Cash is a cheap alternative to credit cards.Ryan Remiorz/The Canadian Press
Barry R. Campbell is a former member of Parliament and now a lobbyist for firms in financial services and other sectors.
In an old Twilight Zone episode, a bank robber stashes stolen cash and has himself cryogenically frozen. A hundred years later, waking up as programmed, his crime long forgotten, he digs up his stash and tries to spend it. No one will take it.
Exasperated, he heads to a bank and brazenly tries to deposit a wad of bills. “What’s this?” a perplexed teller asks. “It’s cash!” says the somewhat impatient bank robber. “Cash?" says the teller. “That hasn’t been used for decades. Sorry, it’s worthless."
That cashless day is upon us. We didn’t have to be frozen to find that out – just frightened.
As the COVID-19 virus advanced, infectious disease specialists warned that it could stick to surfaces. “This may include hard currency,” one said. If not already queasy about handling money and coins, that warning likely did it for you.
Some retailers announced that they would no longer accept cash. The Bank of Canada pushed back, urging retailers to accept cash even as the government asked Canadians to limit physical interactions. “Refusing cash purchases will put an undue burden on those who depend on cash and have limited payment options,” the Bank of Canada warned.
Even before the pandemic, the Bank of Canada was energetically defending cash. “An old and simple payment technology,” the Bank acknowledged, but widely accepted. Cash is safe, legal tender with a stable value. It protects privacy as it can be used without revealing your identity or personal financial information. And it is a cheap alternative to credit cards.
The Bank of Canada has been defending cash as essential for “financial inclusion” and for its “social utility” to people who have difficulty accessing alternative payment methods such as credit cards. The Bank also has a monopoly on issuing the stuff, and that monopoly is key to its control of monetary policy.
One can extoll the virtues of paper currency and believe it is superior to some ethereal digital thing. But an unseen virus makes you question the wisdom of handling money, even if you break quarantine to get to the ATM or the bank. In the COVID-19 crisis, use of cash has declined. Tap – contactless payments via credit and debit cards – has become king where cash once was.
For young demographics, cash has long been a quaint relic – something your grandmother puts in your birthday card. For others, resorting to alternatives (such as card taps or digital currencies) has likely accelerated in direct proportion to the perceived risk of infection. Before the COVID-19 pandemic, central banks began modernizing cash by replacing the old paper bills with polymer banknotes touted as washable and harder to counterfeit.
Still, cash usage was already declining, with more and more people switching to credit and debit cards. But on the eve of the crisis, the Bank of Canada was spooked by something else: the explosion of private digital currencies. Not volatile cryptocurrencies such as bitcoin, but other digital assets called “stablecoins” that are more stable (as the moniker cleverly implies) and often backed by currency holdings.
Facebook’s Libra is an example. Because of the reach of Facebook’s platform, it was feared that Libra may be widely adopted and upend traditional money and payments.
But now, the Bank of Canada’s plans from just a few months ago to promote the use of cash to maintain control over monetary policy and support financial inclusion, while only “thinking” about issuing a central bank digital currency, are likely being revisited.
The Bank had indicated that there were two scenarios that would cause it to consider issuing its own digital currency: when cash can no longer be used for a sufficiently wide range of transactions and widespread use of private digital currencies. These two justifications are converging and the contingency the Bank was planning for is a looming certainty.
The Bank of Canada will need to launch its own digital currency – and soon – or risk losing control over monetary policy. It isn’t a computer virus disrupting private digital currencies that will force the Bank’s hand, but an actual virus changing our relationship to cash.
Surprisingly, while the novel coronavirus may be crushing cash, Canada’s banks have reported steady cash withdrawals at ATM machines during the pandemic. People planning for the end of the world, or “preppers," and wanting to stuff their mattresses with banknotes? Perhaps.
More likely it’s that, for many people, cash remains not just a preferred method of payment, but their only method of payment. Financial inclusion for all may require government to figure out how these people don’t get left behind again when the cash runs out.
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