While the use of physical money has been declining in many places for years, the trend may have reached its apogee. In some countries, including the UK and Spain, it even appears to be staging a fragile comeback.
There are few more cashless places in Europe than the United Kingdom — the continent’s fourth most cashless economy in 2021, according to research by personal finance website money.co.uk. The transition began in earnest some years ago as more and more Brits happily embraced the ease, speed and convenience of contactless card or mobile payments. In 2017, debit card payments overtook cash for the first time. The COVID-19 pandemic turbocharged the trend, leading many consumers and retailers to abandon cash altogether.
“Cash use has been declining over the last ten years, with a particular drop during the pandemic as many retailers encouraged contactless payments and businesses such as pubs and hairdressers closed,” Adrian Buckle, head of research at trade body UK Finance, told Euronews Next. Cash accounted for 56% of payments in 2010, falling to 45% in 2015, and to 17% in 2020, according to UK Finance. The big banks’ ruthless culling of ATMs and branches during that time has helped accelerate this trend, making life increasingly difficult for people who depend on face-to-face bank transactions and cash to pay for everyday purchases.
“Anything But a Cashless Society”
But the trend may have reached its apogee, at least for the time being. Indeed, cash may even be staging a fragile comeback. Data published last week by the Post Office shows that more and more people are increasingly relying on notes and coins to help them manage their budgets amid the so-called “cost of living” crisis. In July, £3.31bln in cash was deposited and withdrawn across the Post Office’s 11,500 branches, — a record high for any month dating back over three centuries of operations. Per the Guardian:
While the pandemic accelerated the UK’s embrace of card and digital payments, the economic crisis – with inflation going up and many bills expected to rise further – has led a growing number of people to turn once again to cash to help them plan their spending.
The Post Office said its branches handled a record £801m in personal cash withdrawals last month – an increase of almost 8% on June, and up 20% on the July 2021 figure of £665m.
In total, more than £3.3bn in cash was deposited and withdrawn at its 11,500 branches. The Post Office said this was the first time the monthly amount had exceeded £3.3bn in its 360-year history.
The organisation said it was “seeing more and more people increasingly reliant on cash as the tried and tested way to manage a budget.”
“Our latest figures clearly show that Britain is anything but a cashless society,” said Post Office Banking Director Martin Kearsley. “We’re seeing more and more people increasingly reliant on cash as the tried and tested way to manage a budget”.
While some British people may be turning back to cash or using it more often than before, actually spending physical money is easier said than done due to the growing number of high-street retailers refusing to accept cash payments. According to a report published this weekend by the UK’s number-one tabloid, The Sun, many retailers and hospitality chains in London, Birmingham and Newcastle, including Pizza Hut, Caffe Nero and sushi chain Itsu, have gone fully cashless since the pandemic. So too have many smaller retailers.
This is possible due to the UK’s rather bizarre legal tender laws. Legal tender in the UK strictly applies to money used by a debtor to settle a court-awarded debt when offered (‘tendered’) in the exact amount that is owed to a creditor. In other words, if a debtor is offering to settle a debt in court with legal tender such as cash, the creditor is not allowed to refuse it. Shops, by contrast, are. As the Royal Mint points out, “both parties [in a transaction] are free to agree to accept any form of payment whether legal tender or otherwise according to their wishes.”
Demonization of Cash During Pandemic
Many retailers, particularly in the more salubrious parts of towns and cities, are taking full advantage of this loophole. This is despite the discriminatory effects it has on the millions of people who still depend on cash, including the roughly 1.3 million who are unbanked. The decision to refuse cash also has little basis in public health. As confirmed by a growing body of research, including a recent paper in the journal Risk Analysis, cash remains safe to use and poses a “very low” risk of spreading COVID-19.
This is not what people were told in the early months of the pandemic. In March 2020, as countries were locking down around the world, a World Health Organization (WHO) spokesperson responded to a question about whether banknotes could spread the coronavirus by saying: “Yes it’s possible and it’s a good question. We know that money changes hands frequently and can pick up all sorts of bacteria and viruses … when possible it’s a good idea to use contactless payments.”
