I’m dreaming of a cashless Christmas
First published in the Telegraph on 24 December 2009
If you’re anything like me, this was the day you finally realised it was time to start shopping for presents. Of course, if there’s one day you don’t want to be stuck in a queue at the cashpoint, it’s Christmas Eve. So how much money should you take with you while you brave the high street?
A couple of years ago, a Harvard professor called Greg Mankiw worked out that the ideal amount to have in one’s wallet at any time was $600 ( pounds 375), on the basis that time spent topping up at the cash machine is time wasted, and that you’re far less likely to be mugged or lose your wallet than you think. But I’ve got a different answer: absolutely nothing.
I don’t mean, of course, that we don’t need any money. But Mankiw’s findings are already out of date – because cash is inexorably becoming redundant. Last week, the Payments Council caused howls of outrage when it announced that come 2018, the cheque will be sent to the great till in the sky. But it won’t be long before notes and coins follow suit.
This is a bold statement to make: currency has been an integral part of our world, in one way or another, since 3,000BC. But the simple fact is that we can survive without it. In fact, abolishing notes and coins could make the world and its economies far less dysfunctional.
To understand why, let’s go back to first principles. Money has two main purposes: to be a medium of exchange (helping us swap things of value) and a unit of account (a yardstick against which things can be priced). The textbooks also say it should be a store of value, although anyone who has experienced inflation will realise it hardly fulfils that role these days.
But while pounds and pence will survive, notes and coins are no longer all that relevant. Cash transactions account for only
4 per cent of overall money use: next year, for the first time, we will spend more using our debit cards than with cash.
Until recently, there were three reasons not to cut the umbilical cord: first, because of the impression that a pounds 10 note clasped in your hand is somehow safer than one handed over to a bank, or the Government; second, because cash is essential for small purchases; and third, because cash can be passed between people easily, as a gift or a favour.
Yet just as with the arguments made in favour of the cheque, none of these wash any more. The temptation to hoard cash under the mattress is fatally undermined not merely by inflation, but by the fact that bank accounts are now protected by government guarantees. If you don’t trust the Government to safeguard your money, you’re better off buying gold.
The second or third objections have more merit, but we are on the brink of a technological revolution that will sweep them away. It may be impractical to pay for your newspaper or sandwiches with a debit card now, but most new cards (and some forthcoming phones) have a “contactless” feature which allows you to press them against a sensor and instantly pay for small items, with the payment coming straight out of your bank account, or from a pre-paid lump sum. Soon enough, you will be able to use these cards and phones not just to pay for stuff, but also to receive payments: African countries such as Kenya are well ahead of us here, with six million people paying for goods on their mobiles. Jack Dorsey, one of the co-founders of Twitter, is investing millions in a little box that plugs into your Apple iPhone and turns it into a credit card reader, which would let everyone make and receive such payments.
There are other advantages. According to Willem Buiter, the former Bank of England policymaker, abolishing currency would make it easier to regulate the economy, since it would let the Bank reduce interest rates to below zero, instead of pumping money into the economy through quantitative easing.
And it’s not just that carrying around cash is inconvenient and time consuming. These days, one of its main functions is to finance the black economy: drug deals, counterfeiting, under-the-table employment and other nefarious activities. Because cash is anonymous, people can easily opt out of the taxable economy – leaving the rest of us to pick up the tab for their use of public services. Remove cash entirely, and you make it far more difficult to avoid tax, not to mention discouraging criminal activity.
Two nagging questions remain. First, does moving to a cashless world mean that we’ll have to forsake our anonymity – that a record will be kept of everything we buy? Not necessarily, says Dave Birch, one of the world’s leading experts on digital money. He claims engineers can devise cryptographic systems complex enough to make electronic cash even more anonymous than the paper variety.
Second, doesn’t this make us reliant on electronic networks in a way cash doesn’t? Yes – but this is a path we are well advanced on. In the end, the main obstacle is cultural: given how annoyed people are about the abolition of cheques, will they really have the appetite for this leap into the future? A cashless Christmas is certainly coming – but the resistance to the change will be something to behold.