Is there a future for cash?

The debate about cash is a regular one, and it does roll on and on.

Last week’s debate at the Financial Services Club is no exception, and was argued well by heavyweights in opposing corners.

In the case for cash, Adam Lawrence of the Royal Mint and Ken Howells of the LINK ATM network put forward a very strong case for the long-term viability and survival of the cash system.

In the opposite corner, the ever engaging David Birch of Consult Hyperion and Francesco Burelli of Value Partners articulated an equally strong reason why cash should die a death.

On a positive view, cash wins on four fronts: trust, privacy, security and reliability.

Cash is immediately accepted as an exchange of value that is trusted.

It cannot be traced easily, and therefore is completely anonymous and private.

If you have cash, you have something that cannot be deleted at the touch a key, as it’s physical.  Apart from gold and other commodities, cash is the only physical form of value that exists today in fact, as everything else has been digitised, and therefore is not only secured once you have it, but is completely reliable.

You will never see the cash system go down and disappear because it works.

Consumers also like the choices that cash provides for them and therefore when the industry attacks about a “war on cash”, what they actually mean is a war on customer choice.

Finally, cash is free.  There is no cost to merchants or consumers to use cash, unlike cards and other payments transactions where interchange fees apply.

The commentary reminded me of all the things in favour of cash that I had read in the Payments Council Report on the Future of Cash in 2010.  This report said that cash differs from the other payment instruments in six main ways:

Cash circulates: it is as important for the well-being of the economy that cash can be deposited as it is that cash can be dispensed. Retailers and other businesses need to be able to deposit cash and receive value just as much as consumers need to be able to acquire cash for shopping. The proportion of cash which is re-circulated is very high: around 95% of banknotes dispensed from ATMs are used notes which are being re-circulated.

Cash is always valuable: it is permanently worth its face value, and that value is backed by the full faith of the state.  

Cash provides full and final settlement of a transaction: there is no attendant payment system, telecoms system or rule book needed for settlement to be finalised.

Anonymity: banknotes generally, and coin always, pass from hand to hand without the individual payment instrument being recorded or traceable.

Once issued, the circulation of cash is uncontrolled: the rules of a payment scheme define the roles each party can play, and sets out their rights and responsibilities. For cash, however, new players and new business models are at liberty to enter the market for cash circulation services.

It is regarded as a public good by its users: it should be readily available at little or no additional cost to its face value. Organisations engaged in the wholesale cash sector meet individual demands from their direct customers and, collectively, they meet the overall demand from society.

Download the Payments Council Report on the Future of Cash

I think that this debate pretty much had put the case for a long-term future for cash to bed, with a slam dunk whooshing noise behind it.

Cash will never go away.

Then David and Francesco got their teeth into the debate.

Cash is bad.

It’s tainted with tax dodging evasions in the shadow economy but it’s far worse than that.

Cash is not free, as claimed by the pro-cash guys, it costs.  In fact, it’s a stealth tax which averages around $300 cost per person.  This is down to Seigniorage and the nature of fiat currencies, and is why governments want to keep cash in circulation.

Cash is actually very expensive.  It’s paid for by cross-subsidies and has been proven to be overly costly.  For example, it costs the US more to issue $1 notes today than they are worth, thanks to the price of cotton, and the same with pennies where 1 cent costs 1.7 cents to produce.

The cost of cash is very inequitable.  If I go to an ATM and there’s a £1.95 charge, I might withdraw £200 to make it worthwhile but those on lower incomes will only be able to withdraw £20, so it’s an unfair way of dealing in commerce.

Cash actually transfers value from the honest poor to the digital rich.  That’s why more money circulates outside the USA in cash than within the USA, and is the way the digital rich avoid taxations whilst the honest poor are cash-based, underbanked and underserved, with high fees on transactions.

In fact, cash is dirty and evil.  It’s dirty because they’re used regularly for snorting up lines of coke into the nostrils of drug-fuelled financiers.  Most UK banknotes have traces of cocaine on them; and cash is evil as it’s only used for money laundering.  Show me a legitimate use for a €500 note?  There isn’t one.  But cash enables billions of euros to move around in exchange for those who need to wash money clean, and is a good part of the $3 trillion a year money moved around in laundering operations globally.

Finally, I don’t buy this idea of cash is good because it’s anonymous.  Who wants to live in a society where people can do activities that are totally anonymous?  It’s outrageous to have a modern life where you can hide things.  If you want a society that works that way, try Somalia?

All in all, you can talk about a future for cash but the future generation doesn’t want it.  Does the Facebook Generation need cash?  Absolutely not.  So cash is dead. Live with it and mobile on.

This was a heated argument and debate as can be seen, and ended with a vote: does this house believe that there is a future for cash, at least within our lifetimes?

The answer was a resounding yes from about 70% of the assembled throng.

Obviously not the Facebook Generation then.