The use of physical cash has already dwindled across the UK in recent years, with the introduction of contactless cards making spending more convenient than ever before. Since the outbreak of COVID-19, the use of physical money has reduced much further, with shoppers wary of spreading germs and many businesses refusing to accept cash.
The number of withdrawals from cash machines during lockdown dropped by 60%, although people took out larger sums than usual at a time. As there were fewer places for people to go out and spend money, with bars and restaurants closed, it was believed many people were hoarding cash at home, unsure of what their future held. Not surprisingly, card payments increased significantly due to the surge in online shopping, especially for groceries. According to a survey of consumers by Link, which is responsible for the UK’s cash machine network, 75% of people were using less cash, and 54% were avoiding cash. Just over three quarters of those surveyed said they expected to move to other forms of payment or online shopping in the next six months.
It will be interesting to see whether people continue to change these habits post-lockdown and make a permanent switch to digital payments. One of the issues will be that if a significant number of people stop using cash, there will not be enough demand to make ATMs profitable. The infrastructure of delivering cash could completely collapse.
Prior to the pandemic, the Bank of England was already considering the introduction of electronic banknotes. This would be a major revolution, as the current system of paper banknotes has been in place for around 300 years. The idea would be to have a Digital Central Bank Currency, where £10 of the digital currency would be worth the same as a £10 note. You would load up Central Bank Digital Currency, just as you would withdraw banknotes from an ATM, but electronically. The system would be guaranteed by the Bank rather than a commercial enterprise.
The Bank has stressed this would complement, not replace paper banknotes, as long as there was still a demand for physical cash. This is important as the independent Access to Cash Review revealed that 20% of the population, including many elderly and disabled people, are still dependent on notes and coins. Assurances have been made that cash won’t completely disappear and legislation was passed in March to ensure that it would be protected for those who need it. The Bank of England called for input into their discussion over digital currency up to mid-June so the outcome will be awaited with interest.