I noticed some media commentary around the small (7%) rise in the number or cash payments made in the UK last year. There were indeed 6.4 billion cash payments, a rise on 2022. However, given the overall rise in the number of payments, the share of payments made with cash actually fell again. Ten years ago over half of all payments in the UK were made the cash, it’s now a seventh and still falling. Some parts of the country are already effectively cashless.
At the 2020 World Economic Forum in Davos, John Cryan (then the co-CEO of Deutsche Bank AG), said that cash could become history “
within a decade ”. He made a particular point about how cash supports the underground economy. The Bundesbank, for example, estimates that only 10-15% of the cash in Germany is used to support the needs of commerce and this tallies with the Bank of England’s estimates of the cash used for what they call “transactional purposes”.
As we look to the future, we can begin to ask, quite reasonably, whether developments in digital payment technology and changes in payments and banking regulation will realise Mr. Cryan’s prediction. Will cash vanish by 2030? I doubt it will disappear although it will certianly become irrelvant to many. Either way, we (ie, the U.K.) ought to start thinking about a policy for managing cash decline.
What should that policy be though? We might begin by noting that Professor Leo van Hove (Europe’s foremost expert on the topic) has long held that cross-subsidising cash is not a welfare-maximising strategy. Jack Dorsey of Twitter and Block fame once tweeted that “In general, the shift toward a cashless society appears to improve economic welfare.” He is, of course, correct so we ought to“nudge” consumers toward this future instead of trying to preserve cash infrastructure at all costs.
That cash infrastucture is far from free. Take a look at the economics of ATM networks as cash transaction volumes fall. The machines are expensive to install (and to replace in places such as Philadelphia where they are being blown up at an alarming rate) and it costs money to distribute to the money: someone is paying for security guards and armoured trucks and so on (it’s you, by the way). This is why John Howells (the CEO of Link, which runs 70,000 ATMs in the UK) said cash could be “almost killed off” by the COVID pandemic.
There dynamics, as you can imagine, have significant ramifications. Consumers face higher charges, for one thing, as the cost of the network is spread over fewer transactions, which is why the UK “Access to Cash” strategy is working to prevent “ATM deserts”.
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Many of Sweden’s bank branches stopped handling cash years ago. Now, they will have to begin doing so all over again, and many are not happy about it. Nor are Sweden’s competition and financial watchdogs, which both oppose the proposal, arguing access to cash should be the sole responsibility of the state and not private banks.
“To secure access to cash is a collective good that the state should reasonably be responsible for,” the Swedish Financial Supervisory Authority said. It’s an opinion shared by ATM provider Bankomat, which argued cash should be the state’s responsibility since the handing of notes and coins is such an important – and expensive – part of a country’s infrastructure.
From Are we sleepwalking into a cashless society? – Central Banking:
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In particular, it seems to me the idea that we need to keep cash in order to support less well-off members of society is misplaced. UK research indicates that
families who trapped in the cash economy are hundreds of pounds per annum worse off than families who are not. The reasons are multiple: the cost of cash acquisition, the inability to pay utilities through direct debit, exclusion from online deals and a variety of losses. There’s something unfair about this. People who choose to exist in a cash economy to avoid taxes (eg, gangsters) are cross-subsidised by the rest of us. People who have no choice but to exist in a cash economy are not cross-subsidised at all.
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A cashless society isn’t one in which cash is illegal, it’s one in which cash is irrelevant.
From: Cashless Does Not Mean What You Think It Means.
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Snippings 