful.
I suspect he is one of more than 99% of accountants who do not know that
I know Paul
I will discuss it with him
Use electronic transactions and your every move can be traced. Cash is untraceable. Cash is preferred by criminals and upright citizens who strongly object to being perpetually monitored and tracked.
Make of that what you will but I think the death of cash would be another brick in the wall of the death of privacy and liberty.
I am a libertarian by instinct
This is not an issue of importance for that reason
Also instinctively a libertarian, I don’t have a problem with going cashless either. I rarely ever use it. Future generations will look back with astonishment that people actually carried physical money with them. And I can think of many more pressing issues.
A long read but offers some relevant insights based on Sweden’s experience thus far. Jonas Hedman, associate professor at the department of digitalization at the Copenhagen Business School summarises by saying: “It’s something we can’t stop. Sadly. Or, thank God. I don’t know. We’re heading on that path regardless of what we do”.
I agree with him
And for the marginal impact cash now has on transactions as a whole the issue is how to give people access to cashless transactions, and not to save paper and coin based money
Oops! Apologies. I forgot the link if anyone’s interested in the full interview – http://knowledge.wharton.upenn.edu/article/going-cashless-can-learn-swedens-experience.
Quite amazed that people are completely unbothered by the superb surveillance opportunities offered by cashless transactions. Is this compatible with libertarianism?
Or am I missing something?
I say it is
I live in the rural thugh increasingly suburbanised market town of Buckingham, not far from Milton keynes and Oxford. In MK and Oxford, there are homeless people huddled in doorways, small cup in front of them on the pavement, and I add to the handful of coins and occasional note. I assume the recipient does not take mMastercard or Visa. I buy a copy of Big Issue. Can’t pay with credit card. In Buckingham, there is a street market selling good quality vegetables, cheap clothing, fish, meat, books, CDs and DVDs, magazines, cards, household goods and hardware. Only the fish man from Grimsby offers card facilities. Every one of the other traders accept only cash. A busker outside the supermarket warbling away cannot be paid by cash. Street charity collections are cash only. The occasional visit to church sees me dropping coins into the collection plate. The car park outside Waitrose operated by Aylesbury Vale District Council is cash only, though they may be installing card machines. A high proportion of shoppers in the town centre are elderly, have no credit cards, may not be able to use the telephone easily, and rely on csh for all their purchases. The banks in Buckingham are one by one closing down and there are fewer ATMs, which in any case require a card for provision of cash. At Christmas, there are tips for the paper delivery man, the postman, and others: these are cash gifts. Tips at the hairdresser are invariably in cash. Cash is essential for innumerable day to day transactions where card payments would be inconvenient, inappropriate, or impossible. What happens when one loses a card, or it ceases to work properly because of scratching and wear and tear? What about those unfortunates who, possibly through no fault of their own, have poor credit ratings and cannot get cards issued to them?
Cash is essential. There are too many everyday transactions where card payments would be impossible. No cash is discriminatory. No cash excludes a whole section of society from participation in the economy – the poor, the old, the marginal. Coins, £5, £10, and £20 notes, currently. And by ten years time, as inflation and plummeting pound exchange rates, those may become coins, while the £50 will be the only note.
@Mike.
“What happens when one loses a card, or it ceases to work properly….” etc. etc.
Local currencies for the excluded. I think we probably need them already to allow local authorities to function properly and supply services to their populations. Take away government issued cash and it’s a no-brainer.
If local authority officers had a clue about anything other than the managing of fixed budgets (and councillors had a clue about anything) I think they’d be popping-up all over the place already.
Central government hogs all the money. Well sod ’em. The solution, as with all the public services which are being systematically withdrawn, is that we simply have to do it ourselves. Put up our Christmas street lights, operate a welfare safety net of food and clothing banks, police our own streets, run our own leisure facilities….we might aswell operate our own locally beneficial currency system too. If the government won’t issue currency to those who need it we’ll have to issue and manage our own.
At lest this way we’ll be training up active and engaged citizens who understand the MMT mechanism and don’t go into national government and try to run a national economy on housekeeping budget principles.
Something has to give…. Brexit hasn’t even happened yet and the system is buggered already.
I have suggested that they are part of local Green New Deals
People doing things for themselves is already a thing, it’s called spontaneous convergence.
There’s a useful article on it here https://centerforneweconomics.org/newsletters/spontaneous-convergence/
And, as is becoming apparent, councils need to follow the example of Preston, where, whenever possible, they’re spending their money with local businesses. Preston, in some ways, prospers while other areas decay.
Perhaps local banking too, a la North Dakota on which, for the curious, Ellen “Web of Debt” Brown has written repeatedly . Well, a must actually. I know Werner was behind the proposed Hampshire Bank, (he being from the land of the Sparkassen) which last I heard of was looking for a license. I wonder if this is it? https://www.wessexcommunitybank.org/ I’ll have to look into this further.
