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York Young Fabians
A world without cash?
by Elliot Jones
Posted on 11 September, 2018 · Follow Elliot on Twitter
This article is based on discussion at an event co-hosted by the Young Fabian Technology Network and Economy & Finance Network on "A World Without Cash" on the 6th of July, 2018.
I've previously argued the case for a cashless Britain, extolling the benefits for monetary policy and the tax system; but the withdrawal of cash is by no means a panacea. While there are obvious practical concerns around how the economy would function without cash after a blackout or natural disaster, this article will focus on how a cashless future has the potential to divide society, both intentionally and unintentionally.
Firstly, the withdrawal of cash could reinforce existing inequalities, from age to class. The under 30s have grown up in the digital era, with contactless becoming almost second-nature and internet payments to be so routine as to be unremarkable. Yet many of our grandparents can remember a time before credit or debit cards, when your only options were cash or cheque. Clearly, older generations are capable of adapting and changing with the times but withdrawing cash takes away the element of choice. Older people, especially in rural areas, are already suffering from the closure of bank branches; the additional hurdle of using an unfamiliar medium for payment, either card or online, can only make their lives more difficult. This can either reduce their engagement with the rest of the world further or place a burden on their relatives who have to help them change their routines.
According to a UK Finance report, nearly 2.7 million people (5% of the adult population) still rely exclusively on cash for day-to-day payments and over half of those 2.7 million have a total household income of less than £15,000, putting them squarely in the bottom 20% of incomes. Why is this case? Besides the prevalence of cash-in-hand employment in this income bracket, there are other benefits to using cash when you have a limited budget: it eases the strain of mental accounting and aids with impulse control.
Cash ­can help budgeting by pre-allocating money for essentials; a commonly used system is placing money into marked envelopes. This helps allows people with limited funds to pre-commit to sustainable amounts, rather than face the constant mental strain of keeping track of all their expenditures and how they relate to the single, homogenous bank balance. This constant distraction caused by a precarious financial situation has been shown to worsen poorer individual's decision making, and cash allows them to reduce that burden, freeing up their attention. Additionally, with physical currency, each transaction incurs a feeling of loss as the money changes hands, which helps put the breakers on spending and prompt the spender to think twice about large purchases; with a card, you can much more easily drain your account dry without meaning to. Fintech companies are trying to provide digital alternatives to this system but there are no guarantees that these will succeed or be sustainable, so this will remain a concern in any short to medium-term plan for withdrawing cash from the economy.
Further, there are still over a million adults in the United Kingdom without a bank account. In particular, the homeless population have little access to financial services, as they no fixed address or stable employment; the removal of cash could further harm their financial inclusion. Firstly, many homeless people rely on the charity of strangers to make ends meet. In a world where there is no such thing as 'spare change', the homeless can hardly rely on card-readers (as trials in Sweden have shown). Smartphones are much more readily available and peer-to-peer payment apps are becoming more commonplace, which could offer an alternative. However, we shouldn't rely on private companies for financial inclusion for the most vulnerable in society and cash up until now has always been the 'public' option. Of course, there are much greater systemic issues to address in improving the situation of homeless people, older people, and people living on low incomes, but policymakers mustn't needlessly, thoughtlessly exclude them if given the choice.
These divides, while not welcome, are at least not malicious. They can be ameliorated by a gradual transition away from cash that provides sufficient time for people to adapt and greater support for financial inclusion. There are however more insidious ways in which the withdrawal of cash can be used to divide and border out certain groups in society.
The passive threat of surveillance may be enough to disadvantage certain groups. For instance, undocumented migrants may be less willing to engage with wider society for fear of being discovered. When every transaction has a paper trail and even an anonymous account leaves dots on a map, even acquiring the essentials like food and shelter becomes a fraught activity. Being forced further underground and into using alternative means of exchange only makes them more vulnerable to exploitation by criminals. More generally, here another gap between the rich and the rest opens up. The wealthiest in society can already hide themselves behind shell companies, whereas the average citizen with a traditional bank account has no chance of anonymity.
Even more sinister is the possibility of corporations or governments taking actively locking individuals out of their accounts, thus making it impossible for them to take part in normal society. The state can already freeze bank accounts and companies can refuse individuals their services but cash is still there as a universal fall-back option. Since its value is not tied to the status of its holder, cash stops the government completely shutting out those it disagrees with. In our current, liberal society we might imagine this enables criminals and terrorists more than anyone else. However, given how the tide seems to be turning around the world, it's not hard to imagine a future where espousing our socialist ideals puts us at risk from an authoritarian state.
I believe that a cashless future is both inevitable and likely to be beneficial for society as a whole. However, we should keep these potential risks for division and exploitation at the front of our minds when planning how a policy to withdraw cash should be implemented.
Elliot Jones is a Young Fabian member. Follow him on Twitter at @Elliot_M_Jones
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