Around the world, media outlets and long-standing enemies of cash such as credit card companies and fintech start-ups seized on the comments and magnified them, sparking fears over the safety of cash. The WHO eventually walked back its comments but in many countries the damage was already done. In the UK, cash withdrawals at ATMs fell sharply. Today, only 17% of payments are now made with coins and notes, according to the Royal Society of Arts’ latest Cash Census report.
At the same time, demand for physical dollar and euro notes (and many other currencies) has surged, even as the use of cash has fallen. Two and a half years after the first lockdowns of 2020, the total value of dollar and euro notes in circulation is respectively 18% and 21% higher. This surge in demand for bank notes, at a time that cash use was falling in most countries, is taken as a sign that many people have been “hoarding” cash (i.e., taking it out of the bank and storing it at home) during this time of acute economic uncertainty.
Banning Cashless Businesses
The situation in the UK contrasts starkly with recent developments in parts of the US in another major way. In the US, local or state authorities in places such as New York City, New Jersey, Philadelphia and San Francisco have approved laws banning businesses from banning cash (click here for Jerri Lynn’s analysis of these developments last year).
Another country that recently passed a law prohibiting businesses from rejecting cash is my country of residence, Spain, where pensioners recently won a milestone victory against the big banks’ war on cash. After years of being progressively sidelined by the banks’ gradual withdrawal of cash services in branches and their closure of ATMs, elderly customers finally ran out of patience in March this year. One pensioner called for a payment card strike, which spread like wildfire across social media and messaging apps like WhatsApp and Telegram. As I noted at the time, the irony was inescapable:
[S]enior citizens [were] using the latest communications technologies to call for a nationwide one-day strike in favor of cash payments. Given the importance of pensioners and senior citizens for Caixabank’s business — the bank is home to 30% of all domiciled pensions in Spain and the elderly tend to have a lot more capital and disposable income than the more digitally astute younger generations — the lender’s senior management has finally began to change policy.
That was in April. A month later, the Spanish government passed a law forcing retail establishments to accept payments in cash, enshrining the right of consumers to freely choose which payment method to use. This is in a country where the overwhelming majority of businesses still readily accept cash. The law also guarantees the right of people living in rural communities to be able to access cash. Since then, the Spanish Banking Association, the Confederation of Savings Banks and the National Union of Credit Cooperatives have signed an agreement aimed at ensuring that people living in small rural municipalities have access to cash, most notably through Post Office service points.
In Spain cash plays a much larger role in transactions than in the UK. Nonetheless, that role is diminishing. According to the Bank of Spain’s latest national survey on the use of cash, in 2020 physical money ceased to be the most common means of payment in Spain, accounting for 36% of transactions, down from 80% in 2014. Fifty-four percent of transactions were made with debit cards.
But cash has not lost its allure among many Spaniards, including those who don’t use it very often. A survey last year by the consultancy firm GAD3 for the cash defense platform Denaria found that 90% of respondents oppose eliminating cash. Seventy-two percent said that cash is the safest form of payment method; 70% said it is the most reliable and 78% said it guarantees the most privacy.
The Only Truly Inclusive Form of Payment
“Cash is the only means of payment that fulfils a valuable social function both in terms of cohesion and integration”, said Concepción Jiménez, General Director of Cash and Branches for the Bank of Spain. This is a key point I have made in previous articles: cash is the only means of payment that is truly financially inclusive, in that it is accessible to all people regardless of age, technological know-how and social, economic or legal status. A totally cashless economy would systematically exclude the most vulnerable.
Of course, there are myriad other reasons why a fully cashless society is far from desirable, including the inevitability of more granular surveillance, the loss of one of our last vestiges of personal privacy and anonymity and the much broader powers of control and surveillance it would grant to both governments and corporations over our spending habits — and indeed potentially over our ability to earn or spend money at all.
