Digital technology has given us new payment methods, from credit and debit cards, to Apple Pay, Paywave, Venmo, Paypal and Square. Uptake of these digital modes of payment is widespread, and in fact we read many editorials in mainstream publications these days about how cash is becoming obsolete, as consumers rush enthusiastically and headlong towards the ‘cashless society’. In countries like Sweden and South Korea, we are told, the trend is particularly advanced.

The impression given by such stories is that the phasing out of cash is inevitable, supported by the public, and virtually an unmixed blessing. We would like to offer here an alternative perspective on the cash V card or cash V digital payments debate.

According to a study published by the Reserve Bank of New Zealand in 2020, 63% of New Zealanders still report using cash on a regular basis(1). This is more than half the population. Yet at the same time we read that a number of businesses around New Zealand have already stopped accepting cash and that this number increased during the COVID pandemic, 2020-21. Let’s pause for a moment and consider the implications of this. The majority of New Zealanders still prefer to use cash, yet an increasing number of businesses will not accept this form of payment. What does this tell you, except that the push for a ‘cashless society’ is not driven by the consumers or by the average person at all! It is a top-down initiative being imposed on us by the government and by big business. There is a campaign to end cash and it is not driven by popular demand, but by political and corporate priorities.

Many people still prefer to use cash, and for good reasons. Cash has distinct advantages from a citizen’s point of view which are by no means matched by digital alternatives:

—> Cash supports our personal freedoms

Cash is the only means of payment you can use independently of the issuer and without the involvement of any third party. In this age of data mining, surveillance and social engineering, it protects individual privacy and guards against interference by government, predatory corporations or other third parties in our economic activities.

—> Cash is egalitarian

There are no special qualifications for using cash, which makes it a natural ally of democracy. You do not need a bank account, a good credit score, or access to the internet to pay by cash. Many people the world over rely on cash, including the millions of ‘unbanked’. According to the Federal Deposit Insurance Corporation (FDIC), in 2019 there were 7.1 million unbanked households in America(2).

—> The existence of cash keeps commercial banks and payment providers honest

Cash is free to use and free to store. The fact that consumers have access to this free alternative means commercial banks and payment providers are reluctant to charge exorbitant fees for transactions or for deposits, because the public might simply switch to using cash and thus deprive them of business. However, if cash is removed from the economy, or drastically reduced, then the banks and digital payment providers will no longer face this competition. Monopoly could take hold and consumers might be charged outrageous fees for transactions and deposits, which they will have little choice but to pay, for fear of being shut out from the economy entirely.

—> Cash helps with budgeting

Cash helps people manage their money. Many lower-income families find that dividing their cash into different pots or envelopes makes it easier for them to manage spending. This is of increased importance at a time when cost of living crises are taking hold everywhere. A 2020 study by Warwick Business School, which looked at over 300m transactions made by 260 000 consumers, revealed that those who used cards for their purchases spent ‘significantly more’ than people who used cash. They also made a greater number of purchases and had a higher chance of incurring overdraft fees(3).

—> Cash comes through in a crisis

The U.S.’s Federal Emergency Management Agency includes cash as an item in its disaster preparedness kits, and other recommendations on disaster preparation similarly include cash as an essential resource. This is hardly surprising. In the event of fire, hurricane, tsunami, or earthquake, when communications systems are down and internet access is out, people naturally resort to using cash to survive.

In the South Island context, the people of Christchurch should be acutely aware of this advantage of cash, having experienced barely more than a decade ago the devastating earthquakes which rendered everyday infrastructure unusable. What happens if, God forbid, another quake hits, in Christchurch or elsewhere in the South Island, and electronic banking and internet payments go down? If cash has already been removed from circulation, then when the disaster strikes there’ll be no means of exchange on the ground and the strain on communities will be even worse than it should have been. How ironic, if we were to find ourselves in such a nightmare scenario, because we were so ready to be seduced by the rhetoric of ‘ease and convenience’!

The push for a cashless society has intensified since 2020, with some arguing that ‘contactless payments’ are a necessity in the age of COVID, in order to reduce transmission of disease. This is based in hysteria and is not backed by any real science. In fact, the Centers for Disease Control and Prevention in the U.S., along with the World Health Organization, have stated that COVID-19 is primarily transmitted through aerosol particles and that risk of transmission via surfaces is minimal. Furthermore, medical experts and central banks have confirmed that cash is safe to use even in a pandemic setting.

Cash has a venerable history and is still favoured by many as a preferred means of payment. Cash is practical and intuitive and helps to safeguard our privacy and personal freedoms, while also serving to keep the field of payment providers competitive. Even if you enjoy paying digitally, you should still support the continued use of cash, for the existence of cash makes it harder for banks and digital payment providers to overcharge or otherwise exploit their customers; thus a strong cash economy also makes for a better, more consumer-friendly digital economy.

Crypto connection

What we are here proposing is a two-part plan to ‘save cash’. The first thing South Islanders can do, if this issue resonates with them, is to try to prevent cash from being phased out. They can do this by speaking to their friends and neighbours, to retailers they frequently shop with, to their business partners, suppliers and customers, about the advantages of cash and the potential pitfalls of a ‘cashless society’ (there are plenty of examples to be drawn from Communist China, in this regard); they can write to their local council or their MP about the issue; and they can continue to use cash in their everyday purchases and to accept cash in their own business. This is the first part of the campaign: to try to ensure that physical cash is not phased out.

But we must also prepare for the eventuality that central government will go ahead with their plan to introduce a CBDC (Central Bank Digital Currency) and to phase out cash, despite a lack of public enthusiasm, or even against public outcry. If this happens, all is not lost. If enough people are of a mind to retain the advantages of a ‘cash culture’, even without physical cash, a culture, that is, in which our economic activity is not tracked by central government or large corporations, and where they do not have the power to micro-manage our finances, then we can retain many of the advantages of cash by opting to use a decentralised cryptocurrency such as Bitcoin or Ethereum. Since these coins are decentralised, they are not subject to the control of the government or big business, and can thus be used to support an economy where privacy and personal freedoms continue to flourish. And isn’t this what we would like to see in the South Island going forwards?

 

Notes

 

(1) https://www.cashmatters.org/blog/how-new-zealanders-use-cash

 

(2) https://www.forbes.com/sites/advisor/2020/10/22/the-pandemic-is-fast-forwarding-us-to-a-cashless-society-and-making-life-harder-for-the-unbanked/?sh=358e9cd57f1f

 

(3) https://www.theguardian.com/business/2022/aug/18/handing-over-cold-hard-cash-makes-you-think-twice-the-people-ditching-cards-in-the-cost-of-living-crisis