The End of Cash? Beware sleepwalking into a world without hard currency

 
Elliott Haworth
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As global wealth has accumulated over time, so the demand for hard cash has waned. A mere eight per cent of the world’s money is in notes and coins, according to estimates using World Bank data.

Depending on where one looks, the days of physical currency seem numbered. In the UK, especially in London, cashless payments are king.

Starting with the Oyster card in 2003, the gradual dissolution of cash as the go-to method of payment crystalised in 2014, when all public transport stopped accepting coins and notes. Today, the capital is home to one of the most concentrated volumes of cashless payments in the world.

The rapid proliferation of mobile and contactless payments in the UK is a spectacle. The former accounted for £370m in the first six months of 2017, up 336 per cent year-on-year. The latter, contactless payments, accounted for £9bn across the same period.

In June, for the first time, cash was overtaken by card payments in the UK. In 2015, it was predicted it would take until 2021 for the scales to tip. While £73bn of notes are presently in circulation, one in three Brits believe cash won’t survive another 20 years.

Read more: Debit cards will overtake cold hard cash much sooner than everyone expecte

Riks-y business

Although the creep to a cash free society is inevitable, compared to other developed nations, the UK is lagging. According to Riksbank, Sweden’s central bank, cash transactions will make up barely half a per cent of the value of all payments made in the country by 2020.

Many Nordic businesses refuse cash already. This is a trend that firms like Visa, which provides infrastructure for electronic funds transfers, are keen to replicate elsewhere.

Its Visa Vision programme is considering providing UK firms with incentives to “go cashless”. Naturally, as payments is its game and it profits on every transaction, the push is hardly surprising.

Don’t bank on it

Despite the crawl to a world without cash, the UK is presently rolling out a selection of new banknotes. In the same breath that South Korea announced its aim to take all coinage out of circulation within three years, the Royal Mint issued a “forgery proof” £1 coin.

Meanwhile India, a developing economy, is striding towards a “less-cash” society. Large denomination currencies were controversially taken out of circulation in November of last year, in aid of diminishing the large volumes of untaxed cash transactions.

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Large denomination banknotes were controversially taken out of circulation in India last November (Source: Getty)

According to Prime Minister Narendra Modi, the large notes facilitate corruption, the funding of terrorist groups, and are more prone to counterfeiting. Less cash means less fraud, the thinking goes. Cash facilitates crime because it is anonymous, and big bills are especially problematic because they are easier to carry and conceal.

Over a period of many years, India, an economy dominated by small vendors making small transactions, is aiming to eradicate cash in favour of digital transactions.

The fintech revolution has provided myriad options. WeChat, a messaging service popular in China, doubles up as a platform upon which users can send each other money. Another service, M-Pesa, is used by millions of Kenyans to send money via text message – transactions through it account for half of the nation’s GDP.

Read more: The digital innovations transforming life for the poorest

No surprises

For governments failing to collect tax receipts, when every transaction is digital, each leaving a data trail, a tax inspector’s job becomes far easier, in theory.

Notions that abolishing cash will crush black markets are moot in an age of cryptocurrency, though.

Criminals will likely use services such as bitcoin, or trade in US dollars, as is common in countries suffering from hyperinflation, such as Zimbabwe.

At a macro scale, in the Eurozone, depositor bail-in schemes are now a reality. Without cash, if a big bank fails, its customers will be unable to cause a run on a bank by withdrawing their savings. Good for banks and economic stability. Perhaps not so great for worried customers.

Beyond self-preservation, it is unsurprising that banks are so keen on the idea of abolishing cash. The cost of handling and securing it – branches, vans, security staff – would be drastically reduced.

Without cash, if a big bank fails, its customers will be unable to cause a run on a bank by withdrawing their savings.

Indeed, there are positives for citizens. Ease and convenience, for one. Likewise, the loss of a phone or bank card is certainly less painful than losing a wallet stuffed with notes.

There’s even a case that cash is unhygienic. Researchers on New York University’s Dirty Money Project found over 3,000 species of bacteria on a set of one dollar bills.

The Great Unbanked

But on the other side of the soon to be extinct coin, there are whole sections of society that stand to lose out.

The so-called unbanked total some 1.5m UK citizens. Traditionally, banks haven’t prioritised the unbanked, viewing them as having limited commercial potential, and being expensive to serve.

David Gilmour Backs Crisis Urban Village
There are whole economies based on cash (Source: Getty)

As we “go cashless”, society risks excluding the unbanked even further. There are whole economies based on cash – from charity collections, to the legitimate question of how homeless people will survive. Low-income citizens may become detached from the commercial realm through reliance on outmoded methods of payments.

There are political implications too. Without hard currency, everything is just numbers on a screen. Physical cash is being replaced with nothing more than a claim on cash. For economic libertarians and privacy groups, losing all semblance of anonymity is worrisome.

Read more: Bye-bye bank notes? Here's how prepared the UK is to go cashless

It is not likely that cash will disappear any time soon, which is right when so many are still dependent on it.

Cash is millenia-old, and replacing it, however inevitable, should not be rushed. It requires a massive cultural shift. Verve, a market research firm, asked how the regions felt about a cashless society. In London the response rate was 35 per cent negative. In Wales, it was 66 per cent.

A cashless society requires the development of technologies that can ensure the unbanked don’t become an underclass. It requires concerns about liberty and privacy to be addressed.

Most of all, it requires that when the time does come, we don’t even notice the transition.

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