Cash and Catastrophe

Are note and coins really the best backup?

Dateline: Woking, 1st May 2025.

During the Great Fire of London, in 1666, the famous diarist Samuel Pepys buried his cheese and wine in his garden to keep them safe from the conflagration threatening to consume everything in its path. I was thinking about this because of the terrible Los Angeles wildfires in which dozens of people died and damage was in the hundreds of billions.

Fire

I could not help but reflect on how money works in times of disaster, whether that disaster is caused by the climate or conflict or cyberterrorism. What is the best way to ensure you can buy groceries when systems are down! While Italian parmesan cheese and French wine are no longer the symbols of great wealth that they used to be, I could not help but reflect on Pepys precautions when reading about the fires raging around southern California. If Pepys had lived in an age of cryptocurrency, I am sure he would have followed my lead and buried his hardware wallet rolled up in tinfoil under a tree in his backyard and engraved the pass phrase on a metal plate buried in a secret location with the directions to it held sealed by a lawyer, only to be revealed after his death.

It seems that many people did not take such precautions. I read that Angelenos fleeing the wildfires have lost their hardware wallets and their digital assets. One unfortunate 70-year-old resident’s life savings (mostly in Bitcoin) were lost when her private key, written on paper, was destroyed along with the rest of the contents of her house, whereas to the best of my knowledge no-one lost the contents of their bank account, which again makes me wonder whether being your own bank really is the best strategy for most people.

(Incidentally, I’ve seen some pretty interesting theories about the California fires on social media, ranging from Jewish space lasers and sparks from an electric penis pump to the Los Angeles fire department’s equipment being sent to Ukraine and extreme heat caused by bombing in Gaza. When it comes to large scale fires like in LA though, conspiracy theories predate social media. In Claire Tomalin’s outstanding biography of Samuel Pepys “The Unequalled Self”, which I have in front me as I write, after describing Pepys role in the Great Fire—he was the first to alert the King and was sent with a detachment of soldiers to pull down houses to make a firebreak—she notes how John Coventry told Pepys that “he too had heard talk of the French having had a hand in the fire”!)

Would digging up the hardware wallet help though? Even if the corner store took Bitcoin, how could you pay them when there is no network? If you cannot use cryptocurrency, then what about actual currency? Is good old fashioned cash the best solution? That is not obvious. The people who are trapped in a cash economy (generally the less well-off members of society) are the ones who face the highest transactions costs when things are going well, but when things go badly they could end up with no backup at all. When thousands of shops were destroyed by an inferno that overtook a market in Nigeria, the traders lost their cash and were on their own. And when it comes to burying assets, remember the salutary tale of the Chinese pensioner who buried his life savings, only to discover that when he needed the money, most of it had been eaten by worms.

Flood

I live in the south of England, in Woking, and our last natural disaster was the Ice Age, which ended 10,000 years ago. so I do not spend too much time thinking about tornados and tsunamis. I doubt I’ll live to see a volcano or a major earthquake anywhere around Horsell Common (where the Martians landed in the War of the Worlds, remember), but I suppose there might be a flood and I could keep some cash under the bed for that. It’s not obvious at all that cash is optimal in those circumstances though.

When a massive tsunami hit Japan in 2011 there were some temporary problems with the card networks because of the disruption, but Japan has quite a rich retail payment landscape, so the offline electronic money systems (such as Edy and Nanoco) carried on working so long as there was power and the backup battery systems or generators were working. In that particular disaster, in fact, it was the people who kept their money in cash who suffered the most when there homes were hit by a wall of water and their safes were washed out to sea. Electronic payments can be the more resilient option! When China was hit by huge floods in 2022, mobile base stations in drones were sent up to keep things moving (these drones are capable of providing communications for a day for an area of more than 50 square kilometres) and now with constellations of satellites whizzing over our heads we soon won’t need the drones either.

