What is happening in the war on cash?

One of the features of the credit crunch era is the way that the establishment so regularly pushes the idea that cash money is bad for us. If we stop for a moment there is quite an irony and contradiction here as of course the various establishments have created so much more money via the use of Quantitative Easing. The leader in this regard has been the Bank of Japan which announced this back in April 2013.

The Bank of Japan will conduct money market operations so that the monetary base will increase at an annual pace of about 60-70 trillion yen………In order to do so, it will enter a new phase of monetary easing both in terms of quantity and quality. It will double the monetary base….

Actually it decided in August 2014 that even such an extraordinary number was not enough as like Agent Smith in the Matrix series of films the cry went up for “More! More!”.

The Bank will conduct money market operations so that the monetary base will increase at an annual pace of about 80 trillion yen (an addition of about 10-20 trillion yen compared with the past).

Of course plenty of other central banks have been playing the same game as we see the Bank of England with its £435 billion of conventional QE and the ECB with around 1.8 trillion Euros of it and the US Federal Reserve with a balance sheet of US $4.47 trillion. The other side of this has been the money created which has sloshed around the financial world ever since exacerbating the problems that we are now told are the fault of cash!

The fanatic pursuing this argument Kenneth Rogoff will be familiar to regular readers and here from NPR is his argument.

Well, I think that a lot of the money – these big bills – is used to facilitate tax evasion and crime. We all use cash in our everyday life, but we don’t use hundred-dollar bills. We’re not using 500-euro notes. And yet these account for mountains of cash out there. I think they’re being used in tax evasion and by criminals of all types.

This is very awkward for our Ken and sadly he is rarely challenged on the two main problems. Firstly as I have described above the world has been flooded with base money with policies he supported which has facilitated all sorts of problems some of which he is now blaming on cash. Next if we apply the principle of banning things which are used by criminals and terrorists then we need immediately to get rid of mobile phones and as they seem to be increasingly using cars,vans and lorries they need to go as well. They also use houses and so on……

The UK seems to be demanding ever more cash

I referred to this a few days ago but here is some more detail from the Bank of England on the subject.

Despite speculation to the contrary, the number of banknotes in circulation is increasing. During 2016, growth in the value of Bank of England notes was 10%, double its average growth rate over the past decade.

The speculation referred to links to an article in the Guardian discussing the cashless society. Then the Bank of England points out that we are far from alone with this trend.

Banknote growth has been continuous, despite cash’s popularity as a payment method declining. In 2015, cash accounted for less than half of consumer payments (volume) for the first time. This paradox of falling transactional use of, but rising demand for, notes is faced by many other countries.

So it would appear that our road to a cashless society is er paved with cash, how contradictory! As to the cause well the author choses her words neutrally because it is rather close to home.

One factor driving this is low-interest rates incentivising increased hoarding, so notes remain in wallets and the retail sector for longer.

Let me spell this out the low interest-rates applied by the Bank of England have slashed the cost of holding cash. Also some will be afraid that the ideas of Kenneth Rogoff will be acted on so that further interest-rate cuts can be made and negative interest-rates can be enforced.

We are referred to some Bank of England research which is rather damning for Kenneth Rogoff.

However, given the untraceable nature of cash, it is not possible to determine precisely how much is held in each market.

Ken can apparently…..

The housing market

One feature of the modern era is high and indeed unaffordable house prices which of course have been driven by policies which Kenneth Rogoff has been a cheerleader for. Well there is a massive irony in this being reported by the Financial Times today.

Cash is pouring into UK residential property as never before, with buyers less reliant on mortgage finance in 2016 than at any time since comparable records began.

The scale of this issue is described below.

Using official figures on the number of property transactions and average prices, plus Bank of England data on mortgage financing for house purchases, the IMLA ( Intermediary Mortgage Lenders Association) estimated that £418 of every £1,000 used to buy property in 2016 was in cash. In 2013, when the BoE first collected comprehensive mortgage data, the cash contribution was £377, although the proportion of cash used for house purchases has been growing for a much longer period, the IMLA said.

I have to confess that this is a larger proportion than I was expecting. Also the FT’s economics editor has a really odd view on the creation of money.

Much of the cash is created by rising property values.

If true no wonder central bankers are so keen on ever higher house prices. Also as I have pointed out so many times, what could go wrong here?

Mr Williams said the Bank of England should relax the rules to make it easier for people without access to a large cash deposit to get a mortgage.

The issue here is that property prices have been driven higher by all the monetary easing and the ordinary person has been priced out more and more often. That is the fault of the central banks and has also been associated with more money laundering where the money is called cash but is more often the electronic money the central banks are so keen on. Giving people ever more debt is part of the problem not the solution here and of course debt has led to rather a lot of financial crime.


