Wednesday, March 06, 2024

Money Developments (2a) Declining Use of Cash

Some Christians are concerned that the decline in the use of cash represents the emergence of a cashless society in preparation for the Mark of the Beast. However, the decline of cash is a normal societal change that occurs when technology changes and new needs develop. Cash is disappearing in the same way that cheques have already disappeared. The reason is that they are inefficient and tend to be insecure, so the change is sensible.

  • People have stopped using cash. Young people here never use it all. I rarely carry cash. Carrying around wads of cash is risky because it is easy to steal, and notes are almost impossible to trace. Buying with a smartphone is simpler.

  • Retailers are not interested in selling their products for cash. Maintaining a stock of cash in every till to facilitate payment of change is inefficient. Paying out change encourages mistakes and pilfering by staff. Taking cash to the bank deposit is risky. Getting out coins in bulk to provide change is also an unnecessary risk. Storing cash overnight is a problem for many small businesses. The choice is to leave it in an unsupervised store or take it home. Neither is ideal. In view of these concerns, it is not surprising that businesses are avoiding cash, just as they stopped taking cheques long ago.

  • Retail banks are not interested in handling cash. They have to clean notes and sort out damaged ones and return them to the central bank. Holding large reserves of cash to meet uncertain demand for notes and coins is inefficient and unprofitable because it does not earn interest. Operating ATMs is a significant security risk as they are vulnerable to ram raids and scammers. Loading ATMs is expensive because strong security is needed when cash is being shifted around. Banks get no payment for providing an ATM service, so it is not surprising that they are trying to reduce both the number of sites where cash is available and the amount of cash that people can withdraw.

There are three big users of cash in the modern economy.
  • Criminals doing drug deals and funding other illegal activities. It is interesting that the largest volume of notes on issue is $100 notes. These are preferred by criminals.

  • People active in the black economy, who avoid GST by paying tradespeople and others with cash, or buying cars and other expensive products with cash.

  • People keeping a stash of money for a rainy day. It is interesting that there are still $500 million worth of £10 pound notes and $150 of £100 notes on issue, even though New Zealand switched to a decimal currency more than fifty years ago. I presume that many of these pound notes have been stashed and lost.

Here in New Zealand, I see no evidence that the Reserve Bank is pushing a cashless approach. The value of notes in circulation has actually increased, particularly in the larger denominations. The central bank earns good money through the seignorage it gets when issuing notes and coins. In the case of notes, it is almost money for nothing, so the bank is unlikely to push a cashless society.

The reality is that the Reserve Bank would have a great deal of difficulty in gathering up all the notes and coins in circulation if they wanted to do so. Cancelling their status as legal tender would create a great deal of anger, so it would be unlikely to take that action. Rather, the bank is more likely to wait for the use of notes and coins to continue to decline.

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