How we use money is always changing…
From bartering to using coins, writing cheques, introducing banknotes, ending the gold standard….the way society uses money has always been evolving.
History is dotted with turning points where the key method of making payments has changed. Right now we are once again at one of those key moments in time.
From phasing out coins to going fully digital, this article takes a look at how money is once again on the move.
Goodbye to coppers?
A hundred years ago a penny coin was actually worth having in your pocket. A couple of coppers could get you a loaf of bread, some milk, eggs and butter.
Even fifty years ago you could get a pint of milk for just five pence.
Yet in 2021 coppers are pretty redundant.
Let’s look at the mintage figures for the 2p coin¹. In the year 1971 alone, the Royal Mint introduced over 1.5 billion new 2p coins into circulation. Yet in the three year period between 2018–2020… they introduced none!
In 2018 the UK Treasury ran a consultation² on the future of cash and explored the idea for the first time of getting rid of low denomination coins. Their evidence suggested that 60% of 1p and 2p coins are kept in coin jars & money boxes and that 8% are just thrown away. Their research showed that the cost of maintaining these coins in circulation is exceptionally high.
Whilst they didn’t go as far as recommending getting rid of them altogether, the very fact that is was considered shows a big change in the overall value of these coins and the door has been left open for a potential withdrawal in the future.
The withdrawal of low-denomination coins is not a new idea. We actually did it before in the UK. The halfpenny was actually in use for over a decade after decimalisation finally being withdrawn in 1984.
Denmark is the leading example of a country that has withdrawn its small change. It removed the 1 and 2 øre coins in 1973, the 5 and 10 øre coins in the late 80’s and the 25 øre in 2008.
Australia withdrew its 1 and 2 cent coins in the early 90’s, India withdrew the 1, 2, 3, 5, 10, 20 & 25 paisa coins in 2011 and Japan withdrew the 1 yen coin in 2016.
Right now debates are currently ongoing in the Eurozone and in the US on wether to remove their respective 1 and 2 cent coins. The future of low denomination coins is therefore very much in a state of flux.
As we move to an ever more cashless society the value of these coins will only decrease.
The end of ‘paper’ money?
By next autumn, all UK banknotes will be polymer when the paper £50 note ceases to be legal tender. The new £50 note featuring Alan Turing marked the completion of the UK’s transition from paper to polymer notes.
Sterling is the largest major currency that has all polymer notes. Other notable examples include the Canadian Dollar, New Zealand Dollar and Australian Dollar, the first country to introduce them in the 1980’s³.
Polymer notes were introduced for two major reasons, to improve security/make forgery more difficult and to increase the lifespan of the note. Polymer notes are notably better for the environment and have a much longer shelf life.
A report⁴ by the Bank of England showed that on average a paper £5 note generally had 16 months in circulation whereas a polymer £5 note had 40 months in circulation.
Several countries currently feature a mix of paper and polymer notes. Mexico is a great example with $10, $20 and $100 peso notes being polymer and the 4 higher denominations being made with paper.
Many Central Banks though are apprehensive about making a move, on old article⁵ from the BBC sums up nicely the issues suggesting that high initial set-up costs for a move to polymer are one of the leading reasons for not making a change.
Currently, most of the world’s major currencies like the US Dollar, the Euro or the Japanese Yen don’t have any plans to switch to polymer.
The UK is very much leading the way when it comes to polymer banknotes. If they prove as successful as the Bank of England expects them to be, they will be setting an example which the other leading currencies can follow.
Saying goodbye to cash altogether?
The concept of a ‘cashless society’ is nothing new. It’s been a feature of sci-fi books and films for decades. Yet data shows that this is increasingly becoming a day to day reality for many people.
In 2017 transactions made by Debit Cards in the UK overtook cash for the first time⁶. In major British cities it’s now possible to go out with only your phone and have no need to use either cash or cards.
Covid-19 has had a big impact on the way we use cash, many retailers have moved towards becoming card-only due to the need to cut down on person-person contact.
The decline in cash use can also be seen in the number of ATM’s in service. A report by Which?⁷ showed that in the last two years, 13% of the UK’s ATM network has been removed, that’s over 8,000 cash machines no longer in use!
However cash still remains an important part of the economy. The same report emphasised just how important cash was to a cross section of society from the elderly to rural dwellers. The UK Government is therefore currently looking at legislative options to ensure that cash remains viable indefinitely.
To see the closest thing to a truly cashless society, we need to look at Sweden and their currency the Swedish Krona.
According to data⁸ from the Riksbank (Sweden’s Central Bank), cash is a thing of the past.
When the Riksbank asked the Sweden’s general population what payment method did they use to make their last payment in a shop, only 9% said cash. The same data shows that over a quarter of the population never use an ATM and 50% never used cash at all in the previous month of being questioned.
According to the Swedish Tourist Board⁹:
“Sweden is widely regarded as the most cashless society on the planet. Most of the country’s bank branches have stopped handling cash; many shops, museums and restaurants now only accept plastic or mobile payment”
As a country, Sweden is active in promoting a cashless society. The central banks website features things like prominent graphics on the reduction in banknote circulation and articles such as ‘cash is loosing ground’.
The Riksbank is currently investigating the introduction of an e-krona digital currency and is at the forefront of investing in and developing new payment technologies.
Sweden as a country is demographically akin to the UK in many ways with roughly similar rural and elderly population figures. The issues they have in becoming cashless are therefore similar to those that could be expected in the UK. Therefore if the UK ever decides to actively push for a cashless society, they can learn many lessons from their neighbours across the North Sea.
