Denmark is to become
a cashless society in 2016, Sweden also has plans to go that way and today Norway’s
second biggest bank has announced it
will no longer accept cash.
This follows on from this recent article in the FT: The case for retiring another ‘barbarous relic’
Should we just
accept that cash has had its day and wave it farewell? I do not think so – and here
is why.
The main reason
is very simple. Physical money is
created in the UK on behalf of the Bank of England and sold by the Bank of
England to other banks at face value. This means that every pound that you draw at the
cash machine has cost a bank £1. But this cash only accounts for 3 to 4% of the
money supply, the rest is electronic money i.e. non physical. All electronic
money is created when banks make loans, banks do not lend their own or customers’
money, they create it.
So, to the
banks, cash costs money but electronic money is free. Therefore when cash is eliminated banks will
make even more money as they will no longer have to pay for cash. So the only
commercial organisations which can create their primary resource for free and
then charge other people to use it will get even richer.
But there is
another less obvious reason why banks want to get rid of cash. Some countries
are issuing debt at negative interest rates (this include Germany, Italy and
surprise, surprise Denmark and Sweden). This means that to finance spending,
the governments offer bonds that the investor has to pay to hold. This is because
in the current economic wonderland there is a shortage of safe assets and
investors are prepared to lose money to hold these “safe” assets.
This negative
interest is hard to apply to normal bank deposit accounts because savers will
just draw their money out in cash and sit on it, and in these days of zero
inflation this means money in banks with negative rates will devalue but cash
will not. So the banks answer is to get rid of cash. Or in the example cited in
the FT article they could date stamp bank notes and they will devalue over time
so after say one month your £5 note will be worth £4.95!!!
So cash should
remain king to stop these money bandits in their tracks. Demand that shops keep
taking cash and that banks issue and accept cash.
You have been
warned.