The war on cash makes alternative currencies look more attractive because they are outside the grasp of both governments and central banks. So it is hard to avoid such thoughts as we note that the price of Bitcoin has now passed US $1700. There are of course other factors such as money flowing out of India and China but it particularly intriguing to see Japan make it a legal means of payment. It is so often Japan isn’t it? Perhaps they increasingly fear even that interest-rates could go even more negative.


There is much to consider here but there is a huge irony and indeed hypocrisy in those who have flooded the world with electronic money blaming cash money for ills it contributed too. Many scandals such as “liar loans”, PPI miss selling, Li(e)bor and foreign exchange rigging had nothing to do with cash. Indeed in the news today is another example of a whole wave of financial crime that was nothing to do with cash.

Noel Edmonds, the television celebrity, has written to the boss of Lloyds Banking Group to demand compensation that his lawyers claim could run to more than £50m in connection with the fraud scandal at HBOS. In correspondence seen by the Financial Times, Mr Edmonds says HBOS and its disgraced former employee, Mark Dobson, destroyed Unique Group, his former business, a decade ago.  ( Financial Times).

I do not know the individual circumstances and there will no doubt be plenty of ” Mr Blobby” and “Deal or No Deal” jokes but I do know that there have been many problems in this area that seem to take forever to come to justice. They are nothing to do with cash.


12 thoughts on “What is happening in the war on cash?

  1. “The IMLA ( Intermediary Mortgage Lenders Association) estimated that £418 of every £1,000 used to buy property in 2016 was in cash.”

    I wouldn’t be surprised this number has increased as it could be a result of older people with no outstanding mortgage cashing in and then buying a new property outright with cash. There are probably more of this type of buyer than “cash” from overseas or ill-gotten gains cash as well as BOMAD providing cash deposits.

    So as a proportion of finance used for house purchases the amount in cash v mortgage will have increased.

    How ironic that cash is being used more and more just as TPTB want us to get rid of it!

    • Hi Jan

      The uses of cash I have described today are the consequence of the actions of the establishment with their interest-rate cuts and QE but of course it is a “surprise” and cash takes the blame. I am sure that some large denomination notes are used in crime but they are vehicles not causes and the smart money would simply use other means.

      As to the use of cash in house purchases the establishment are probably upset it has replaced the mortgage lending the banks need.

  2. I have always wondered if the amount of cash in circulation reflects the size of the black economy. Obviously it is by definition all but impossible to measure but what the hell, drug dealing counts towards GDP these days.

    I will make a bald statement of fact, you cannot ban cash. All that will happen is something else will take it’s place, I wonder what it will be?

    • I believe that the Khmer Rouge abolished cash in Cambodia in the 1970s. I am not sure that it was an unqualified success, however.
      I think that rice became the de facto currency, so perhaps we should nip down to Tescos and stock up.

  3. With the increasing number of failures in online security, plus the governments’ hints that it would like to remove online encryption, cash may be the safest form of, err, cash in the future.

    • That is exactly the reason I use more cash today than I have in the past. Having had my credit card used fraudulently on three occasions I now use cash quite a lot. Credit cards are great in Tesco, John Lewis and the like but in pubs and restaurants and small stores I use cash as that was where the problems occurred.

      • Spot on. I have now learnt the hard way that you should never let staff at hotels/pubs turn their back on you while holding your card, as this allows them to clone it very quickly.

  4. hello Shaun,

    The thought occurred to me that the increase in paper money ( or soon to be plastic paper !)
    is actually the result of inflation – you know the one we plebs have that doesn’t occur in exalted places like the BoE and HMG

    “…………10%, double its average growth rate over the past decade……….”

    or perhaps its just people are like me , put it under the mattress as there’s bu@@er all to be earnt in a savings account .

    plus of course the fear of a bail in ……;-)


    • Agreed. I buy weekly shopping in cash from small local retailers and the amount I need to withdraw from the cash machine to cover the shopping has gone up over the years due to inflation. I must have missed something, it can’t be that simple? Can it?

  5. The war on cash in my view is not an economic issue; it is motivated by the desire to impose controls on economic activity; it is a serious infringement of personal liberty and speaks to an ominous trend to control what people do.

    One issue is that NIRP would be much easier with a ban on cash; indeed is there much point in a move to NIRP on a long term basis without banning cash? NIRP, together with a ban on cash, would, in my view, establish a regime of outright wealth confiscation and it is of course what folk like Rogoff have in view; if the market won’t give you what you want then it’s down to command and control.

    • Hi Bob J

      The thing that amazes me about the central planners is that they are always so certain that the next move will work. The problem is a reality where large interest-rates cuts then enormous expansion of central bank balance sheets have not worked yet were all badged as successes. So they need to take money off someone…

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