The UK Public Accounts Committee has taken aim at attempts to create a cashless society, saying regulators have not only failed to ensure adequate access to cash for consumers and businesses but are also not doing enough to protect vulnerable groups and communities, particularly in rural areas, who most need to use cash.
In a report issued last week, the committee said oversight of the production and distribution of notes and coins is “unclear” and “fragmented” across HM Treasury, the Financial Conduct Authority, the Payment Systems Regulator and the Bank of England. And those public bodies, in turn, did not understand “the clear dangers of hardship” from financial exclusion, caused by the UK’s “precipitous” move towards a cashless society.
The committee noted that the reduction of automated teller machines and bank branches as well as businesses that accept cash can have a negative impact on the lives of many people, including those in rural areas, as well as vulnerable and digitally excluded people.
The report said, “Some consumers prefer to use or rely on cash – particularly the elderly and lower income groups; those in rural areas, where poor broadband and mobile coverage limits the viability of digital payments; and some community organisations, for example charities and churches.”
Chair of the Public Accounts Committee, Meg Hillier, said it has become increasingly difficult to support small local businesses by paying them in cash, even though it is typically the cheapest form of payment to accept.
“In many areas where you can use cash, you’d be hard pressed to find it, at least without paying an ATM fee that may be a substantial percentage of a small withdrawal. Yet making frequent, small withdrawals can be a key budgeting tool for those on low incomes, and least able to afford those fees,” she said.
Generally, the use of cash in transactions is in decline. While cash was used in six out of 10 transactions in the UK a decade ago, in 2019 it was used in less than three in 10.
The COVID-19 pandemic has only accelerated the decline in cash use, which is putting pressure on the commercial viability of the infrastructure that supports the distribution of cash.
The lower use of cash could increase the risk of financial exclusion, if businesses stop accepting cash due to rising costs, a September report by the National Audit Office found.
The same report noted that more than a million UK adults do not have a bank or building society account.
Advocates of digital payments are saying a cashless society would lead to lower violent crime rates because there is no physical money to steal, as well as less money laundering and tax evasion due to the digital paper trails created by electronic transactions.
They also argue that the cost of handling and depositing cash is ultimately higher.
£50 billion in missing cash
While the use of cash in transactions is declining, the demand for cash as a store of value has increased.
Low inflation since the 1990s has significantly reduced the opportunity costs of holding cash. At the same time, more consumers are hoarding cash as savings because they have concerns about the stability of banks since the financial crisis.
During the coronavirus-related lockdowns, fewer cash was deposited at banks and more banknotes were held by consumers for fear they would not be able to access their money.
The Bank of England estimates that 20%-24% of notes in circulation are used for day-to-day transactions and an additional 5% is held by UK households as savings.
The Public Accounts Committee report notes that this leaves about £50 billion (US$67 billion) worth of issued banknotes unaccounted for with little to indicate where they are and what they are used for.
The missing cash may be used overseas for transactions or savings, it may be held in the UK as unreported household savings or it may be used in the shadow economy.
“The Bank of England doesn’t know,” the committee said, adding that “there are implications for public policy and the public purse if a material proportion of the large volume of banknotes whose whereabouts or use are unknown are being used for illegal purposes.”