Should banknotes be abolished as we become an increasingly cashless society? - Dr Rashmi Arora
Most people do their banking online and most of us rely on using our bank cards or mobile phones to pay for goods and services, particularly since the pandemic when health concerns forced an escalation of online and contactless payments. The majority of us probably never go into a bank branch anymore.
What’s interesting though is that the total value of notes in circulation has actually increased. The smaller denominations have decreased but higher denomination notes have increased. Research suggests people are hoarding these larger denominations as a store of value, a trend similar to some other countries.
It could be that having physical cash gives people a certain security. As the first UK lockdown was announced, people rushed to ATMs to withdraw cash, more as a precautionary response. They couldn’t then use it because everything shut, but that gives an interesting picture of how people think about their money. So, the big question is, do we still need cash? Should it be abolished? In my opinion, we will continue to use cash, certainly for the foreseeable future.
Cash is important to a number of sections of society, for example the elderly who may not be as tech-savvy as younger generations, or may simply prefer to continue using cash as that’s what they have always done. It’s also important for people who are paid in cash, for example casual workers, and may not have a bank account, as well as people who do not have access to the internet, such as those on lower incomes.
There are also still a number of industries which only accept cash. But the places that only deal in cash are decreasing and Covid-19 hastened that transition. The Bank of England is very clear that cash is here to stay. Cash cannot be abolished because it’s still being used by a number of population groups. There are, however, arguments for the abolishment of cash. Professor Kenneth Rogoff, one of the world’s leading economists, argued for the phasing out of paper money to fight crime and tax evasion.
Cash encourages corruption. For example, it’s used in transactions for drugs, weapons, terrorism. Notes and coins carry the risk of bacteria. There are countries which are nearly cashless already, like Sweden, New Zealand and Norway.
Several other types of digital currencies are emerging. At present, 114 countries are considering Central Bank Digital Currency, according to the CBDC tracker, compared to only 35 in May 2020. The UK is one of them.
It’s like cryptocurrency, except that the Central Bank says it’s more stable, more reliable and more regulated.
We will have to see what happens with CBDC and how people react to that. If it really picks up, then perhaps people will move on to a cashless society.
For now though, as we look forward to the new King Charles banknotes coming into circulation, I believe cash is here to stay.
Rashmi Arora is associate professor in Development Economics at the University of Bradford. She will be giving a talk, ‘Should cash be abolished? If so, what comes next?’ at Bradford’s Pint of Science festival on May 22. To book tickets, go to https://pintofscience.co.uk/event/money-and-health