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The Queen’s handbag: Why Britain still needs cash (even if our monarch doesn’t)

It’s said that The Queen only carries cash on Sundays for the church collection basket. This was confirmed by an airport sniffer dog trained to sniff out wads of cash earlier in 2015 – her search of the Queen's bag was decidedly unrewarding. However, even though The Queen does not carry cash this is not to suggest that society is ready to part with it.
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Cash remains a powerful and important tool in Britain. Despite efforts to displace it with digital alternatives like mobile-payments, the strength of physical cash means it still plays a key role in our day-to-day life.

For many of us, cash simply refers to what we have in our pockets, banks accounts, or even stashed in the freezer. But cash actually means different things to different people. It can mean liquidity when bad times hit – say if a person is unemployed for a few months but still has rent and bills to pay. In such cases, cash is imperative if you want to avoid debt.

It can also mean financial control, as it is more obvious when you spend (or overspend!) those physical notes and coins compared to swiping your card or paying through mobile. Whilst you might argue cashback offers on your card save you money, if you’re on a tight budget hard currency is much better at curtailing the temptation to overspend.

This is also why cash is such a useful tool for financial literacy. To understand ideas and concepts children need to understand the physical process. If they are brought up with money merely existing in the abstract of numbers on a screen, they never develop a sense of object permanence, the value of exchange, or an ability to manage their finances.

For economists, cash is likewise vital for a healthy economic system. After all, unlike the best of stocks, cash maintains its value even during a market crash. Plus, by offering choice to consumers who might want to do certain tasks with cash and others using alternative platforms, it encourages business and competition.

There are countries that are almost cash free. For several Nordic countries, including Sweden and Denmark, 2015 has seen them move closer and closer to a completely cashless society. However, as the shut down of Valyou indicated earlier this month, even the friendliest markets are not yet ready for a completely mobile wallet.

Similarly, stories about Swedish residents hoarding cash have emerged lately, a result of their banks looking towards introducing negative inflation rates in order to stoke sluggish spending and growth. Forced negative interest rates on consumer deposits would mean depositors not just losing out in real terms (from inflation), they’d actually see the numerical amount of money they hold falling. Many are not pleased with this prospect. and it also highlights one of the key benefits of cash in society. Should a negative interest rate be introduced in the UK, the zero per cent interest you get on a stack of notes in a safe looks and feels a lot better than the -1 per cent a bank might charge under a negative interest rate regime.

Cash protects its users

It limits the control governments and central banks. Moreover, its simplicity is hard to replace. After all, unlike most mobile and digital payment options, cash is costless, immediate, flexible, no one ever needs a password, it can’t be hacked, and the system doesn’t crash.

On top of this, the existence of a physical currency acts as one of the primary bastions of business. Going cashless could be hugely detrimental, especially when it comes to the viability and success of small and micro-businesses.

Take as an example, startups where cash plays a critical role during infancy. Or merchants, who in order to accept a payment card must incur a cost because they have to sign up for a payment processing service and then accept a fee on each payment. This means to compensate for the additional cost they have to charge more – hence policies like minimum spend or transaction fee. The initial cost of innovation paired with losses made on digital transactions may in fact result in the inability of some start-ups and small companies to make it off the ground in the first place.

For micro-businesses – companies comprising of one to ten employees – cash is also crucial for things like bill paying and crisis preparation.

Having cash on hand means a small business can be more nimble, more capable of taking advantage of opportunities to expand or make acquisitions without loans. Alternative payment options can take longer to process, leading to unnecessary late fees. Likewise, in a crisis – say during a recession or where unexpected costs like legal fees appear – cash is useful to pay off fixed expenditures so that businesses can simply hunker down instead of downsizing or declaring bankruptcy.

Again, should we enter negative inflation, not only would digital only mean the government taking away from the pockets of the everyday person, but also from the entrepreneurs looking to start their first company and the young business that wants the safety of a rainy day fund.

Ultimately, as amused as The Queen might have been at a dog searching the least likely handbag to contain cash in the UK – British businesses and society in general need to remember that cash isn’t just a jingle in our pocket. It’s a physical currency with inherent value. Value that cannot be diminished by a power cut. Value that should not be compromised for the sake of convenience.

So while innovation is important and it is good that we have multiple payment options. We must keep perspective. There is a place for both cash and new forms of payment. It is about ensuring no part of society is excluded or entrepreneurialism hampered. It is about allowing individuals and businesses to be at their most nimble and most financially aware at all times. This is only possible with cash in the modern society. 

Jenny Campbell is an ex-career banker turned entrepreneur. She is the owner and CEO of YourCash Europe.

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