“Forewarned is forearmed” (Wise old proverb)
In the last decade we have witnessed the slow death of the cheque. Today we have Bitcoin, payment apps and increasing use of the Internet and credit cards, so the question arises is cash also going to disappear? If so, it will have enormous implications for us.
The case for cash disappearing
In a recent study, 78% of Europeans expect to use less cash in the future. Countries such as Sweden and South Korea are pioneering the way to a cashless society and argue that:
- Cash is incredibly expensive and costs between 5 and 15% of revenue. This is when you factor in the cost of ATMs, cashiers, the cost of bank branches (in Sweden only 5% of branches handle cash), security transit vans, the time taken to deposit cash and high bank charges.
The Bank of America says that 10% of its cost base is due to managing cash.
- Robbery and crime fall when there is less money about.
- It reduces organised crime and terrorism. In Europe the 500 Euro note is being phased out after it was discovered that the terrorists who killed 89 people in Paris in 2015 used high denomination notes to fund the attack.
- Tax revenues, particularly indirect revenues like VAT show marked increases. VAT collections have improved 30% over the last five years in Sweden.
The other side
Contrary to conventional wisdom, cash now accounts for 9.6% of global GDP, up from 8.1% in 2011. The number of people in the UK who rely on cash has risen from 500,000 to 2. 7 million and in the past decade in the U.S.A., money in the economy has grown 50% relative to GDP.
So why is money still so prevalent?
There are some easy explanations such as:
- The low interest rate environment has encouraged people to keep money rather than put it in the bank.
- Globally the informal economy is growing and cash is the medium of exchange in this sector.
- The global financial meltdown of 2008/2009 resulted in more people losing faith in banks.
- The use of credit cards and other electronic payments has seen the level of consumer indebtedness grow. In fact, there is a very close correlation in countries embracing cashless societies and the growth in consumer debt. In a recent study, McDonalds put electronic devices in stores where consumers could order and pay online. Their sales in these stores rose by 30%.
- The number of Internet scams has pushed people towards hoarding cash.
- Crime statistics have in fact not gone down as was claimed above. In fact, where criminals can’t rob people of cash they go after the more vulnerable citizens such as the elderly.
In addition there are more subtle explanations such as:
- In the current world of cynicism and mistrust, banks are regarded as part of the system supporting the wealthy top 1% which encourages people to move away from banks.
- The recent incidents of state hacking (e.g. Russia meddling in the US 2016 elections) have given those in favour of a cashless economy doubts. Potentially, hacking could cause the financial infrastructure to collapse in which case it is prudent to still have cash in the economy.
The debate swirls on and on but it is probably safe to say that cash will be around for a long time, particularly in a developing country like South Africa.
This article is a general information sheet and should not be used or relied upon as professional advice. No liability can be accepted for any errors or omissions nor for any loss or damage arising from reliance upon any information herein. Always contact your financial adviser for specific and detailed advice. Errors and omissions excepted (E&OE)