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Next Step, A Cashless Society?

I’m sure we’re all feeling the effects of COVID-19 in one way or another. But I’m wondering if one of the results will see is a move to a cashless society.

Up until March, my friends and family seemed split when it comes to paying for goods and services. Some always wanted to pay using cash, with one of the concerns being that using a card can always be open to fraud. Others (myself included), preferred to use plastic.

For me, there are two main reasons to use a card:

  • It logs every transaction – I know exactly where my money has gone that month.
  • I have a cashback credit card. Yes, it might only be around 0.5%, but add that up over a lifetime!

The history of money

In ancient times, people used to barter when they wanted something from a neighbour – for example, 3 chickens for a goat. Although I’m not sure if that’s a good deal or not. But obviously, that’s not ideal if your neighbour doesn’t want chickens as how would you get your goat then?

That’s why money was introduced, so bartering was no longer essential. The first form of currency introduced was the Mesopotamian shekel around 5000 years ago. In the 4th century BC, the manufacturing of coins began in the Roman Empire and as their influence grew, the use of coins spread across Europe, North Africa, and parts of Asia.

With the introduction of money, came banks, although these generally came in the form of money lenders. So Payday companies shouldn’t feel quite so bad, there were people taking advantage of others thousands of years ago. It wasn’t until 1472 that we saw the establishment of the first bank – Banca Monte dei Paschi di Siena in Italy. Here, in the UK, the first bank C. Hoare & Co wasn’t established until 1672. And yes, it still exists, but you probably haven’t heard of it as it’s a private bank with only 2 branches.

Banking was restricted to the well-off initially, but in modern times, almost all of us now have access to some kind of bank account. And as bank accounts have become more popular, so has the use of debit and credit cards.

So popular in fact, that in 2019, cash payments were used in under 25% of all transactions in the U.K.

Moving to a cashless society

The end of cash?

There have been some small changes in the last few years that have indicated that it’s not only the consumer that is moving away from cash, but the government is keen too.

In January 2018, companies were banned from passing on fees charged to them by card companies. That meant that my local Chinese restaurant could no longer chuck on an extra 50 pence charge to my bill if I hadn’t drawn out enough cash.

On the 1st April 2020, the contactless limit you could spend on your card was increased from £30 to £45, a massive jump of 50%. How many of us leave the house with that kind of money in our pocket?

Technology is also encouraging us to live without cash. With the advent of payment systems such as Apple and Samsung Pay, it means you only need to leave home with your mobile if you’re not planning on spending large sums.

The way many stores operate is changing too. Plenty of fast-food chains and restaurants allow you to pay using an app. That means no cash and no waiting around for somebody to serve you. More and more of us are now having groceries delivered to our homes, rather than tackling long queues in supermarkets.

And there’s obviously the small matter of COVID-19. Many people are now far less willing to handle cash for obvious reasons and stores are encouraging contactless payment. There are even new apps being created which will allow us to order food and drink at any establishment before you arrive.

Why would the government be keen to get rid of money?

Health implications aside, why would the government be keen to get rid of money?

Creating money comes at a cost. Not only from the metal it uses but also the manufacturing cost and then the issuing of the coins. The Royal Mint doesn’t actually reveal how much the true cost is for creating money though, so it’s difficult to get an exact figure.

Then, there’s the issue with forgery. As you’re all aware, the UK recently had a new £1 coin issued. Before this issue, it was estimated that almost 2.5% of the old-style £1 coins were counterfeit. And considering there were 1.6 billion £1 coins, that’s a lot of money.

The new coin is much harder to copy, but that won’t stop forgers. When there’s money to be made, people will find a way around it.

Then, we have people avoiding tax. With some exceptions, most of the goods and services we buy should be eligible for tax. But if we pay cash, the government will never know. Have you ever had work done in your home or on your car and the price changes depending on whether you’re paying cash? It was estimated that in 2016/2017, the ‘Hidden Economy’ cost the government £1.8 billion in lost tax.

A final reason for getting rid of money would be to help regulate wages. Although there is a National Minimum Wage in the U.K. I think we’re all aware that not every employer takes notice of it. If employees are paid electronically, it will give the government a better chance of finding employees who are being exploited. At least I hope it will.

Why should we keep cash?

One of the biggest arguments against moving to a cashless society is our continued over-reliance on technology. What happens if everything was to crash? Back in 2018, a problem with TSB systems left 1.9 million customers locked out of their accounts. And what would happen if this happened to the whole banking sector?

But with that thought, I very rarely have more than £30 in cash around my house. If the banking systems were to crash now, I wouldn’t be much better of than if we were cashless.

Another reason against going cashless is the worry that the government will have greater control over us. There is a concern over our privacy as it is, but are we totally happy that every penny we spend is logged? You could argue that if you’re doing nothing wrong, then you shouldn’t be concerned. Still, the erosion of privacy in one area could lead to another.

A further issue is that some of us could be more inclined to over-spend. Not all of us have cash to burn and so need to budget tightly each week and there’s no better way to do that than with cash. Moving to a card will make it harder to keep track of your spending.

Finally, we could see prices rise. At the moment, companies like Visa and Mastercard charge companies, who in turn, pass the charges onto customers. But at the moment, there are still a number of providers to choose from, as well as cash. Getting rid of cash takes away a major competitor and could open the door for an increase in charges.

If or when will we see a cashless society?

You’ll be unsurprised to hear I’m not an economist… but I think we are edging closer to a cashless society. Actually, I say edging, but I think it’s been more like giant leap in recent times.

My feeling is, that cash may go the same way as cheques and although it won’t be totally phased out, people will just stop using it.

I think the next 2 years will really show if we’re about to move cashless.

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