Article

The Case for Cash: 10 myth-busting truths about money

A review of some of the most compelling reasons why we should defend the future of cash as a consumer payment choice.

June 2, 2015

In a photo feature last week, we presented excerpts from "The Case for Cash Part One: Myths Dispelled," a report from Currency Research, a consulting, communications and conference resource for the currency industry. The executive summary of the report presents 16 points rebutting the anticash lobby's favorite arguments for abolishing cash.

Today, we present excerpts from the sequel to part one: "The Case for Cash Part II: The Justification." In this report, Currency Research separates fact from fiction, using published research and survey findings to explain why central banks should take an active role in supporting and defending the use of cash as a means of payment. 

The executive summary of the new report presents both a social an economic view of the advantages of cash. The following 10 points highlight the social side of the equation.

Citizens trust cash

Currency, represented physically to the public as banknotes and coins, is trust. There are a number of reasons why currency embodies trust to the public, but the strongest is the extensive history of consumer use and trust in banknotes and coins without being "betrayed" by the Central Bank and government. As the Governor of the Bank of England, Mark Carney, remarked in a 2013 speech, "Ensuring public trust and confidence in money is at the heart of what central banks do." Citizens trust the many features of cash that make it secure, including its anonymity and personal data protection.

Cash is financial inclusion

Cash is easy to understand and to use, and does not discriminate based on race, religion, or economic status; unlike other payment methods, it facilitates financial inclusion rather than financial exclusion. ...

For example, the Central Bank of Ireland's 2013 National Payments Plan concluded that barriers to electronic payments contribute to financial exclusion while cash-based money management fostered financial inclusion. In its 2013 Annual Report, the Central Bank of Kenya presents a noteworthy success story of how to boost financial inclusion by increasing access to cash and cash usage.

Cash is the (only) means of exchange and stored value in times of crisis

From climate change and pandemics to financial instability and conflicts around the world, crises take many forms. What these crises have in common is the immediate requirement for physical currency both as a stored value to be placed aside as a contingency and as a universally accepted medium of exchange.

To illustrate, U.K. banknote volume trends after the 2008 financial crisis indicated an upward swing and the Bank of Japan's post-tsunami presentation at the 2011 Currency Conference showed a similar upward trend in overall banknote and coin volumes.

Cash promotes responsible spending

A number of studies ... link payment cards to willingness to pay and cash to fiscal restraint. Cash in hand seems much more difficult to part with, particularly in impulse situations, than simply handing over a card. Cash helps low-income individuals manage their money wisely and to spend within their means. Research, including a Sloane School of Management study, "Always Leave Home Without It: A Further Investigation of the Credit-Card Effect on Willingness to Pay," shows that credit cards do indeed increase spending, especially on purchases of higher value goods.

Cash is educational

The educational uses of banknotes and coins can be profound. They teach children about the value of saving, investing, and giving, while also educating citizens and visitors about culturally and historically significant people and events essential to building and maintaining a nation's collective identity.

Cash imparts a sense of national pride

Citizens and governments alike view currency as a potent national symbol. The Russian flag and the Russian ruble were the two most visible national symbols introduced immediately following the recent annexation of Crimea by the Russian Federation.

Emotions can run high when governments design and introduce new national currencies. As a May 2013 Currency News article noted, "banknotes play an important psychological as well as a functional role. They underpin national pride and sovereignty and reinforce cultural tradition and identity...and [provide] an emotional bridge between state and citizen." Banknotes are always much more than just pieces of paper; they play multiple symbolic and functional roles in society.

Citizens want choice

The 2012 Diary of Consumer Payment Choice (DCPC) survey conducted by the US Federal Reserve's Cash Product Office shows that the majority of respondents chose cash as the primary or secondary preferred method of payment. In a 2010 consumer study by the Reserve Bank of New Zealand, 95 percent of participants responded that they used cash for various "primary" reasons. Consumers want, need, and deserve the choice to use cash as a means of payment.

CR's exploration of the existing research and evidence signals that until the introduction of a new system that provides all of cash's benefits, cash will remain a dominant and preferred payment instrument.

Citizens do not wish to be (completely) tracked by governments retailers or banks

In a climate of increasing distrust regarding the use of personal data, the anonymity of cash is a very important and attractive attribute for many consumers. Despite the cash industry's ongoing efforts to paint cash use with criminal overtones, research shows that the vast majority of cash users simply wish to avoid targeted marketing and prefer to make their own choices without undue influence. ...

Citizens expect governments to not only protect their personal data, but also to provide a safe and trusted payment alternative that is not rooted in commercial interests. Consumers should have the choice to use their preferred product at their own convenience. For many consumers, that product is cash.

Cash is safe and protects from identity theft

According to a recent Riksbank study, even in Sweden, a country apparently at the forefront of promoting a cashless society, the majority of consumers continue to acknowledge the superior safety and security of cash. In a working paper published by the Federal Reserve Bank of Atlanta, the role of money in providing transactions privacy is examined, showing that the value of money can derive from its anonymity. ...

Each [Federal Reserve Survey of Consumer Payment Choice] consistently shows consumers selecting security as the most important characteristic of payments, surpassing all other options such as cost, speed, and convenience. A 2013 Federal Reserve Bank of Boston public policy discussion paper analyses the implications of these findings and concludes that citizens most concerned about the loss of personal information are most likely to adopt cash payments.

Cash prevents social upheaval

As noted by the U.K. Payments Council, cash "is regarded as a public good by its users." It is the only tangible connection between citizens and the Central Bank. Without physical currency, most citizens would be left with only the most abstract notions of Central Bank policy framework and financial stability regulations.

In many countries, from Ukraine to Zimbabwe, the availability and stability of a national currency is a litmus test for the economic health of the nation as well as the legitimacy of its government. Throughout history, failed economies have been tied to failed banknotes, inflation, and social upheaval, usually resulting in an eventual return to a "new" national currency. A loss of trust in the local currency has historically led to social unrest.

Currency Research is an international organization that believes education and communication are fundamental to growth and innovation within the currency and cash handling industries. CR has more than 20 years of experience organizing conferences and seminars, including global regional cash cycle seminars that focus on issues surrounding the cash supply chain — e.g., commercial cash management, distribution, and circulation. CR provides professional consulting and research services to both government and commercial sectors. Learn more at www.currencyresearch.com

cover photo istock