There are many people who think that there should be some sort of universal service around cash, forcing banks to provide it and forcing retailers to accept it. Age UK, for example. A lobby group for older people, is calling on the British government to designate access to cash as a universal service obligation, much like the supply of electricity and drinking water to consumer homes. I disagree, but I do understand why some people think that imposing the additional costs associated with cash on financial institutions and merchants seems appealing.
One of the arguments often made to justify the costs of cash handling, transport, ATM estate, robberies and so on is that cash is a necessary fallback, the only payment mechanism that society can depend on in the event of nuclear war or natural disaster or management incompetency in key industries and therefore businesses should be forced to maintain the ability to distribute and collect notes and coins.
This is the disaster narrative often deployed to argue that cash is somehow good for poor people. It really isn’t. The people trapped in a cash economy, who are generally the poorest, are the people who face the highest transactions costs. And when things go really wrong, it’s the people who are stuck with cash who have no back-up.
A trader has lost N300million cash in the inferno that destroyed Kano’s Sabon Gari market, overnight on Saturday… Over 3,800 shops were burnt in the inferno, described as the worst market fire disaster in Nigeria, with chairman of Sabon Gari Market traders’ association, Alhaji Nafi’u Nuhu Indabo, saying over 75 per cent of the market was burnt down.
Remember the Japanese cataclysm of a decade back, where following a massive earthquake off the northeast coast of Japan's Honshu Island in 2011, a massive tsunami towering a hundred feet above the ground went crashing into cities, towns and villages devastating more than 200 square miles.
What is the payment lesson to learn from this awful event? Yes, there were some temporary problems with the card networks because of the disruption, but it's important to note that this did not impact all cards: Japan has quite a rich retail payment landscape...
After the earthquake and tsunami, 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, so you could still pop round to 7-Eleven and buy your staples.
In that particular disaster, in fact, it was the people who kept their money in cash who suffered the most. Japan remains a cash-oriented society and has been through a generation of low inflation and low interest rates, a great many people keep their savings in cash in their homes. Now, keeping ugh piles of cash at home may seem a suboptimal wealth management strategy in some countries (eg, the USA and the UK), but it is generally not a problem in Japan, unless (for example) a wall of water were to wash your home out to sea and take your money with it.
This is indeed what happened a decade hence, on a grand scale. It led to the (from a Western perspective) unusual phenomenon of wreckage full of safes and cash washing up on beaches. I cannot, at this point, resist quoting one Yasuo Kimura, a former bank employee then aged 67, who said that he had many friends who lost everything. "I spent my career trying to convince them to deposit their money in a bank," he said, "They always thought it was safer to keep it at home."
(Japan is a very honest society, though. In the months after the disaster, citizens handed in thousands of wallets found in the debris, containing $48 million in cash, and most of the safes discovered in the rubble were eventually returned to their owners.)
Many Japanese safes contain much more than cash, of course. They also hold the identity documents that people need to rebuild their lives: bank books, stock certificates, land rights deeds as well gold bars and other precious metals. People need a backup for all sorts of physical wealth, not only banknotes, but that’s for discussion another time.
In a more recent and similarly man-made example of cash failing in difficult circumstances, South Africa has seen extensive rioting and disorder. Looters targeted bank branches and ATMs precisely because they contained cash. Not only was that cash stolen, but of course the banks were reluctant to repair and restock while the disorder continued so that law-abiding citizens were soon denied that cash they needed for life to go on. It will take months from order being fully restored to anything like normality returning to the cash distribution systems.
Is Cash The Backup?
Is cash a good backup then? It was not needed in China this year, where catastrophic floods devastated major conurbations so mobile base stations in drones were sent in to keep things moving. For example: a "Wing Loong" drone was deployed in Henan, providing stable communication signals for an area of more than 50 square kilometers without pause for 24 hours.
The rain couldn't stop money moving via mobiles, although I suppose that a clever cyberwar strike might do so. There was certainly an amount of global chaos when a bunch of 4G data networks (including O2 in the UK) went down in 2018 for a few hours, although to be fair this was because of bungled software updates rather than sabotage by cyber-commandos.
The big question is, then, whether we should keep cash going (whatever the cost) just in case of a global warming-style typhoon or a cloud services cyberwar first strike. On balance, I think not. I even checked out a prepper web site to see what they said about cash, and even they seem to think that it might not be the ultimate backup, saying that "when cash and credit cards are meaningless you can turn to your bartering stockpile".
(The suggested bartering stockpile, by the way, included bullets, marijuana and condoms.)
So when there’s no cash, life can go on. We know this is true because there is a very good case study of what might happen when cash vanishes. I cover it in my book on the history and future of money, "Before Babylon, Beyond Bitcoin": the Irish bank strikes from 1966 to 1976. In that time there were three major bank strikes in Ireland and these closed the retail banks for a year in total. The public were left with the notes and coins in their pockets and nothing more. Since people could not obtain cash, they developed their own currency substitutes: people began to accept cheques and IOUs directly from each other, and these instruments began to circulate. Antoin Murphy points out that one of the key reasons why this 'personalized credit system' could substitute for cash was the local nature of the circulation. As Patrick Cockburn wrote a few years ago, when the financial crash came in 2008, Irish bankers turned out to be far more irresponsible than those who wrote cheques on beer mats a generation earlier.
The point is that the people exchanging cheques and IOUs knew each other, and if they did not, they could soon find the necessary information to assess each other's creditworthiness (generally from the pub). In our post-industrial economy, local means something different and it would be LinkedIn more than the landlord providing the connections, but you get the point. The use of cash as an intermediary is not a prerequisite for functioning economy.
The Offline Imperative
So it seems to me that forcing businesses to provide cash services as a backup in case of disaster is the wrong approach. There are other reasons, of course, and these must be addressed. An example is privacy. The Electronic Frontier Foundation points out, quite reasonably, that a growing number of retail businesses are refusing to let their customers pay in cash and that this could be bad for privacy. They ask "how can you stop data thieves, data brokers, and police from snooping on your purchase history?" and suggest that paying with cash is the answer. Personally, I think the using of privacy-enhancing technologies (PETs) in the implementation of electronic payments is a better answer, but that's a discussion for another day.
When it comes down to it, though, the idea that we will survive the depredations of Immortan Joe by passing around tattered $100 bills seems unlikely. If we are going to plan for a more resilient infrastructure, we shouldn’t count on cash.
I doubt that cash is the solution, which I suspect will be more to do with distributed identity / reputation management. Why? Because if there are floods, fires, meteor strikes or a zombie apocalypse, there simply isn’t enough cash in circulation to support the economy
The key lesson from disasters past, present and future is not that we should keep cash but that what we should have in place is a means to execute person-to-person (or actually, device-to-device) payments in the absence of mobile networks, electricity and clearing systems. I don't want to labour the point about the unsuitability of blockchain-based payments for general purpose cash replacement, but this seems to me to reinforce a critical design characteristic for central bank digital currencies: they must be able to work offline.