Is Cash Still King?

Despite advancements in payment technology, notes and coins are holding strong


In many ways, it’s incredible how quickly people have become comfortable paying for things with their smartphones. Apple Pay’s initial release date was back in 2014, but the number of vendors accepting it was so low it was almost useless. Three years on, though, and most shops, bars, and restaurants will cater for mobile payments, and it feels like second nature already to wave a smartphone over a card reader. Fintech is a burgeoning industry, and we should expect a wildly different payment landscape in, say, 10 years’ time. Having said that, it will likely be a landscape that involves cash in some way, and any vision of a cash-free society will have to wait - traditional notes and coins still hold popularity.

In the UK, the value of circulating Bank of England notes hit £70 billion for the first time - a 10% rise on last year. And, despite the number of cash payments falling by 11% between 2015 and 2016, they still account for 40% of all payments. ‘The vast majority of the world is seeing an increase [in banknote demand],’ said Victoria Cleland, chief cashier and director of notes at the Bank of England. ‘We are neutral to methods of payment… but we do seek to understand what direction cash demand is heading in… [cash] is still crucial to everyday life and I encourage the cash industry to continue to innovate.’

Cash’s level of resilience differs depending on who you ask. According to some, cash is very much on its way out, while others claim the demand for cash is growing. Ultimately, it’s now possible to envisage a future in which cash is redundant, but it’s equally possible to envisage the public taking a very long time to adjust. Such a level of wholesale change isn’t possible without direct and heavy governmental interference - the implementation of a digital-only currency nationwide - which is unlikely any time soon.

The most prominent nations in getting rid of cash are Sweden and Norway, where the value of notes circulating has been falling for some time. Today, only around 20% of all retail transactions in Sweden are conducted by cash, a number that will continue to drop as government initiatives push the country toward digital. There is a huge difference, though, between cash-light and cash-free. To deny cash as a method of payment would require {FILL THIS IN}

The strange thing about cash’s endurance is that economists are generally struggling to pinpoint exactly why it’s happening. Daniel Gros, director of the Centre for European Policy Studies, described the increasing cash-to-economic output ratios as a ‘mystery’, and there are a number of potential explanations.

For one, cash is still cheaper to process than card payments. According to the British Retail Consortium, the average cost of processing a cash payment is 0.15% of transaction value, where it sits at 0.22% and 0.79% for debit and credit card payments respectively. Another potential explanation is that, because there are generations of people who used only cash and cheques for a large portion of there lives, to aggressively push for a country of digital-only payments would simply be too disruptive for those that aren’t digital natives.

Also, the notion of a cashless society is, in many ways, as daunting as it is exciting. One major issue is privacy; anonymous digital cash is technically possible, but most governments would jump at the chance to be able to track every transaction made, not least for tax purposes. This is an uncomfortable facet of digital cash that many would take issue with regardless of how gently it were introduced. ‘When all our payment transactions are tracked,’ says Rainey Reitman, activism director at the Electronic Frontiers Foundation, ‘it creates a trove of data we have no control over. It’s easy to imagine a daring divorce lawyer or a government agent trying to gain access to our financial history to try to build a story about who we are.’

A sensible way around some of these problems would be for governments to actively promote cryptocurrencies, like Bitcoin. More anonymous than card payments but still far easier to trace than cash, cryptocurrencies could strike a balance between shrinking the black market/tax avoidance and maintaining people’s privacy. Whichever direction the switch to digital payments takes, eliminating the need for cash will take time and innovation. Cash’s time as king may be limited, but it won’t be disappearing any time soon. 

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