Should we abolish cash?

The decline in the use of cash

Abolishing cash might seem impractical, even ridiculous. But think back to that famous image from The Sopranos. The main character, Tony Soprano, is the head of a fictional Mafia organisation dominating organised crime in New Jersey – a multimillion pound outfit behind an array of financial crimes from bookmaking, to racketeering, to loan sharking. In the garden of his family home lie massive containers, stuffed full of gigantic wads of cash. Almost impossible for law enforcement to track, such large proceeds of organised crime are being used every day outside the financial system – and often laundered into it. Governments can make this an awful lot harder if they abolish the physical form of currency as cash.

This is now eminently possible because of the decline in the use of cash. The rise of card and smartphone payments is making it less and less common. For example, a recent survey suggests that, in the UK, 47% of people carry less cash than they did two years ago – while 1 in 10 Britons have now foregone cash completely, instead just carrying a debit or credit card with them. Even more illuminatingly, 89% of British payments are now non-cash.

In light of this, senior figures in the financial world have started to advocate an end to cash. Notably, Peter Sands – an adviser to the British government and former CEO of Standard Chartered – recently published a striking Harvard Kennedy School paper. He advocates the elimination of “high denomination, high value currency notes, such as the €500 note, the $100 bill, the CHF1,000 note and the £50 note.” Sands also acknowledges strong arguments for getting rid of cash altogether. The title of the paper says it all: Making it Harder for the Bad Guys.

The widespread nickname of the €500 note – the ‘Bin Laden’ – also says it all. €500 notes provide an open goal for terrorists, organised crime groups, tax evaders and even petty financial criminals to use these bills in their illicit endeavours. With €500 notes, vast sums can easily be carried unmonitored – it is alarmingly illuminating that the bills account for just 2.3 % of physical cash in the Eurozone, but nearly 30% of its value. Hence the European Central Bank’s decision in May last year to stop printing them.

Especially after the populist insurrections of 2016, it would be unwise to suggest that the increasing antipathy towards cash of bankers, academics and expert government advisers will lead to its use declining dramatically, to the point of its becoming rare – never mind elected governments abolishing it. Nevertheless, a clear trajectory towards cashlessness can be seen in many Western countries. This continental phenomenon dwarfs the aforementioned decline in cash in the UK. In Belgium, for instance, a whopping 93% of consumer spending is now conducted through cashless means, and the government has outlawed cash payments of over €300,000. Behind Belgium, the countries with the biggest proportion of cashless payments are France at 92% and Canada at 90%, while the figure for the US is 80%.

So what good are the vast sums of physical cash doing out there?

Here a recent New Yorker piece inspired by The Curse of Cash by Kenneth Rogoff (a Harvard professor and former chief economist of the International Monetary Fund) is worth quoting at length: “[Rogoff’s] cause dates to the late nineteen-nineties, when he found that sixty per cent of the value of the country’s currency supply was in hundred-dollar bills—an astonishing proportion, considering how rarely C-notes show up in ordinary life. Since then, the percentage has risen (it’s now about eighty per cent), with $1.34 trillion outside banks at any moment. That’s nearly forty-two hundred dollars carried by every man, woman, and child in the U.S. Under whose mattress has all this cash vanished? Rogoff argues that the invisible large notes must be paying off-the-book wages. They are sitting in Zurich safe-deposit boxes, probably, crossing borders with cartels and traffickers, and doing other awful things.”

However, this ties in with a key point in favour of cash. The fact that cash is extremely hard to trace is the very factor that makes it part of the ideal of privacy. Prima facie, this is a highly compelling argument. As Paul Mason puts it in the Guardian: “In most countries, the ability to take your cash out of the bank and to spend it anonymously is associated with many pleasurable activities […] How tens of thousands of club-goers would pay for their drugs each Saturday night is a non-trivial issue.”

