Dr. David McGrogan’s piece ‘The Open Conspiracy Against Cash‘ shone a light on a subject which until recently has barely made the finance pages. A combination of lockdown shenanigans around cash and the general cultural drift to hyperbole and coarsening political discourse have brought it to the margins of the culture wars. Branded as a War on Cash and spiced up with conspiracy theories and tales of corporate malfeasance, it is a subject on the march towards the front pages. Given its new exciting status as a full-blown war, I offer this two-part guide to the supporters and enemies of cash. Today we look at what cash is and how its properties make it ideal for crime. In the next article we look at its opponents in the card industry, central banks and eCommerce, and ask whether a libertarian approach could help.
What is cash?
An amazing variety of objects have been used as currency, from giant 12-foot stone discs in Micronesia to ramen noodles in U.S. prisons. For the more inconvenient forms of tender, including gold, the receipt for its safe deposit formed the earliest banknotes. Once everyone had got used to the idea of using notes as currency it was only a matter of time before the gold itself could be sold off, at which point we only had the paper notes and were left with what is known as a fiat currency, the value of which rests on nothing more than social and legal consensus. This is cash and maintaining that legal and social consensus is the job of the Bank of England (BoE).
What is legally cash can be tricky. Take the much misused term ‘legal tender’. It has a narrow technical meaning relating to what is allowed to be used to settle past debts in court. What is allowed isn’t much, only coins of the Royal Mint, so strictly speaking Scottish and Northern Irish banknotes are not legal tender in either Scotland or Northern Ireland. The term legal tender does not apply to ordinary transactions where both parties are free to agree to accept any form of payment according to their wishes. A retailer can refuse to accept your £50 note and it can also refuse to accept cheques, cards or any cash at all.
If notes and coins are not available, not trusted or cannot be spent then other substitutes quickly arise, such as cigarettes or petrol. Given that legally parties can agree to use anything to settle payment, exactly what cash is takes on a subjective nature. Nevertheless, the war on cash is really about notes and coins, their widespread acceptance and their anonymity.
Cash vs the War on Crime
Cash and crime can be roughly split in two. Counterfeiting, which the BoE can influence through fancy counter-forgery technology, and everything else, over which it has no influence whatsoever. Those inventing penalties to deter forgers are not immune to its temptations themselves. Inducing hyperinflation by flooding an economy with counterfeit cash was used as a weapon of economic war by the British Government during the American War of Independence.