Tuesday, 7 April 2020

The cash machine stops

The coronavirus crisis has resulted in people being strongly encouraged to use contactless payments wherever possible to minimise the need for physical contact associated with using notes and coins. This has led to warnings that it is likely to accelerate the widely foretold death of cash, which may have largely vanished by the summer as people never return to using it. While obviously many people value the convenience of making payments by card, the elimination of cash raises serious issues for both the general functioning of society and for individual freedom, which I touched on a couple of years ago.

It is estimated that there are 1.6 million unbanked workers in the UK, and there must be many other non-workers who have no access to banking facilities. While there may be technological solutions that can address this issue, their interests cannot simply be breezily dismissed. Added to this, there are many people, not by any means entirely elderly, who have a strong preference for using cash and are uneasy about card payments, even though they may theoretically be available to them. Is it reasonable to ride roughshod over their wishes in the name of progress?

Over the past couple of years, there has been a growing trickle of pubs and bars deciding to go entirely cashless and stop accepting cash payments. This may be understandable if, as has happened in a few cases, the establishment has been the victim of multiple robberies. However, in most cases it is simply signalling that they want to be perceived as modern and forward-looking. It is essentially profoundly snobbish. It is in effect saying that they are not interested in the business, not only of people who have no access to card payments, but of those whose preference is to avoid them. They are putting up a sign that the poor, the old and the conservatively-minded are not welcome. Our friend Cooking Lager made a good point when he said:

One obvious issue is that going cashless creates a disconnect between people and money. It makes it harder for children to grasp the concept of money, if it is just numbers on a screen rather than something tangible in their hand. It also makes budgeting more difficult for adults, both in terms of limiting your spending on a night out, and also in a more general sense of managing your expenditure through the month. It’s hardly surprising that so many people seem to get into unmanageable debt when they hardly ever see the stuff.

When this concept was first mooted more than twenty years ago, what was proposed was “digital wallets” which could be topped up in the same way as a pay-as-you-go mobile phone. This would have helped to make it more manageable, but instead what has happened is that people end up using debit cards and having a multiplicity of transactions taken directly from their current accounts. I was always brought up to keep a separate record of banking transactions and reconcile this to the statement at the end of each month, but if there are dozens of cups of coffee and rounds of drinks on it, this becomes completely impractical.

I always used to find it useful to draw a distinction between significant items of expenditure that justified recording individually, and routine everyday spending that didn’t need to be identified in detail, and thus were appropriate to be paid for in cash. I knew that in a typical week I would spend £XXX or thereabouts, so that was what I would withdraw from the cash machine. Fortunately, a couple of years ago the practice of imposing credit card surcharges was outlawed, so from my point of view the most workable solution is to allocate one particular credit card to everyday contactless transactions, which I can then view the balance of online and pay it off in a single sum at the end of the month. But not everyone has the luxury of having a credit card.

Charities have reported a fall-off in donations, such as those received by bar-top collection boxes in pubs, due to the reduction in cash usage. Yes, of course you can make donations by card, but it’s a much more considered process and not remotely as spontaneous. Last year, I even saw a street beggar with a card reader, which just seems wrong. The absence of cash will also inhibit small, casual gifts and loans between friends and relatives. It will make such everyday activities as sharing out a restaurant bill, and carrying out a collection for a departing work colleague, much more formal and remove any element of anonymity. And it’s not hard to visualise people in situations such as abusive relationships wanting to build up a cash reserve that is hidden from scrutiny.

There are extensive areas of what might be called the black and grey economies that currently run on cash. Requiring all of this to operate by bank payments will obviously bring it out into the light and subject it to the scrutiny of the tax authorities. Some may see this as a good thing, but it may cause many informal or ad hoc economic activities to cease to happen entirely. And, if cash is unavailable, some form of alternative barter economy or unofficial currency may evolve to replace it.

