As the Link cash machine crisis escalates, maybe it is time to ask: “do we need cash anyway?”The Link Council is meeting today, this is where men and women from the world of cash, from companies that operate cash machines, come together. Some are unhappy. Right now, as you know, you can withdraw cash from an ATM operated by a bank you don’t use, and it won’t cost you a penny. The bone of contention relates to how much, or rather how little, some banks that may not have that many branches pay into making it all work.
The hope is that they will find an agreement, but there is risk that we will end in us having to pay for using the ATM system. It may not happen soon, but it may well happen eventually.
But whether cashpoints remain free or not, the era of cash may be coming to an end.
Consider the inconvenience of change, for one thing you need it for paying for public conveniences – these days spending a penny costs around 30p at many railway stations.
You need it for parking, too. But its awkward. You get to the front of a queue in a store, and you have a pocket full of silver and copper, and have to listen to people tutting, as you count it out. And in the era of the Internet of Things, and as Amazon is already demonstrating, paying for your shopping in a supermarket may just involve waving your smart phone or wearable device as you leave, if you tried that with cash, people might think you had waved goodbye to your sanity.
But, some central banks like the idea of the end of cash for other reasons.
For one thing, consider interest rates. If a central bank cuts interest rates much below zero, people withdraw cash from banks, and leave it under their mattress or dig a hole in the ground and bury it, or they . . . well they just hide it. For as long as there is cash, there is a limit to how low interest rates can go. But if all money is electronic, the cash option having been removed, central banks can reduce interest rates as low as like – rates could go to minus 20 per cent, if central banks wanted.
For another thing, there is the cost of fraud – of money laundering.
And for a third thing, cash is just awkward, companies have to spend money to handle cash. McKinsey has calculated that in some countries the costs associated with cash are as high as one per cent of GDP – in Russia for example. In fact, overall, cash costs around 0.47 per cent of GDP, or so McKinsey estimated back in 2013.
Regardless of the rights and wrongs, technology may take the lead and force the change. You can already pay for parking from your smart phone, you can use ApplePay, for example, for small transactions – and they are secure too, as when you use ApplePay a unique code is generated for that one transaction, plus there is finger print recognition. You don’t need to worry about people finding your pin number, because it is never the same twice.
You may or may not like the idea of the end of cash, but the millennial generation are shifting away from cash anyway.
Cash has two big advantage – number one it feels more private – you can avoid the prying eyes of government.
And it has psychological benefits – to many, cash just feels right.
But as we move to technology in which wearable devices, such as watches, bracelets, or maybe tiny chips embedded inside us, can make payments, cash may just feel awkward, even quaint, like a vintage car, nice to look at, but of no practical use to any but serious hobbyists.
As for the privacy argument – well that is different. Some might argue that the fact electronic cash makes it harder to cheat the tax man is an advantage. We may be entering an era or transparency, one in which the Internet of Things makes it very hard to have any kind of secret. You may think that is a bad thing, but regardless, this era may be approaching anyway, and with it cash, and all that entails, will mean holes in the wall where once there was an ATM.