The Corner

National Security & Defense

Cameron’s Downing Street and the War Against Cash

It would be nice to think that a British government of, supposedly, the free market ‘center right’ would want to have nothing to do with initiatives that increase the power of the state, reduce the privacy of the individual and threaten savers with partial confiscation.

It would be nice to believe that even the suggestion of such initiatives would be rejected after about twenty seconds thought. No, make that five seconds.

It would be nice, but in the case of Britain’s now-departed Cameron government, that confidence might have been a little misplaced.

On December 23, Daniel Korski, a former special adviser to Cameron tweeted this:

“We actually studied in Govt how 2 become a cashless society 2 increase productivity, combat crime & b attractive 2 investment”

Quite how such a move would (in any meaningful sense) “increase productivity” and be “attractive to investment” escapes me. As for fighting crime, maybe it might help, but at what cost to freedom and its ally, privacy?

Korski went on to tweet this:

I was in favour of a declared endpoint eg 2020/25 for cash with a pathway there via taking notes out. Others not.

Good for the ‘others’.

My old friend Rupert Darwall tweeted to ask:

Can I ask whether overcoming the zero-bound constraint was seen as a gain from going cashless?

Zero-bound constraint?

What that means is that it’s difficult to push interest rates below zero when savers can simply switch into cash, buying safes or enriching their mattresses as they do so.

Korski replied to Darwall that the zero lower bound “certainly encourages new thinking”, and included a link to a speech by the Bank of England’s chief economist.

I referred to that same speech in a piece for NRODT that I wrote last year on the war against cash:

In a speech [in September 2015], Andrew Haldane, the Bank of England’s chief economist, grumbled about the “constraint physical currency imposes” on setting negative interest rates. After considering various ways of dealing with this nuisance, he concluded that an “interesting solution” would be to “maintain the principle of a government-backed currency, but have it issued in an electronic rather than paper form.” This “would allow negative interest rates to be levied on currency easily and speedily.” Translation: Make people hold their cash in electronic form (and thus in banks); they will then have no means of escaping the levy on savings that negative interest rates effectively represent.

And Haldane and Korski are far from alone in this sort of thinking.  In a post in September, I quoted Narayana Kocherlakota (late of the Federal Reserve Bank of Minneapolis, and now a professor of economics at the University of Rochester):

The right answer is to abolish currency and move completely to electronic cash, an idea suggested at various times by Marvin Goodfriend of Carnegie-Mellon University, Miles Kimball of the University of Colorado and Andrew Haldane of the Bank of England. Because electronic cash can have any yield, interest rates would be able go as far into negative territory as the market required. Some groups of people, particularly retirees and soon-to-be-retirees, might react with horror to such an idea. That’s to be expected. After all, consumers in poorer countries respond similarly to removing distortionary price ceilings from bread and milk. That doesn’t make price controls desirable. If a government wants to redistribute resources to the elderly or the poor, it’s much better off just giving them money.

Cash—and the privacy it brings—is a vital element in the preservation of the rights of the individual against the presumption of the state.

Which is why Leviathan’s cheerleaders want it out of the way. 

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