Every day, day after day, I read stories about surveillance capitalism. The creepiness just never ends. A cashless society may be great for cutting down on certain kinds of tax avoidance but the price in terms extra surveillance is grotesque and the govt’s ability to regulate it is apparently non-existent. I’d like to think the cashless society is about as likely and as desirable as the paperless office, but the social implications are very much more important and warrant a discussion and consent not a fait accompli.
Why Cash is better than cheques and especially better than credit cards
Using cash means you spend as you go. No temptation to impulse purchases
Using cash means Big Brother is not watching your every move
If you get mugged, you only lose the cash in your wallet/handbag. Lose your credit cards or chequebook, and you can be robbed of everything
You don’t have to insure against loss or theft of cash (like you must because of the high risk with cards)
With cash you can’t spend beyond your credit limit (like on Debit Cards) so you don’t get stung for punitive unauthorised overdraft charges.
By law cash, and only cash is acceptable everywhere. Retailers can refuse everything else.
No more embarrassing ‘credit refused’ moments in the check-out queue (nor the worry that it might happen)
No need to remember those silly PIN numbers (which don’t stop fraud anyway)
Retailers get ripped off 3% of your sale for accepting cards. Try negotiating a discount for cash–you are already paying 3% more anyway for the mugs with cards.
Using cash means that our Government (and not the international banks) gets a small bonus called ‘seigniorage’ – an interest payment for the use of money. If we could all use our own national cash rather than bank-money in the form of cards and cheques for half of all purchases, then the tax bill could be cut by £40 billion. That would be a tax-cut of about £1,000 per year for every tax-payer in the UK!
“Handling a wad of cash may be as good at killing pain than ibuprofen or aspirin” Handling cash boosts your self-esteem (in a way that cards or cheques never can). Experiments show that just fondling those £20s and £50s notes does you good, relieves pain, makes you feel better about yourself. (Vohs, K 2009 The Symbolic Power of Money: Reminders of Money Alter Social Distress and Physical Pain, J Psych Science 20:700 http://pss.sagepub.com/content/20/6/700 )
Conall Boyle makes the point that “Retailers get ripped off 3% of your sale for accepting cards.” That is the gateway to heaven for bank executives: you buy a newspaper and your newsagent takes a 3% hit, so his/her business is adversely affected. Similarly for all your small purchases. It’s another example of the enrichment of the few at the expense of the less well-off majority.
But look at it from the bank executive’s point of view: ever-increasing bonuses as less and less cash circulates. Add in the widespread elimination of bank branches and ATMs, with huge consequent savings on staff and property costs and they’re laughing all the way to their own bank. No wonder they’re pushing to eliminate cheques, cash and retail banking: it’s as close as you can get to money for nothing!
Agreed
Visa and MasterCard are massive rip-off agents
My answer is that yes we do need physical cash because using plastic is just too easy and harder to keep track of expenditure. Many a CAB would have a view on this.
But also since we issue debt through plastic as well, I’m worried that public perception just melds the two together especially as real money seems to be short as opposed to the expansion of credit.
I think that plastic demeans the value of money – it turns it into an even more abstract concept than it already is.
Having made known my concerns I can still see the use and the benefit to having traceable spending through a card for all sorts of good reasons.
But when considering the concept of surveillance capitalism I soon lose my enthusiasm.
It’s a difficult one.
Richard you say ” I am a libertarian by instinct (a cashless society) is not an issue for that reason”. I share your libertarian instincts, however I have no desire to place the oxygen of my economic lively-hood in the hands of the banksters. What if the bank suddenly decided that they no longer liked the colour of my eyes? The banks by shutting down my account and blacklisting could starve me to death. A micro version of USA sanctions. A perfect weapon in the hands of the 1% to permanently enslave the 99%. Be careful what you wish for.
Indeed, it could open the door to the sort of discrimination currently being practised in China, where if the authorities consider your behaviour insufficiently socially oriented you might lose the ability to pay for travel by train or plane, for example.
Notably this happened to Wikileaks and Julian Assange.
Credit card access for donations was cut off under pressure from the US government (I assume)
I’m not sure what my opinions are on Julian Assange, but he was not taken to trial and found guilty, or accused of anything in the US, so this was an extra legal punishment.
On the other hand, my son is 16, and I am wondering about giving him a low limit credit card for things like allowance, uber, coffees. – At what age is it appropriate?
John Adams says:
” What if the bank suddenly decided that they no longer liked the colour of my eyes? The banks by shutting down my account and blacklisting could starve me to death. A micro version of USA sanctions. A perfect weapon in the hands of the 1% to permanently enslave the 99%. Be careful what you wish for.”
Then extend that thinking a small way …. what if one of the supermarkets or high street chains decided to make itself more exclusive. Payment by Platinum card only….access to the shop at all only witha flash of the approved card….
