If your local pub ever reopens, don’t be surprised if one thing is missing: the till. The anti-cash lobby is seeking to take advantage of the pandemic to rid us of our banknotes once and for all. When UK Finance — the trade body for the banking and payments industry — pushed the government two weeks ago to increase the limit on contactless card payments to £100 (it was raised from £30 to £45 at the beginning of the pandemic), it was a new offensive in a campaign for a cashless society which has been going on for years.
Small shops might fight back — the British Retail Consortium warns of high fees charged by card issuers and that some of its members are losing thousands from incomplete contactless payments — but there are far bigger forces at play. The ‘fintech’ (financial technology) industry has sniffed its big chance, and it is going to play dirty.
Just look at the stuff pumped out over the past year claiming that cash could be spreading Covid-19 — and more. My favourite was a study which claimed to have found, among a host of other nasties, traces of vaginal fluid on banknotes. Never mind coronavirus, you could pick up gonorrhoea from a £50 note. We’ve even been told that the World Health Organisation warned against using cash during the pandemic — when actually an official merely said that people should wash their hands after handling cash, just as they would after handling any other goods.
Claims that cash was spreading Covid-19 were put to bed in November, when the Bank of England published results of a study where banknotes were sprayed with Sars-CoV-2 in an amount equivalent to if an infected person had sneezed over them. After an hour, the virus on the notes started to significantly decline. Six hours later there was only 5 per cent left — a steeper drop than on surfaces such as stainless steel and plastic.
There is, of course, an ulterior motive behind efforts to frighten us about coronavirus lurking on banknotes. The fintech industry needs to persuade us to use its products, and how much easier life would be if we were forced to use them as a result of cash being abolished. According to the Boston Consulting Group, there’s an extra $1 trillion a year in fees to be extracted globally from converting cash payments to digital and card ones. Needless to say, there is an awful lot of money chasing the prize: in the first half of 2019, £27.5 billion was invested in fintech.
But consumers are proving unexpectedly stubborn when it comes to giving up cash. The anti-cash lobby likes to point to figures showing that cash payments have crumbled during the pandemic — in October, when the shops were open, they were still 30 to 40 per cent lower than at the same point in 2019. Yet the value of banknotes in circulation soared in value last year by 10 per cent, to £78 billion, and has more than doubled in the past 15 years, with a huge upswing after the 2008-09 financial crisis — from £38.4 billion in 2007 to £50.2 billion three years later. It is not hard to work out why: in time of crisis, many people don’t trust banks.
David Cameron considered inserting into his 2015 conference speech a promise to make Britain the world’s first cash-free nation by 2020, but got cold feet after George Osborne worried it might not go down well with the public. Osborne was right. The government has backtracked — in last year’s Budget Rishi Sunak promised a law to guarantee access to cash machines.
But then came Covid-19, and the cashless lobby suddenly spotted an opportunity — why not further its cause by pushing the idea that notes and coins are a potential killer? Many shop managers were spooked by the claims, and one in ten shoppers, according to a survey by Which?, reports having been refused when they tried to pay cash at the till.
Even before Covid struck, the collapse of German digital payments company Wirecard sent a warning about the dangers of a cashless society. The victims included users of cashless payment apps such as Pockit and Curve, which had been dependent on Wirecard for processing payments. Many were left wondering what had happened to the balance on their accounts.
Digital payments often make sense — assuming we feel we can trust those handling our virtual money. But how many of us really want to give up the alternative of using cash? It would cost us dearly. Our debit card might be free to use now, but it would be a very different story if it wasn’t in competition with free-to-use cash. Then there is the issue of reliability. Time and again, systems have crashed, leaving shops unable to process card payments.
As for the fantasy that abolishing cash would somehow eradicate financial crime, it doesn’t fit with reality. Digital payments might in theory be traceable, yet according to UK Finance, consumers lost £620 million in card fraud in 2019, along with £150 million in online banking fraud and £455 million in push payment scams —much of it whisked away through a web of accounts which fraudsters have managed to open in spite of measures to stop them. Police seem to have little interest in pursing online crime, referring it to Action Fraud, the nationwide fraud reporting service which has been caught assessing cases by algorithm.
Abolishing cash would add horribly to the problems of poverty. There are 1.3 million adults in Britain who have no bank account. One in six people, according to the Access to Cash Review, would struggle without cash. It would deprive charities of an important source of income: the loose change they collect on the street. And it would create serious problems with making payments in remote areas with poor broadband.
Allow cash to be abolished and we would expose ourselves even more to negative interest rates. There are central bankers who would love to abolish cash, because it would enable governments to erode their vast debts by devaluing our savings. They can’t do this at present because cash effectively limits retail interest rates to zero: any lower and there would be a run on the banks as we withdrew it to stuff under the mattress.
So don’t fall for the lie that there’s a grubby fiver out there waiting to infect you with Covid-19. We will regret it if we allow what the fintech industry would love to do — and abolish cash.
spectator.co.uk/money - For more economic and financial news. The War Against Cash by Ross Clark is published by Harriman House.