(Frankly I’m much more worried about saving my identity from flames and floods than any small amounts of cash that might be trapped in crevices and cushions. If my cash or my cards go missing, it would not inconvenience me in slightest—I know, because I left my wallet in a hotel recently, and it really didn’t matter). But if my passport and driving licence vanish, that would be a real hassle for a few days, especially since with no passport I wouldn’t be able check back in to hotel after being refused permission to fly at the airport (but still nothing like the hassle of recovering from the destruction of a truly self-sovereign digital identity).

with kind permission of Helen Holmes (CC-BY-ND 4.0)

What about wars though? In the near-cashless realms of Sweden and Norway, some are calling for rethink about electronic payments because of their fears of Russian aggression.

(Remember that great TV show “Occupied”? It was political thriller that explored a near-future scenario in which Russia, with the backing of the European Union, occupies Norway to reinstate its oil and gas production following a halt intended to combat climate change.)

They are looking at how to ensure that cash remains in circulation and are telling their citizens to keep cash at home in case of emergencies. However, in the particular case of Sweden,

Hans Liwång, a professor at the Swedish Defence Uni, said there was a lack of evidence about whether cash was better than digital payments in the face of modern threats.

Indeed. And the professor pointed at Ukraine where both artillery bombardments, bombing and cyberattacks are an almost daily occurrence to note that digital systems have proved vital to the country's resilience, saying that

Ukraine is a very good example of moving into the future when there is war rather than backwards.

What an interesting perspective. This makes it rather interesting to look at the Ukrainian experience to learn about hardening the payment system by moving into the future.

Ukraine

Central to the Ukrainian response was the National Bank of Ukraine (NBU) recommending that stores, pharmacies and petrol stations give preference to cashless payments (which was vital because it reduced people’s demand for cash) and to continue the continued operation of the System of Electronic Payments (SEP), the ISO 20022 Real Time Gross Settlement (RTGS) system for interbank payments. SEP has been processing more than 98% of interbank payments in Ukraine and has been operating normally since the Russian invasion, handling more than 1.5 million payments per business day, but the system has the capacity to process ten times as many transactions.

Ukraine’s largest acquirer is PrivatBank, which has around two-thirds of the market. Since the Russian invasion they have seen their POS estate climb by a third (their merchant service charge was reduced to zero immediately following the invasion to drive up merchant use) and their e-commerce customer base climb by a sixth. But most interesting of all (to me) they have seen their softPOS estate quadruple. This is because softPOS (where payments are accepted using POS software on a standard mobile phone) has become central to the resilience of the payments network and the softPOS offering has expanded to include tipping, buy-now-pay-later, invoicing and other functions. When the power goes out, retailers switch to using their own mobile phones to take payments. (I’ve often wondered why retailers don’t do that in the UK instead of shutting the supermarket doors when the POS network goes down.)

With the ATM network threatened, cash acquisition at POS expanded dramatically and now accounts for something like 8% of cash withdrawals. Despite repeated blackouts, the POS network was up for 98% of the time in 2024 (with nine in ten transactions made using contactlesss and NFC technologies) and a backup system of QR codes was introduced to continue purchases via customer handsets when the POS network was out.

This offline ability has been very important in maintaining the Ukrainian economy, which seems to me to be a key lesson and suggests to me that central to the future resilience of European retail payments is just such an offline capability but not using cash or QR codes, rather using offline central bank digital currency (CBDC).

Offline Alternatives

The lesson that I draw from these various disasters is not that we should rely more on cash but that we should put in place is a means for person-to-person (or actually, device-to-device) payments that work in the absence of mobile networks, electricity and clearing systems. Some form of central bank digital currency (CBDC), for example.

To be a useful adjunct to cash and not simply another form of prepaid debit card, such a digital alternative must be able to function in the absence of network connections. Even if I am out of coverage or in the midst of a cyberassault or suffering an extended power cut, I should still be able to use a mobile phone (the one object that most people would grab when feeling a collapsing building or a crashed plane) to buy milk at the shop around the corner. This is hardly a moonshot idea. For one thing, it is not an aspiration: it how the Chinese digital currency has already been implemented. You can pay in shops, or send money to a friend, provided they have a device with the necessary secure microchip and if you don’t have phone with one of these in it, the bank will get you a smart card that does.

No need to stop and bury your cash, just grab your mobile phone and run.