A cashless society is dependent on connections to power and communications for every single transaction. However, the foundations of our modern technological society are more fragile than many imagine. While coronavirus has driven many to adopt cashless payments, it has also exposed our vulnerability to shocks of this kind. Many of us remember being subjected to power cuts in the 1970s, and in recent years the failure of successive governments to support the construction of new capacity has left our power generation system teetering on a knife-edge. Organised hacking attacks have sometimes brought large swathes of the Internet to a standstill, while some banks’ IT infrastructure has fallen over for days on end. In 1909, in his oddly prescient short story The Machine Stops, E. M. Forster described how a universal, interconnected, technological society could slowly but surely be brought to its knees if things stopped working.

There are also wider implications for civil liberties, which have been highlighted from both sides of the political spectrum. For example, this article in the Guardian says:

Engineering public consent for cashlessness is a subtle process. People may indeed enjoy a new payments app or contactless card, but financial institutions then use that to justify the gradual removal of the cash infrastructure – such as ATMS – in order to deliberately make cash harder to use. This feeds back, making digital seem relatively more convenient, “inspiring” more people to choose it.
While the free-market Mises Institute says:
Cash has been the target of the banking and financial elites for years. Now, the coronavirus pandemic is being used to frighten the masses into accepting a cashless society. That would mean the death of what’s left of our free society...

...Being bound to computers for transactions kicks the door wide open to hardcore surveillance of personal activity and location data. Being eternally on the grid means relentless taxation and negative interest rates, which the Federal Reserve is already gearing up for.

These concerns fall into two main areas. One is that people will be subject to constant surveillance of exactly where they have been and what they have spent their money on. It’s all too easy to say that the innocent have nothing to fear, but who can honestly say that they have never done anything that they would prefer not to be exposed to the light of day? And it isn’t difficult to imagine a range of scenarios where this information could be used to target or stigmatise people in various ways.

If all transactions are on the record, it also opens up many possibilities for being able to control people. For example, certain types of transactions could be blocked if they were felt to be undesirable, either for the individual or society as a whole. Businesses that were felt to be acting against the public interest could be prevented from accepting payments. And the entirety of your financial life would be potentially laid open to the grasping hand of the State, either through negative interest rates or outright confiscation.

Of course, these concerns may be dismissed by some as examples of the tinfoil hat mentality. But any student of history will know that the benevolence of those in authority is not something that can be guaranteed. And, if you lived today in Russia or China, would you be happy for the State to have such detailed oversight of your everyday activities? It’s ironic that some of those who, before Christmas, were ludicrously accusing Boris Johnson of wanting to erect some form of totalitarian state, are now amongst those who are the cheerleaders of a trend that contains such potential for making that outcome a reality.

Ultimately, the continued existence of cash represents a bulwark of freedom against both governments and corporations. Yes, many people may find contactless payments for everyday transactions convenient, but if we as a society allow cash to entirely disappear, we will have also said goodbye to a large measure of our liberties.

29 comments:

  1. cash disappears, barter ensues we end up back at cash. I am not sure of these predictions of doom's accuracy, perhaps right, maybe wrong. we will see and fair enough for raising the issue)

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  2. Perhaps I'm a little old-fashioned, but I much prefer cash, especially when buying drinks. It's much easier to keep track of one's spending, compared to payment by cars, as you withdraw a certain amount, and once that's gone, then it's time to stop spending.

    Either that, or you know you've had enough!

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  3. All money is artifice. It is a figment of governments’ and bankers’ imagination. Very glib answers I’m aware, but essentially true. Money is a promise. A promise backed initially by banks and money lenders and now by governments. Cash doesn’t as such provide any freedom at all. Any freedom comes from those in power. Those who control the money.

    The most widely available currency is stupidity. It’s what keeps corrupt and morally bankrupt governments in power. No amount of fiscal privacy afforded to the proletariat is going to stop them being oppressed if they don’t have control over the monetary infrastructure. No amount of cash circulating is going to reduce the amount of surveillance we are under. ‘They’ know a great deal about us already whether we like it or not. Democracy is the only defence against control.

