The Future Of Cash (£)
Cambridge University’s Cambridge Security Initiative has recently completed a report entitled Cash is King and its outline findings are laid out here.
Over recent decades several leading financial analysts have predicted the disappearance of physical cash, notes and coins, arguing its replacement by an electronic payment system using debit/credit cards, Bitcoin, or other crypto-currencies and electronic wallets. This, they believed, would create an increasingly cashless global society.
In 2014, Sweden announced its aim of going cashless and more recently Denmark followed suit, yet even as the Swedish government pronounced the death of cash it also announced the introduction of a new series of bank notes, which began circulating in October 2015.
In August 2015 the frequency and severity of cyber-attacks on financial institutions prompted the US Federal Financial Institutions Examination Council (FFIEC) to instruct banks to enhance their information security programs. This move was designed to better defend customers against attacks that might compromise user credentials and deploy destructive software. Furthermore, recent reports suggest bank information systems have indeed been compromised, resulting in the theft of large volumes of user credentials; these include passwords, usernames, and other forms of authentication information. In the UK during 2015 Royal Bank of Scotland (RBS) faced regulatory scrutiny after a technology failure resulted in the disappearance of thousands of customer payments. The FFIEC has acknowledged that because large quantities of data have been compromised by malware many information systems have effectively been rendered inoperable.
Some cyber analysts believe that a cashless society would require the elimination of not just cash but also credit cards. They argue that this would reduce the number of bank robberies and attacks on ATM machines and therefore reduce crime rates. Although these assertions make for good headlines they do not take into account recent improvements in cash protection systems, and the severe cyber-attacks taking place.
In fact cyber hacking of ATM machines and electronic bank accounts remains a growing but largely silent problem. It often goes unrecorded by police and crime agencies and bank customers are usually left unaware of the crime. Banks chose not to advertise the number of electronic attacks taking place on their systems but prefer to pay back the lost amount and then raise the general service charges.
Consequently, the police in almost all jurisdictions find they are losing many of their most experienced IT people to commercial employment because of the greater need in the sector and higher salaries.
This environment seems a long way from the old ways of money being backed by gold. And so we have reached a point where existing technology allows us to make electronic money, removing it from the physical world altogether. Nevertheless, many central banks continue to print money faster than ever and to protect it they employ sophisticated anti-counterfeiting printing security making it far more difficult to replicate or corrupt than electronic currency. This turbulent environment highlights the strength of bank notes and suggests that they will not disappear anytime soon. In fact a recent Euromonitor International report found that $14.4 trillion in consumer payments were made with cash worldwide, compared to a consumer payment card transaction value of $9.6 trillion. This in turn tells us that, despite the rise of plastic cards and electronic money transfers, globally cash remains the principal means of payment.
In 2015 the French government announced limits on the amount of payable cash, in order to help track transactions used to finance and equip terrorist attacks such as Charlie Hebdo. However our research suggests that the government’s promotion of web-based electronic transactions has had the reverse effect, creating more significant terrorist targets.
Also in 2015, eight of every ten transactions used cash as the payment method of choice, even fifty years after the invention of plastic cards. Certainly, within the recent digital revolution cash is still a required and necessary commodity, as was witnessed during the recent financial crisis in Greece, where cash remained one of the few ways of successfully completing transactions.
It is our view that paper and coin currency still has a very long-term future, and will not, and certainly should not, be made to disappear. Cash and coins should not be wholly replaced by electronic currency, although electronic money and digital currency has some benefits in macro-economic and security matters, cash still remains an active and purposeful commodity.
In a broader perspective these cyber issues suggest governments will need to continue maintaining oversight of the different types of currency in use ensuring a balanced trajectory between printed and minted money through to a variety of electronic cyber currencies. Currency remains a critical element in national infrastructure and requires special protection.
Government should continue to develop effective systems of control over electronic and printed and minted cash currency. They must ensure the right mix of the means of exchange within national economic and financial systems so that stability, control and sovereignty can be maintained.
Our research suggests that the use of cash is fixed into the transaction processes of much of the world and is embedded into our societal culture.
