A couple of years ago, a Harvard professor called Greg Mankiw worked out that the ideal amount to have in one’s wallet at any time was $600 (£375), on the basis that time spent topping up at the cash machine is time wasted, and that you’re far less likely to be mugged or lose your wallet than you think. But I’ve got a different answer: absolutely nothing."
I don’t mean, of course, that we don’t need any money. But Mankiw’s findings are already out of date – because cash is inexorably becoming redundant. Last week, the Payments Council caused howls of outrage when it announced that come 2018, the cheque will be sent to the great till in the sky. But it won’t be long before notes and coins follow suit.
This is a bold statement to make: currency has been an integral part of our world, in one way or another, since 3,000BC. But the simple fact is that we can survive without it. In fact, abolishing notes and coins could make the world and its economies far less dysfunctional.
To understand why, let’s go back to first principles. Money has two main purposes: to be a medium of exchange (helping us swap things of value) and a unit of account (a yardstick against which things can be priced). The textbooks also say it should be a store of value, although anyone who has experienced inflation will realise it hardly fulfils that role these days.
But while pounds and pence will survive, notes and coins are no longer all that relevant. Cash transactions account for only 4 per cent of overall money use: next year, for the first time, we will spend more using our debit cards than with cash. ...more
