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The real cashless society

Image: DeclanTM

If an economist tells you it is raining, I would advise you to take plenty of sunblock.  In the same way, when economists tell you how much better off we are going to be if we do away with cash, I would advise you to hoard as much of the stuff as you can cram beneath your mattress.

To some extent, of course, we have been going cashless for several decades.  As Kate Lyons, Rupert Jones and Patrick Collinson at the Guardian reported earlier this year:

“Britain will move beyond “peak cash” this year, according to data gathered by the Guardian that suggests notes and coins are rapidly being supplanted as the favoured payment method, particularly in cities.

“Debit cards are set to overtake cash as the most frequently used payment method in the UK later this year, according to UK Finance, which represents leading finance and banking firms.

“The volume of cash removed from cash machines (ATMs) is falling fast, while other data shows customers are eschewing cash for cards – even for small purchases such as a coffee or a beer.”

This trend is welcomed with open arms by economists, who believe that an economy that uses purely electronic transaction will be easier to manage (it won’t) and by politicians who naively imagine that it will prevent black market ills like drug dealing, people trafficking and terrorism (it won’t).  Behind these beliefs may be a more sinister plan by the central bankers.  As Ross Clark at the Spectator warns us:

“How to dissuade people from provoking a run on banks by withdrawing their savings in cash in order to avoid negative interest rates? This is where a rather underhand campaign comes in — to abolish cash altogether.

“The Bank of England’s chief economist Andy Haldane made that very proposal in the relatively obscure surroundings of the Northern Ireland Chambers of Commerce in October 2015, saying: ‘One interesting solution, then, would be to maintain the principle of a government–backed currency, but have it issued in an electronic rather than paper form. This would preserve the social convention of a state-issued unit of account and medium of exchange, albeit with currency held in digital rather than physical wallets. But it would allow negative interest rates to be levied on currency easily and speedily.’

“Two weeks later a proposal to end physical currency very nearly made it into David Cameron’s Conservative conference speech. Britain, he was going to say, would become the world’s first cashless economy by 2020.”

The plunge into economic chaos caused by the UK electorate’s decision to leave the EU, and the utter cluelessness on the part of central government since then, may have scuppered the move to abolish cash for the time being.  But it hasn’t gone away.  According to George Eaton in the New Statesman, Sweden looks set to go cashless by 2020, while:

“Even without government support, the UK has become one of the world’s most cashless societies: cash accounts for only 3.9 per cent of all payments by value (compared to 10.7 per cent in the eurozone and 8.1 per cent in the US)…”

Techno-utopians love this development, of course.  In a piece for Fintech Times:

“Simon Black, CEO, PPRO Group, looks at how older generations are reluctant to embrace the UK becoming a cashless society, which will happen by 2020 regardless…

“We live in a culture of increasing convenience which has influenced, and will dramatically transform, the way in which we’ll pay for items now and in the future. From using contactless cards to pay for a train journey, taxis at the click of an app with UBER, to a one-click shop on Amazon, quick and easy is winning the war.”

Like so much of the deluded thinking that dominates our fast failing culture, faith in a cashless future ignores the increasing frailty of the complex infrastructure we have developed.  Like the discovery that cryptocurrencies cannot work because of the additional drain they cause to the global power supply, cashless economies would be highly vulnerable to any disruption to outages in either the computer or the power infrastructure.

It isn’t as if bank computer failures never happen.  Barclays, RBS and Nat West have all experienced payment disruption when attempting to upgrade their software.  However, these pale into insignificance compared to the ongoing slow motion commercial suicide being committed by TSB as a result of its ill-informed decision to roll out an untested computer system against the advice of its technicians and engineers.

While the cause of yesterday’s problems with the Visa system have yet to be published, that fiasco, too, gives us an insight into the realities that await us all in the techno-utopian cashless society.  Across Europe, people were unable to pay bills or purchase goods.  On the border between England and Wales, long queues of motorists built up as the toll system on the Severn Bridges were unable to process payments.  At supermarkets across the country in places like Kent, Hull and Deeside, shoppers abandoned goods while long queues developed at ATM machines.

The three points to note here are:

  1. Not all transactions were affected
  2. Some cash was available at ATMs
  3. The outage was temporary.

As a thought experiment, fast forward to the cashless economy of 2020 and ask yourself what would have happened if:

  1. All transactions were affected
  2. ATMs (and banks) no longer had cash to dispense
  3. Like TSB, the electronic payment system was down for more than a month.

I submit that such a situation is entirely possible, maybe even probable, and that it would result in socioeconomic chaos as our computerised just-in-time economic system ground to a halt.

Nor does the threat to a cashless system come only from within.  The entire basis of a cashless system is that we have a growing, uninterrupted supply of electricity.  In practice, Europe as a whole and the UK in particular, are at risk of more frequent power outages as a result of our failure to properly invest in our power generation infrastructure.  If, as climate scientists are now predicting, Western Europe is facing significantly colder winters, then by 2020 – about the same time as we run out of cash – we are going to run out of power.  At which point we will likely rue the day we allowed the economists and politicians to lure us into giving up the notes and coins that have served us well as a method of payment for centuries.

As you made it to the end…

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