A totally cashless economy would also be inherently fragile, as Stefan Ingves, the former governor of the world’s oldest central bank, Sweden’s Riksbank, warned in 2018:
“If the power supply is cut it’s no longer possible to make electronic payments. For reasons based purely in preparedness we need notes and coins that work without electricity.”
A New Generation of Cash Lovers?
Cash also has another perk: it makes it easier for people to manage their money and control their spending, which is particularly important in times of high inflation and falling real wages. According to media reports on both sides of the Atlantic, this advantage may be helping to win over a new generation of cash lovers. In late June Bloomberg reported that Generation Z “is embracing cold, hard cash” as surging inflation erodes their spending power. The hashtag for “cash-stuffing” — the practice of placing set amounts of cash into specific envelopes for each type of expenditure, and checking their balance at the end of the month — has already generated over 530 million views on TikTok. Only time will tell whether Gen Z’s newfound fondness for cash is a short-lived fad or something more enduring.
“A recovery is already visible, although not to previous levels,” says Jimenez, of the Bank of Spain. In the UK, the Royal Society of Art’s latest Cash Census report found that the number of people wholly reliant on cash remains unchanged, at around 15 million, even as online banking and shopping have become increasingly common.
In some countries cash is still the undisputed (albeit somewhat diminished) king of the payments system, including in the world’s third and fourth largest economies, Japan and German. As recently reported here, the Bank of Japan even recently decided to put its plans to launch a central bank digital currency (CBDC) on ice, partly due to the still-dominant position of cash in the Japanese economy.
The same is true of many emerging markets. For example, in Mexico 90% of the population continued to use cash for low-value transactions (i.e., below 500 pesos) in 2021. For higher-value transactions (i.e., above 500 pesos) 78% of the population still use cash. This is despite ongoing efforts by successive governments, banks and the central bank to promote digital, biometric-enabled transactions. It’s a similar story in Colombia where the use of cash actually grew 31% during the first year and a half of the pandemic (January 2020-June 2021). By contrast, Chile has seen card payments overtake cash as the preferred means of payment since the pandemic.
Every country (and in the US, arguably every state or municipality) has its own unique story to tell (and I invite readers from around the world to share their own experiences of cash use in their respective necks of the wood).
The government of Israel, for example, just set a maximum cash transaction limit of 6,000 new shekels (roughly $1,700), ostensibly to combat financial crimes and tax evasion. In China two banks ended all cash services in February, just months after the Bank of China, which itself is overseeing the roll out of a digital yuan, fined 16 public and private organizations for refusing to accept cash payments. A recent op-ed in China Daily, an English-language daily newspaper owned by the Publicity Department of the Chinese Communist Party, proclaimed that China has all but completed its transition into a cashless economy thanks to the rise of fintech platforms like Tencent’s WeChat Pay and Alibaba’s Alipay.
“The last time I saw someone paying in cash was a month ago when a senior citizen paid for his purchase in a supermarket,” wrote the author of the article, adding rather smugly: “Both the checkout staff and customers waiting behind the elderly person looked impatient.”
At the opposite end of the Eurasian continent, a public backlash in Ireland against large lender AIB’s plan to turn 70 of its 170 branches into cashless outlets forced the bank to backtrack. Like the UK, Ireland is at the leading edge of Europe’s cashless transition, but AIB’s plan would have left many small communities with no means of accessing cash services. It was a step too far, too soon, admitted the bank’s CEO Colin Hunt: “We got it wrong. The lesson for us from this is that we moved far too far, far too fast.”
Given the threat a fully cashless economy would pose to our privacy, anonymity and many of our basic freedoms, including the freedom to transact, as well as the pivotal role hyper-centralized central bank digital currencies (CBDCs) are slated to play in the digital control grid rapidly being constructed around us, one can only hope that this is a lesson that more and more people and businesses are beginning to heed.