    I have some sympathy for those that operate outside the banking system and those that prefer cash. They will need help because the cashless society is coming and we’re not going to change that. I for one think it’s a good thing. I’ve always (as an adult) thought that cash was filthy stuff. Education should be key to help people transition. One can keep track of one’s finances. Some will just need some assistance.

    You make a very valid point about cash being something tangible that exists, and when the internet is down, apps crash and when banks are closed one is buggered. But so much of the distribution of cash is dependent on technology that the movement of cash would break down almost instantly when a major banking catastrophe happened.

    People would have been suspicious of paper money when it first started to circulate. Some people just don’t like change. Of course I’m playing a bit of devil’s advocate here but essentially I think becoming cashless is probably a positive thing.

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    1. It is unfortunate that the way that usually seems to have been adopted for cashless payments is charging transactions directly to people's main current accounts, which is the very worst option for helping people manage their money.

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  4. Good to hear from you, Paul! Stay safe in these troubled times and thanks for the link back to your blogs.

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  5. "...reconcile this to the statement at the end of each month, but if there are dozens of cups of coffee and rounds of drinks on it, this becomes completely impractical"

    Especially if you are not issued a receipt with those transactions, which seems to be the default option with contactless payments.

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    1. Agreed. You are often looked at with incredulity if you're audacious enough to ask for a receipt.

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    2. You generally don't need one - your banking app will give you a digital receipt as soon as the transaction is complete. Problem being people who have just got to grips with a contactless card and maybe online banking, let alone a banking app on a smartphone they don't have. Few businesses that do contactless pay for the printers that give an itemised receipt, as opposed to the transaction receipt.

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    3. Millions of people who have payment cards never use Internet banking, let alone have a banking app. The only thing for which I've ever seen a "digital receipt" is the Wetherspoons app, where I pay via PayPal.

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  6. Retailers, including pubs, like cashless for a number of reasons. Easier reconciliation of takings, cheaper to pay the card handler than paying cash into the bank, not having lots of cash on the premises and consequent lower cash on premises insurance premium, not having to take cash to the bank or pay for collections and less risk of employee theft. The downside is that card machines and systems fail from time to time, and you risk alienating people who only pay with cash. Most operators are sensible and while encouraging cashless, still accept real money. Hopefully the rush to avoid cash due to Coronavirus will be negated by the need to accept as much business as possible once normal service is resumed.

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    1. If cashless is so good why do so many retailers refuse to accept it for sums below £5 or £10?

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  7. There is an alternative to dirty virus laden debt tokens issued by a central bank and regularly debased with a false promise to pay the bearer on demand.

    It doesn't have to be a centralized electronic ledger managed by a network of private banks. wikth a plastic card, phone or smartwatch as the front end.

    Money was not invented by banks or governments or Kings, it was invented by free men seeking a unit of account, medium of exchange and store of value.

    That pile of Nazi Gold you sit on was once considered money. Cryptography offers a decentralized electronic ledger under no overall control.

    You can take your pick. What is money is simply an agreement between people.

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  8. The worst macro economic effect of the total disappearance of cash would be ability of the banks to set negative interest rates. If all your money had to be in bank rather than in a box under the bed then the banks could, by setting negative rates, cream a little of your money away every month.
    And central government would see this as an ideal way of encouraging economic activity. After all if your money is loosing 5% of its value every year better to spend than save.

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  9. Negative interest rates has to be one of the daftest fears yet. They’re already here & have been for decades. At least since 2008. It is easier to manifest them in the retail market by maintaining savings rates below inflation rates. Ya’ll already paying the bank to store your value & it don’t matter if you do stick it under the mattress. It is more straightforward in the wholesale markets to just set negative rates that retail customers never access.

    For anyone unaware, google the Nixon Shock. It's interesting. The end of gold convertibility. The end of Bretton Woods, the birth of the Petro dollar. When Nixon defaulted on US debt, made a deal with the Saudis for dollars to be the global unit of account for oil in return for the protection of the US military and maintained the dollar as the global currency without a direct commodity convertibility.

