Sky Views: Want to see the dangers of a cashless society? Just look at Sweden

Sky Views: Want to see the dangers of a cashless society? Just look at Sweden

Ian King, business presenter

The Bank of England's decision last week to make Alan Turing, the celebrated codebreaker, the face of the new £50 note was rightly praised. There is no better person to symbolise Britain's contribution to scientific progress.

The irony is that progress of another kind means the man regarded as the godfather of modern computing could well be the last new person to feature on a £50 note.

A survey published earlier this week by LINK, the UK's largest ATM network, laid bare the startling decline in the use of cash machines in some parts of the country.

It revealed that, during the first four months of the year, there were 8.7% fewer cash withdrawals in London than in the same period last year. In the South East the decline was 7.9%, and in the South West the drop was 7.7%.


The drop-off in other parts of the country was less pronounced, with the North East seeing a decline of just 3.7% in cash withdrawals during the period, but the pattern is clear enough: Britain is well on the way to becoming a cashless society.

Total cash withdrawals peaked as long ago as 2012 both in terms of the volume of notes being withdrawn and their value.

Image: Bank of England Governor Mark Carney and Alan Turing on the new bank note design

Moreover, the move away from cash is picking up pace, with the number of transactions done by debit cards overtaking the number done by cash two years ago thanks to the rapid take-up of contactless payments.

As LINK noted: "The rate of decline in LINK transactions appears to be accelerating. The reduction in transactions is currently expected to be at least between 9% and 10% for 2019 as a whole compared with 2018."

The statistics come weeks after another report, from the trade body UK Finance, forecast that, by 2028, just 9% of all payments will be made using cash.

The two reports confirm the findings of an independent review on the future of finance recently carried out for the Bank of England. Chaired by Huw van Steenis, senior adviser to the governor, it said the UK may only be between four to six years behind Sweden where, during the last decade, cash transactions have fallen by 80%.

Image: Cash withdrawals peaked in 2012 for the volume of notes being withdrawn and their value

Mr van Steenis, a City veteran who worked at the investment bank Morgan Stanley and the fund manager Schroders, recommended the Bank joins forces with the Treasury and other regulators, including Ofcom the telecoms watchdog, to come up with a "co-ordinated response to society's shift to digital, without leaving anyone behind". This national payments strategy council, as the report described it, would also ensure the resilience of the payments system.

Those recommendations have in part been informed by the experience in Sweden. There, the move towards a cashless society has been so rapid there are concerns it has resulted in financial exclusion, with buses no longer accepting cash and some other providers of basic and essential services, such as chemists, now frequently declining to accept coins.

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More than half of the country's banks have stopped allowing customers to withdraw cash or pay in notes and coins over the counter, while shops and other merchants are permitted by law to refuse cash payments. It has led to unhappiness among hundreds of thousands of pensioners. A backlash got fully under way when both Ikea and the country's hospitals announced they were no longer accepting cash.

The expectation is that Sweden will become fully cashless by early 2023. On that basis, assuming Mr van Steenis is correct, the UK could also be cashless within the next decade. Hence his call for no one to be left behind as the UK moves towards a cashless society. In his review, he suggested that in the event of private sector players deciding the activity had become uneconomic, the infrastructure around cash management and distribution might eventually have to be supported by the government.

It is perhaps no coincidence that the two advanced economies where inflation has been most benign during the last few decades, Japan and Germany, are also the two developed economies furthest from becoming cashless.

One suggestion gaining support here is for access to cash to be added to the so-called "universal service obligations", underpinned by regulation, that guarantee British households access, at a reasonable price, to basic telecommunications and postal services, water and energy.

Yet the direction of travel is both set and irreversible - and so there is a case for saying that Britons must get used to the idea.

That idea sounds daunting but there is much to like about going cashless. Cash is bulky to print and distribute and expensive to store and transport, so doing away with it should significantly cut the cost of doing business, in turn reducing the cost of living.

Perhaps the biggest attraction is that, in a cashless society, financial crimes such as money laundering should become less widespread. Electronic payments always leave a "paper trail" that makes it easier to see where money has gone and how it has been transferred.

It is also harder to disguise income when payments have been made electronically so, in theory, income tax and VAT evasion should fall.

And, with less physical cash in circulation, in theory there might be less physical crime. Other, equally nasty, crimes would also be difficult without cash to oil the wheels. For example, modern slavery depends heavily on the existence of physical cash to facilitate and disguise payments. So, too, does the drugs trade - although there is evidence that parts of that have already migrated to the so-called "dark web".

Image: In Japan, a ¥1,000 note is used by many workers to buy lunch, making it hard to raise prices

However, there are also plenty of downsides. Going cashless clearly increases the dependence of society on the internet and raises the risk of an increase in cyber crime. System failures and power cuts will prove even more costly than at present.

Given the recent track record of the UK's banking system for technology breakdowns, most famously at TSB last year, scepticism about the ability of the banks to maintain a flawless system would be more than justified. The loss of a mobile phone or computer - or even a phone running out of power - would also prove even more inconvenient for individuals than is currently the case. It could even become a new battlefront in hostilities between nations. It is easy to see how a hostile nation might target the payments system of another.

Another major associated downside would be the loss of privacy. A lot of people, not just criminals, may not like details of their every transaction being stored by a data provider.

And there is also the risk for some people, once they are no longer using cash, of recklessly spending money they do not have.

There is also evidence that cash has been very effective in helping some economies keep down inflation. For example in Japan, the ¥1,000 note (roughly equal to £7.40) has been for years used by many office workers to pay for their lunch, making it near-impossible for cafes, takeaways and workplace canteens to raise prices above that level for a meal. It is perhaps no coincidence that the two advanced economies where inflation has been most benign during the last few decades, Japan and Germany, are also the two developed economies furthest from becoming cashless.

But the biggest downside of all, as Sweden has shown, is the risk of financial exclusion becoming even more entrenched than ever. In the long run, going cashless might break down financial exclusion as the currently bankless are able to carry out more transactions via mobile devices.

In the short term, though, Mr van Steenis's call for no one to be left behind must be heeded.

Sky Views is a series of comment pieces by Sky News editors and correspondents, published every morning.

Previously on Sky Views: Beth Rigby - Boris Johnson must do a deal or risk watching his premiership die