It doesn’t require much of a stretch of the imagination to envisage a totally dystopic, economic-class divided society. A system of easily enforced economic apartheid. In fact I’d say it’s the logical extension of the current direction of travel……
Good point Andy. Money or credit acts as our proxy to acquire the necessities of life. Its been said “if they could bottle the air we breath and sell it to us they would”. A cashless society hands them that ability.
Personally the majority of my financial activity is transacted electronically. Generally I have no problem with that and certainly we all are better off not transferring bacteria so easily.
However, i have problems when there is no electricity or connectivity – a major breakdown in retail markets happens then.
Can’t even buy a beer!
It is also easier travelling to far off places with currency that is recognised by the locals.
If cash is removed, people will find alternative tokens, sometimes they may even prefer them!
I once bought a 1/4 bottle of whisky in a far flung tribal village in the Gran Sabbana, from the chief who had one light bulb and a hand generator and a few items in his hut. He didn’t want money – but looked at my boots, which i handed over and he gave to a youth of the tribe to see if they fitted. Fortunately they did – and our little band got some alcohol days away from a real shop.. the old ways.
That is a good point about what happens if there is no electricity. It is not uncommon to have major storms, etc. I think in general we are creating a very fragile society where there is no resilience in the technological system so any sort of serious breakdown in either the power supply or communications network would be calamitous because hardly anything would work. I have a cousin who runs an Internet interconnection hub in the London area. These are like the central telephone exchange through which all the traffic for the UK flows. I gather that there are less than 10 in the UK and so less than 10 strategically placed bombs could leave the entire UK internet disabled and cut-off from the World potentially for weeks. That would be no bank payments, no access to e-mail or cloud data, no download music or film, etc etc. Add in to that having no cash because it is all digital and such a breakdown would cause a revolution in less than 48 hours.
Tim Rideout says:
“That is a good point about what happens if there is no electricity. It is not uncommon to have major storms, etc. I think in general we are creating a very fragile society…..”
‘Fragile’ barely touches it. Major weather storms cause local disruption, but what is a potentially much more widespread chaos could be caused by a major Solar electro-magnetic storm. Or so it is said.
A major outage would take out banking, shopping, domestic heating industrial communication systems the whole works.
Social order would be in tatters in hours rather than days. I reckon that’s extreme fragility. Loss of electricity supply is possibly the biggest threat to any nation’s security and way above the threat of military invasion, terrorist attacks… almost everywhere, but particularly in our high tech western industrial societies.
I have no idea whether governments have adequate planning for such eventualities beyond expecting military and armed police oppression of the populace to keep a lid on the chaos.
We’re arguably at a stage now where society itself needs to be backed up. Can we reboot, if necessary? Do we have some sort of system restore in place? I bet not…
I am not keen on the idea of negative interest rates on normal earnings/savings.
For most of my life I have lived in rural areas and worked from home. Cards and the internet have been indispensable. But cash is also required for many transactions, as others have noted, although I think eventually it will become obsolete. However, as long as it’s still needed and wanted, access to cash is an issue as fewer and fewer banks still maintain branches and ATM’s (free or charged) are under threat, especially in rural areas.
I wonder though if global warming and sea level rising will threaten to disrupt electronic commerce as major financial centres like London and New York find themselves swimming with the sharks. No doubt they have thought about this and have built in resilience or plan on moving their data banks to higher and colder ground so that we can continue to spend cashlessly much as before.
“I’ve just read the paper by one Paul Asplin OBE FCA President of the ICAEW on tax digitalisation in which he says ‘ While certainly the main aim of taxation is to collect the resources the government needs in order to enact its policies ‘ .”
Paul Asplin would be right if he said, “The main aim of taxation is to command the real resources the government needs in order to enact its policies.”
The problem with his statement is that it seems that the word “resources” is used as a synonym for “currency”.
The government doesn’t need currency from taxpayers (it creates its own). It needs real resources such as labour, materials, goods, and services that will enable it to fulfill its responsibilities as a government. Imposing a tax obligation in the government’s currency creates unemployed people – people who are offering labour power, goods, and services in return for currency. The government gets rid of the unemployment by using its currency to buy the real resources that it needs. If there is any unemployment left over, it means that the government is spending too little or taxing too much, depending on your ideological preferences about the size and scope of government.
I was in a pub last year when Mastercard or Visa went down worldwide and a dozen people were waving plastic at the barman. Oh, Joy.
The use of cash provides flexibility to cover situations when electronic transactions may not work and this includes control imposed by authorities or just simply failure of the electricity supply. The fact that less than 3% in value of all transactions involve cash suggests to me that the balance is about right for the future and should be left as it is at present.
Some reports state that 50% of the world digital transactions occur in China. They have bypassed CaP almost entirely and use mobile payment dominated by AliPay and WeChat. As a result QR codes are everywhere literally so it seems from street vendors and taxis to high-end shops. I can pull out cash as a foreigner but when my wife whose Singaporean Chinese does this she gets a quizzical look from the sales person.
But even here cash is the payment of last resort. I agree we don’t need large denomination notes. £20 notes are probably the limit really for most people I know.