US Edition 
The end of cash? It might not come as fast as you think
The Bank of England predicts that demand for cash will remain 'substantial', in part because hoarding remains so popular
While cash’s use is in continual decline, claims that it is set to disappear entirely may be premature, according to the Bank of England.
Demand for cash is likely to remain “substantial” for a number of years, said Bank staff Tom Fish and Roy Whymark, despite the proliferation of alternative ways to pay in recent years.
Cash’s unique qualities - it cannot be traced and does not rely on other technology to work - means that its use “is likely to remain resilient”, the authors claimed. “Cash is not likely to die out any time soon”, they added.
The emergence of alternative payment technologies - including credit and debit cards, as well as a myriad of new electronic systems - have eaten into cash’s once dominant share of the payments space.
Last year debit cards were used for £362bn of transactions, compared to £166bn for cash. And the Bank expects cash’s share to continue to ebb.
The Bank estimates that 21pc to 27pc of everyday transactions last year were in cash, down from between 34pc and 45pc at the turn of the millennium.
Yet simultaneously the demand for banknotes has risen faster than the total amount of spending in the economy, a trend that has only become more pronounced since the mid-1990s.
The same phenomenon has been seen internationally, in the US, eurozone, Australia and Canada. Some of the UK’s growing cash demand has come from the need to stock an increasing number of ATMs, which has risen by a fifth to some 70,000 machines in the last decade.
Hoarders
The prevalence of hoarding has also firmed up the demand for physical money. Hoarders are those who “choose to save their money in a safety deposit box, or under the mattress, or even buried in the garden, rather than placing it in a bank account”, the Bank said.
At a time when savings rates have not turned negative, and deposits are guaranteed by the government, this kind of activity seems to defy economic theory. “For such action to be considered as rational, those that are hoarding cash must be gaining a non-financial benefit,” the Bank said.
And that benefit must exceed the returns and security offered by putting that hoarded cash in a bank deposit account. A Bank survey conducted last year found that 18pc of people said they hoarded cash largely “to provide comfort against potential emergencies”.
This would suggest that a minimum of £3bn is hoarded in the UK, or around £345 a person. A government survey conducted in 2012 suggested that the total number might be higher, at £5bn.
But Bank staff believe that its survey results understate the extent of hoarding, as “the sensitivity of the subject” most likely affects the truthfulness of hoarders. “Based on anecdotal evidence, a small number of people are thought to hoard large values of cash.”
The Bank said: “As an illustrative example, if one in every thousand adults in the United Kingdom were to hoard as much as £100,000, this would account for around £5bn - nearly 10pc of notes in circulation.”
While there may be newer and more convenient methods of payment available, this strong preference for cash as a safety net means that it is likely to endure, unless steps are taken to discourage its use.
New money
As a result, the Bank intends to invest in modernising the cash it issues. Victoria Cleland, the Bank’s chief cashier, has said: “Because there is a lot of life left in cash [the Bank and the cash industry] need to work together to keep it healthy and fit for purpose.”
The Royal Mint will produce a more secure £1 coin in 2017, and polymer notes with anti-counterfeiting features will be issued from next year, starting with a new £5 note.
Yet across the globe there are signs of what the UK’s payments landscape could look like in years to come. Cash demand in Sweden has been dropping, as the country’s residents have been willing to adopt other ways to pay.
The Bank article’s authors noted that even Swedish street vendors selling “Situation Stockholm”, the local version of the UK’s “Big Issue”, are able to accept credit and debit card payments. Similarly, many of the country’s branches and retailers have transitioned away from cash entirely.
And new EU regulations will prevent retailers from charging when taking card payments, making cash less attractive. The Bank said that “it is likely that alternative payment methods will become cheaper, easier to access for consumers and more widely accepted”.
“Yet, alongside these developments, the underlying preferences of consumers will continue to be a key determinant in how much cash is demanded,” it concluded.