cryptocurrency

In a digital age, cash still has its attractions – Financial Times


Britain’s new £20 note, introduced in February, spotlights the 19th-century artist JMW Turner. One side features the painting “The Fighting Temeraire”, voted the nation’s favourite in a 2005 poll, showing a superannuated wooden battleship being pulled to the ship-breakers by a steam-driven tug. After the lockdowns prompted by coronavirus just weeks later, this image of old technology displaced by the new may seem even more appropriate for a banknote. Across Europe and beyond, the pandemic has accelerated the shift away from cash and encouraged the spread of contactless payments.

This week the European head of payments company Visa told the FT that the pandemic would lead to a “permanent” shift away from cash; temporary moves to reduce the use of physical currency — intended to cut off a possible pathway for virus transmission — were changing customers’ habits. Self-interest aside, she is likely to be right. Cash was already in decline in much of Europe and many of those stuck at home have turned to online shopping and food delivery services as never before. The stock of PayPal, the American online payments company, reached a record high this week.

Yet it would be a mistake to think cash will disappear altogether, or that it is an outdated technology. If anything, digital currencies are far older; the first money was probably an abstraction in ancient Mesopotamia that never left the clay tablets of temple and palace bureaucrats, just as today’s currencies circulate only on silicon chips. Physical currency, created later, offered the advantages of portability and, most importantly for today, privacy and anonymity.

Cash is not only appealing to those who want to escape the eyes of the bureaucrats for underhand reasons — whether to sell drugs or to work cash-in-hand. As more technology companies move into the payments business, cash is a means for consumers to keep data on their spending to themselves.

Central bank digital currencies, providing a government alternative to big tech, are one means for privacy-conscious individuals to keep records of what they buy and sell out of the hands of advertising companies. Yet many people are as worried about the government potentially having access to this data as about private companies. In Germany, with its traumatic history of totalitarian governments, consumers have been hoarding cash even while other European countries have seen an increase in bank deposits during the pandemic. Sweden, where trust in government is high, has been one of the swiftest to adopt contactless payments — though so, too, has China, where the controversial “social credit” system is being integrated with new payment technologies.

Physical currency, then, does not deserve to die. But as a more niche tool it will be harder to find; banks are already cutting back on branch and ATM networks. Those who still depend on cash, particularly older consumers in isolated areas, need to be protected from falling on the wrong side of the “digital divide”: excluded from services because of an inability or understandable reluctance to use new technology.

Given the public interest in preserving privacy and helping marginalised groups, there is a case for government intervention — but the ATM network was originally independent of the state and paid for through cross-subsidy by the banks. Alternatives to subsidies — such as shared branches — are currently being trialled by the banks in Britain. One way or another, however, those who still value what cash has to offer in an increasingly digital age are inevitably going to have to pay for it.



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