In Cash We Trust

When I was a student my mother presented me with a note that her father had given her as a child,  She said ‘It’s German and it’s worth a thousand marks’.  As you’ve probably gathered it was a 1000 Reichsmark note dated April 1910 and therefore literally ‘not worth the paper it’s written on’.  I still have the note.  I use it as a bookmark and have just retrieved it from JK Galbraith’s ‘The Age of Uncertainty’ page 190, where he refers to Germany being ‘buried in an avalanche of Reichsmarks in an inflation that is not forgotten to this day.  Finally it stabilised at a thousand billion of the old currency to one of the new’.  So much for my one thousand note!

I was reminded of the old note when I saw an article in the German media that referred to public opposition to government plans to restrict cash payments to amounts below €5000.  The arguments that this would counter terrorism and organised crime may have held sway in France and the UK but for many in Germany the issue is one of personal freedom and keeping their payments behaviour away from the eyes of corporations and government.  The article concludes that “This prizing of freedom, combined with a deeply ingrained thriftiness, meant that imposing a limit on hard currency was like playing with matches around a powder keg for German leaders.”

We shouldn’t be too surprised at this response.  I found a 2015 article in USA Today that implied that compared to other countries Germans love cash.  80 percent of transactions take place using cash and whereas the average American carries $74 in his or her wallet or purse the German equivalent carries $123.  Why?  In some ways it could go back to my Reichsmark note and Germany’s in-built aversion to debt and credit fuelled inflation.  People like to know they are spending within their means and only 32 percent of Germans own a credit card.  In part, too. the now united Germany’s history also explains a preference for anonymity.

One thing is sure, Europe’s leading player won’t be cashless in the foreseeable future.  But what of other countries?  Whist acknowledging a gradual shift to digital payment methods a recent US report from Accenture revealed that 67 percent of US citizens’ preferred payment method was cash.  It also indicated that this would fall to 58 percent by 2020.  In a country where 10 million households don’t have a bank account that represents a significant residual demand for cash!  Indeed globally there remain 2 billion people unbanked.  There are ways of bringing these people into the financial system but in the meantime they all need to make payments. Even where alternative payment methods exist there are obvious reasons why some prefer cash.  As a recent Telegraph article put it. “It is immediate, flexible, no one needs a password, it can’t be hacked and the system doesn’t ever crash.”

As the case for cash replacement by mobile payments continues to be over-stated, perhaps it is a little mischievous of me to point out that O2 research shows around £1.5 billion worth of gadgets are lost every year in the UK with around 17.5 million items turning up in lost property offices annually.  Of this 17.5 million, around 5.2 million are said to be business mobiles, with the rest being personal items. The study showed that around 29% never knew their item had been lost, with around 59% losing their gadget in a public place.

In the UK 3.5 million people only use cash to make payments, so let’s not get too excited.  With cash use continuing to grow Mr Carney is not alone in thinking cash is here to stay.  The Reichsmark may have gone but I suspect dollar, euro and pound notes will be around for some time to come, and not just as bookmarks.