Does Cash Have A Future?
THE FUTURIAN #1
Human societies have been using cash for a very long time. Depending upon who you believe, there is evidence to suggest that Chinese societies used a form of coinage over 3,000 year ago. With such longevity, the forces that could displace cash (i.e. notes and coin) would have to be very powerful indeed.
There are those who take the view that the information revolution could be such a force. We are all accustomed to the view that the internet has changed everything. The methods by which we pay each other has not escaped this trend. In many respects, this is the natural consequence of the financial liberalisation of the 1980s. At that time, across the developed world, exchange controls were swept away, financial markets were de-regulated, and the basis for the great credit expansion of the next twenty years was laid down. Briefly halted after the global financial crisis, that trajectory has resumed in recent years.
During this period, according to UK Finance, the value of cash transactions in the UK economy fell from about 60% of all payments in 2008 to about 28% in 2018. In the same period, nominal GDP rose overall by 16.8%. Despite nominal GDP rising by about an eighth, the number of cash transactions more than halved. The fall is forecast to continue into the next decade, with cash transactions representing only 9% of all payments by 2028. The rise of the non-cash transactions can be explained by the increase in numbers of people who have bank accounts, use credit cards, and, more latterly, undertake on-line transactions. All of these trends suggest that cash is on its way out.
However, this is not the entire picture. Those who take a technocratic view of human activity find the continued existence of cash as something illogical. As a transactional device, it is cumbersome, it requires constant replenishment, and it is quite vulnerable to loss. This might be so, but cash also plays a social role as well as an economic one. When a parent gives pocket money to their children, there is more to it than a mere financial transaction. The parent is creating a bond of trust, a special relationship with their child, which is difficult to replicate if the child is paid by electronic transfer. The technocrats often ignore this social role of money. They might be wrong to do so.
We are often faced with the question: what is money? Usually our answers boil down to one view — that money is an act of societal trust. It provides the mortar that binds us together as individuals, families, and social groups. This is what Lenin was getting at when he declared that the best way to destroy the Capitalist System was to debauch the currency. Inflation not only erodes the currency of an economy, it also corrodes the relationship of trust within a society. Money is a means by which we communicate with each other. It is a means by which the present generations communicate with past and future generations. It occupies a central role in providing cohesion within society, and notes and coins are a physical manifestation of that social capital.
People are very attached to their coinage. In past debates over whether or not the UK should join the Euro, a key objection to joining was that intrinsically British symbols on the coinage would be replaced by intrinsically European ones. Coinage, in the UK, is seen as a vital symbol of national identity. If you can understand this, then you can start to see why it is that cash may well have a future. As an expression of societal values and national identity, it is unlikely that many communities would tolerate the abolition of the coinage.
And yet, the retention of the coinage is fraught with problems. One important objection to the retention of cash is that it has a nefarious role within society. Whilst the bulk of the licit economy is undertaken without the use of cash, it is also true that the bulk of the illicit economy is undertaken in cash. This can take many forms, ranging from the sale of illicit goods (e.g. illegal narcotics), to the illicit flow of people, to the development of the ‘Black Economy’ (which is undeclared and untaxed). If we are to believe the estimates of the extent of the illicit economy, then it represents a significant part of GDP. Indeed, a whole financial industry has grown around making respectable the proceeds of crime. The main objection to the continued use of cash is that it does facilitate criminality.
If criminality is the cost of continuing to have cash in an economy, then the loss of privacy is the cost of moving to a cashless society. We have only just started to understand what the collection of vast amounts of data over the course of a lifetime might mean in terms of invasion of privacy. The problem is that, although we might know who is collecting the data, we don’t know to whom they will give or sell it, and to what ultimate end that information might be put. The only way to avoid the creation of a digitised transactional footprint is to go off the grid completely by using a medium without an audit trail. Cash fits this purpose quite well. It is true that there are anonymous digital payment systems, but to retain complete anonymity, there needs to be a cash transaction in the chain somewhere.
And there we have it. In an efficient world in which the illicit economy is well contained, there wouldn’t be much of a future for cash. However, at present, this world could only cover a small part of the globe (Europe, North America, and the more developed parts of Asia). The rest of the globe is one in which the relational aspects of cash still counts for a great deal, giving cash a central place in society. If we add those who value privacy over efficiency in the developed world, then we might well feel that cash will have a future for some time to come.
© Stephen Aguilar-Millan 2021