    Cash is nothing more than debt. Debt that will never be settled, just circulated. It doesn't matter whether the token is a picture of Her Maj or numbers on a screen. The next daft conspiracy is that a central authority is monitoring your transactions. Google programmable money. It doesn’t require an authority to control you. You can place the transactional rules in the token itself. The tech exists.

    If you really are fearful of these conspiracies the answer isn’t to maintain a system of exchanged paper debt tokens, it’s to return to commodity money with no counter party risk. That stash of gold.

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    1. Until about five years ago it was not that difficult to find a bank account that paid more than inflation.

      The problem with using a commodity such as gold as a standard is that there is no guarantee that gold will remain a rare commodity. Aluminium was worth over a $1000 a kilo in 1850 yet was less than one dollar a kilo in 1900 after the HĂ©roult/Hall process.

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    2. Gold is likely going to maintain it's rarity
      https://wtamu.edu/~cbaird/sq/2014/05/02/can-gold-be-created-from-other-elements/

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    3. Gold has proved a pretty reliable store of value for millennia, and I don't see that changing any day soon. Just a pity it's not possible to access some of the former eastern areas of the Third Reich at present...

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    4. Much of what we take for granted today was considered impossible only a few generations ago.
      As Arthur C Clarke once said: "If an elderly but distinguished scientist says that something is possible, he is almost certainly right; but if he says that it is impossible, he is very probably wrong."

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  10. I always tip with cash.
    Don't trust management.

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    1. Which is another thing that would become much more difficult without cash. Last year I was in a branch of a well-known chain restaurant, and asked about adding a tip to my card payment. The waitress (who had actually given particularly good service) replied that it would be better to give it directly to her, so I did in cash.

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  11. Professor Pie-Tin10 April 2020 at 10:17

    You take away cash and you take away the black economy.
    And without a black economy this country would grind to a halt.
    I've yet to meet a tradesman who wouldn't do a foxer for cash and I've built a few things over the years.
    A feller likes a bit of walking around money.It makes him feel slightly less worthless.
    Mind you my kids have the right idea.
    They have a main bank account and then one of these new start-up jobs called Starling which they use for their day to day drinking.They top this up at the Post Office with cash drawn from their main bank account.
    The idea is meant to be that when they eventually approach the main bank for a loan or mortgage the pen pushers won't have a clue how big a pisshead they are.
    They'll go far.

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    1. Yes, if you have no alternative but to use cashless payments, the best way to handle it is to put your "beer money" and similar daily spends through a separate account or card from your main current account.

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    2. I have met plenty of tradesmen who insist on a payment through their bank. As young Will said to me after building a wall: "If my bank can't see that I am making a decent income I will have f**k all cjance of getting a mortgage"

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    3. Ah, but how about Old Fred who's paid off his mortgage? And they may want to just put enough through the bank to give a convincing impression of being an entirely legit business.

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    4. What about him. I was pointing out that the Prof was guilty of one of the fallacies of illicit transference: arguing from the specific to the general. :-)

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    5. Professor Pie-Tin12 April 2020 at 12:51

      Yup.
      What's even more amazing is Remoaners quite happy that MEPs do not have to provide receipts for their expenses which are never audited yet somehow think the Brexit vote was all down to corruption.

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  12. Excellent post. Thank you very much.

    Agree with all you have said. As baseball fans say of a home run, 'You've hit it out of the park.'

    Cash is king.

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  13. I have to say that five weeks of being "encouraged" to use cards for everyday transactions has made me much less conscious of how much I'm actually spending. It's all too easy just to put something extra in the trolley without any immediate consequences. If you are living from hand to mouth it's easy to see how this would make managing your money harder.

    There was an exception last night as I got some fish and chips from the chippy for the first time during lockdown and paid with cash as their card machine was out of order. This was the first cash I had spent since Sunday 22 March.

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