We should hasten the shift from cash, not try to delay it
Tucked away far down in the text of the Budget was a commitment that the government would protect access to cash and “ensure that the UK’s cash infrastructure is sustainable”.
The fact that the UK could become cashless within a decade has caused alarm among some politicians and pressure groups, who have pointed out that cash is relied upon by people living in rural communities, the elderly, and those on low incomes. They want legislation similar to that in Sweden, where banks face fines if they do not make cash available.
Although well-intentioned, such a move would be a mistake. There are many benefits of going cashless.
The biggest winners are likely to be bank customers. Banks pay an “interchange fee” to cash machine providers for every withdrawal, but as these machines become less economically viable, fees have risen, and often this has been passed on to customers.
It is also incredibly costly to maintain bank branches in order to handle cash transfers over the counter. Going cashless would enable banks to focus their resources on meeting the actual needs of their customers.
Going cashless would be good news for businesses too. Handling cash transactions is time-consuming, especially when it comes to dealing with 1p and 2p coins. It increases burdens on workers and causes delays for consumers. Getting rid of cash would mean that workers can serve customers more quickly and that you won’t have to wait as long for your morning coffee or evening pint.
It could also have other less obvious benefits, like helping to reduce violent crime such as robberies. Why? Because if nobody carries cash, the incentives for criminals to mug someone decrease. Obviously, financial crime will still occur, but at least fewer people will be held up at knife point and told to hand over their wallet.
And with the global economy looking jittery, reducing the use of cash could even help to avert a recession. In financial crises, the correct response from central banks is to adopt a looser monetary policy by lowering interest rates, as the Bank of England did last week. But with rates at historically low levels, there is very little room for manoeuvre. Interest rates may well need to go below zero. This cut would transmit to bank deposits, loans, and bonds.
At present, people could avoid a negative interest rate (which is essentially a charge on their deposits) by withdrawing their money and stashing their cash under their mattress. But without cash, depositors would have to pay to keep their money with the bank, making consumption and investment more attractive in comparison. Going cashless would therefore increase consumption, lending, and investment at a critical time.
But what about the vulnerable groups who rely on cash?
Rural communities will be better served by the government delivering on its commitment to ensure that they have access to high-speed broadband like the rest of the UK, so cashless transactions can take place effectively.
Elderly people are often reluctant to go cashless as they can feel uneasy about new technology. As such, banks should be encouraged to give free demonstrations to their less tech-savvy customers, showing how to use debit cards and online banking so they can fully participate in a cashless society.
As for those on low incomes, going cashless could actually help them with some issues such as budgeting and saving, especially as Open Banking enables innovative fintechs to offer new financial solutions to previously underserved customers. Of course, this is a more complex issue which will require government reform, but the challenges are surmountable.
The benefits of going cashless are widely underplayed, while the fears are overblown. Rather than trying to slow down the shift, the government should be speeding it up.
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