Call Cease-Fire in the War on Cash
Last summer, London buses stopped accepting money. To pay your fare, you now have to wave either a prepaid Transport for London Oyster card or a contactless payment bank card at a receiver. For some, not having to dig out a handful of coins is a welcome relief.
For others, though, the disappearance of cash represents a dangerous threat to our liberty. A Google search for "war on cash" produces 109 million results ranging in negativity from skeptical to outraged. But in Britain, at least, physical currency is losing the so-called war.
Last year, non-cash payments in the U.K. economy overtook cash for the first time. And the trend shows little sign of slowing. Figures this week from credit-card company Mastercard show spending by contactless payments in the U.K. soared more than fivefold in the past 12 months, while the number of transactions quadrupled, albeit from a low initial base. Britons have been swift to adopt cards that contain transmitters, and retailers from Tesco to Starbucks to pubs have installed equipment that lets you flash your plastic to pay a bill instantly.
Earlier this year, Citigroup Chief Economist and former Bank of England policy maker Willem Buiter published a paper in which he advocated abolishing physical currency altogether. His concern was a technical argument about giving central banks more freedom to drive borrowing costs below zero. The existence of cash sets a lower boundary to central bank policy, because you can avoid the penalty of negative interest rates by holding physical currency rather than having money in a bank account. Buiter argued that the benefits of a cashless society outweigh privacy concerns:
Abolishing currency would inevitably be associated with a loss of privacy and create risks of excessive intrusion by the government (and other would-be inspectors). The well-known monetary economist Charles Goodhart indeed refers to the proposal to abolish currency as “shockingly illiberal”. In our view, the net benefit to society from giving up the anonymity of currency holdings is likely to be positive (including for tax compliance).
The opponents of the move to digital money see things differently. Here, for example, is a post on the Mises Institute website:
The ostensible reason given by our rulers for suppressing cash is to keep society safe from terrorists, tax evaders, money launderers, drug cartels and sundry other villains, real or imagined. But the actual aim of the recent flood of laws rendering cash transactions less convenient or limiting or even prohibiting them is to force the public at large to make payments through the financial system in order to prop up the unstable fractional-reserve banks and, more importantly, to expand the ability of governments to spy on and keep track of their citizens’ most private financial dealings.
I've just finished watching a BBC drama called The Last Enemy which paints a dystopian picture of Britain as a police state. As well as tracking people's movements by knowing when they tap a card to use the transport system, one of the key tools used to keep citizens in line is the government's ability to close the bank accounts of alleged undesirables.
You don't have to be a conspiracy theorist, though, to appreciate the benefits of having a stash of cash. Greece's temporary introduction of capital controls earlier this year, for example, restricted ATM withdrawals to 60 euros ($68) per day. And on Friday, a glitch in HSBC's U.K. banking computers meant 275,000 payments didn't happen, including end-of-month salary payments worth millions of pounds.
It's good that we're embracing new technology that lets us pay a bar bill or buy a bag of groceries with a wave of a card. But it's time to call a cease-fire in the cash war. Buiter's fantasy to the contrary, there's no good reason physical currency shouldn't continue alongside the digital variety. Even if it's never needed in our more efficient economic future, it can serve as a reminder of a more quaint economic past.
This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.
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