A further concern is that many older citizens, who find it much more convenient to rely solely on cash, and who lack trust in and competence with electronic payment technology, might be effectively shut out of a completely digital economy. In Sweden – part of the Scandinavian group of nations where such a trend towards cashlessness that Credit Suisse report from 2013 predicted they will be completely cashless by 2030 – this is a driving force behind the pro-cash movement, with the National Pensioners’ Organisation (PensionärernasRiksorganisation) joining Cash Uprising (Kontantupproret) a populist, grassroots pressure group led by Björn Eriksson, an ex-chief of Interpol. As Nathan Heller observes in the New Yorker, Cash Uprising is by no means a small group shouting impotently from the periphery of society. He quotes Jan Bertoft, the secretary-general of the Swedish Consumers’ Association, as telling him: “When I speak today with an organization, this is actually one of the key topics, the key frustrations, that they’re very angry about”.

However, especially as use of cash becomes more and more rare, these arguments must be weighed up against the huge advantages completely cashless societies would have in the fight against financial crime. That’s while there are ready solutions through which legislators could overcome the problems such arguments highlight, as they fashion cashless societies. To give the most obvious example, the problem Mason identifies – the libertarian argument about club-goers and drugs – is not ultimately a problem about cash: it is about drug laws. If governments find that the scientific evidence suggest that such drugs should remain banned, then the abolition of cash will be doing society a favour, in ensuring that the dealing of dangerous drugs is traceable as an illegal financial transaction, that can be prosecuted as such. If the dangers of certain drugs are proven by scientific evidence to have been exaggerated by antediluvian laws, then the solution is to decriminalise and regulate them – not to abolish cash.

Yet 2016 has ushered in a new atmosphere

In which voters are especially inclined to be sceptical towards ideas like the abolition of cash, ideas propagated by archetypal ‘elites’: governments, banks, academics. Brexit and Trump, the two huge populist uprisings of 2016, relied on the support of older voters annoyed at the pace of change. They relied on visceral emotions.

The problem with elderly citizens finding digital payment systems troubling is a vexing one. But an essential part of the solution to that problem is obvious: for governments transitioning towards cash-free societies to do so at a gradual pace, while investing in education programmes to ensure that pensioners in particular have the savoir-faire to manage their payments electronically.

And as adumbrated above, this transition is already in motion. Throughout Western societies, the number of cash payments is plummeting and that of electronic transactions is soaring. Government legislation is starting to move on this: in Denmark, for instance, there have been proposals to allow some retailers to refuse to accept cash.

Yet governments can only legislate for totally cashless societies if they change the way the issue is perceived. They must be aware of the power of the 2016 mentality. They must be aware of the visceral desire amongst voters who feel left behind to ‘take back control’. Cash is an emotive issue. The strongest argument for cash is based around the idea that there’s one last thing in their lives that’s untraceable, especially when, in their case, there’s nothing to see and nothing to hide. This argument centres on the concept of freedom: freedom from oversight of authorities, from unwanted change – freedom to carry on doing things in a way that’s been deemed perfectly fine throughout everyone’s living memory.

In promoting the abolition of cash, policymakers should reconfigure this notion of freedom. Completely getting rid of cash would give us a great deal of freedom from blights on our society. Think of all the righteous anger focused on tax evasion, of how governments aggrandise this anger with fruitless promises to crack down on it to the point of significantly increasing tax revenue. In the UK, for example, the Treasury loses out on £16 billion a year thanks to tax evasion. If it opted for cashlessness and the consequent recording of every transaction, the proceeds could – for instance – make a powerful contribution to the quality of the now crisis-stricken NHS. And – as foregrounded by the title of Peter Sands’ Harvard report, Making it Harder for the Bad Guys – cashlessness would provide an exciting opportunity to rob organised crime of its financial hiding place in cash.

The crucial factor is the enormity of the sums involved. Think of that $1.34 trillion in $100 dollar bills noted by Kenneth Rogoff as swishing about outside of banks, cropping up with a suspicious lack of regularity in everyday business – easily used for financial crime. The voters behind 2016 would love for their societies to take back control of these gargantuan sums. In abolishing cash, governments would help to free societies from the giant leeches of organised crime and tax evasion. As citizens are moving more and more towards cashlessness, legislators must see this as an opportunity to act accordingly.

Tom Wheeldon is a freelance journalist and political commentator at Radio France Internationale.