Why we must defend cash

The forces that want to get rid of cash aren't embarrassed to use the opportunity presented by the pandemic to further their cause.

Worried and scared as they are, close to collective hysteria, people keep asking themselves: if coins and notes are passed on from hand to hand on a daily basis – isn't that going to foster the spread of the virus? Wouldn't it make sense to simply stop using cash, or even better, simply abolish it?

Sadly, the infectious disease experts don't play along. In fact, they have given the clean bill of health. A virus of the corona type is spread through the minidroplets that emerge when you cough and sneeze. There is no specific risk of infection in using coins and notes for payments. Of course, there is no certainty to it. But the evidence from experience is clear-cut: cash doesn't transmit the coronavirus, otherwise, the number of cases would be much higher.

Which doesn't stop the opponents of cash. They stick to the strategy of the many pinpricks to put people off cash. They claim for instance that cash is being used for drugs and terrorism. Or, as has happened in the eurozone, they put a stigma on large denomination notes: the European Central Bank (ECB) decided to withdraw the 500-euro-note from circulation. It doesn't issue any new such notes and keeps back those it receives in the regular transaction business.

The European Commission has plans to abolish the 1 euro cent and 2 euro cent coins. Brussels says they are expendable and abolishing them will save unnecessary expenses for retailers and consumers alike. But stop: the logic used in favor of abolishing euro small coins, means that all euro coins will have to be abolished, one after another – after all, the ECB is making sure there is inflation that makes everything more expensive and the use of euro coins more «costly».

And that's not all: if the small coins are gone, people's understanding of the «history of buying power» gets eradicated. The chronic inflation of prices of goods, which the ECB is creating with its monetary policy, renders higher nominal values of coins and notes necessary. With the disappearance of small coin units, the inflationary track of an inflationary monetary policy is removed and the ability to criticize the perpetual inflation policy weakened.

Furthermore, lest we forget: the popular wisdom of «look after the pennies and the pounds will look after themselves» is ridden roughshod over. Small coins are symbolic of the appreciation of small services and businesses, and they teach people to use money with care and conscious to achieve financial success. Small coins have something to do with an enlightened and mature culture of money.

Of course, banks, credit card firms and providers of electronic payment systems have an intrinsic interest in fewer cash payments. They are lobbying politicians accordingly. But they aren't the decisive factor for why governments want to get rid of cash. There are two main reasons for why they want to get rid of cash.

The first reason is the global debt overload getting out of hand. To reduce the liabilities of states and banks, central banks must keep negative interest. States thereby can take out loans at negative interest and reduce their debt load. But as long as cash exists, the policy of negative interest remains constrained. Citizens escape paying interest on cash by withdrawing assets. Hence cash has to go.

The second reason is cash being in the way of the total surveillance state; the state that we know today wants to know everything, wants to steer everything and won't cease pushing until it has reached that goal. And once cash has been abolished, people are completely transparent beings, and their financial privacy will have gone. There will be no way to escape the demands of the state. Once cash is gone, the state will no longer need to hold back in its dealings with the subordinates and become all-powerful.

The evils that are used as pretenses for abolishing cash will be replaced by even much bigger evils. The attempt to accelerate the fight against cash using the coronavirus pandemic shows just how serious the enemies of cash are – and how comprehensive the opposition has to be by those who want to preserve or regain what is left of freedoms of citizens and business: cash has to be defended and retained.

Thorsten Polleit Degussa's Chief Economist