The Corner

Economy & Business

COVID-19 as an Ally in the War against Cash


Quite a few campaigners are taking advantage of the current pandemic to argue that it makes their point or provides an excellent opportunity to change society in the way that they would like to see. “Never let a good crisis go to waste,” as the saying goes.

Even so, in the course of reading Martin Hutchinson’s excellent article in defense of the small saver (it’s up on the home page today), I was somewhat surprised to see a reference to a piece written in the Financial Times by Gary Cohn, President Trump’s former chief economic adviser. In it, Cohn, a Democrat, wrote that “if we shifted to digital, no one would carry dirty cash or coins or deal with a cheque again.”

As scare stories go, that’s not bad. But quite how infectious such grubby money would actually be is up for debate.

Writing for the MIT Technology Review in early March, Mike Orcutt noted this:

Here’s what we know: Infectious viruses, including other coronavirus varieties, can live on inanimate surfaces (pdf) including metal, paper, and plastic for hours to days. Preliminary research indicates that the novel coronavirus can survive on cardboard for a full day, and on steel and plastic for up to three days. And laboratory-based simulations have shown (pdf) that other kinds of viruses can not only live on banknotes and coins for days but also maintain their infectiousness.

But it’s not enough for the germ to survive on an inanimate surface. For virus particles on a dollar bill to infect a human, they must follow the “primary route of infection,” says Joseph Eisenberg, a professor of epidemiology at the University of Michigan. For Covid-19, it appears that people become infected by inhaling particles someone else has coughed or sneezed into the air, or by contacting a virus particle with their hand and then touching their eyes, nose, or mouth. What we don’t know, says Eisenberg, is how capable this virus is of being transmitted to humans from inanimate surfaces of any kind.

The authors of a paper published last month by the Bank for International Settlements report (my emphasis added) that:

Scientists note that the probability of transmission via banknotes is low when compared with other frequently-touched objects. To date, there are no known cases of Covid-19 transmission via banknotes or coins. Moreover, it is unclear if such transmission is material compared with person-to-person transmission or transmission through other objects or physical proximity. The fact that the virus survives best on non-porous materials, such as plastic or stainless steel, means that debit or credit card terminals or PIN pads could transmit the virus too. The head of the German public health institute notes that “(viral) transmission through banknotes has no particular significance”, as airborne droplets from infected individuals are the main infection risk. . . .

The Bank of England has noted that “the risk posed by handling a polymer note is no greater than touching any other common surfaces such as handrails, doorknobs or credit cards” . . . The Bundesbank has advised the public that the risks of transmission through banknotes are minimal and that a sufficient supply of banknotes is guaranteed . . .

To put it bluntly, there doesn’t seem to be much to Cohn’s scare story.  He, at least, has a good excuse for spreading it. In the FT article, he discloses that “he is invested in a biometrically-encrypted digital wallet and serve as an adviser to two other fintechs in this area.” He also has a bad one: the idea that people can be scared away from cash, that enabler of evildoers that just happens to be one of the last defenses of privacy and, for that matter, against negative interest rates.

Cohn writes that

Valdis Dombrovskis, European Commission vice-president for financial services, is trying to help the process along. He recently tweeted “Time to swap your coins for payment cards — safer for containing coronavirus.”

The fact that, judging by the BIS report, there little to back up that claim doesn’t seem to bother Dombrovskis, but the EU (which is enthusiastic about the war against cash) is going to do what the EU is going to do.

And this isn’t confined to the EU.


If central banks around the world created digital currencies, each person could have a segregated account. This idea is gathering steam. US Democratic Senator Sherrod Brown initially sought to include digital banking as part of the coronavirus response. He wants the US Federal Reserve to create digital dollar accounts and wallets for all citizens. If that happened, all banking would happen through a digital backbone and wallet. ATMs and bank branches, which are already closing at a rapid rate, would become obsolete. Earnings would deposit directly into an individual’s wallet and be spent directly out of it.

What could possibly go wrong?

Well, one thing, which Hutchinson sets out in his article, is this:

The Fed has reduced rates to zero, and there are strong lobbies seeking to push them below zero, as in Europe and Japan. The main protection against this is the ability to hold cash, which at least offers a safe zero return. That is why Keynesians are trying to move us to an all-electronic payments system, in which the cash alternative would no longer be available . . . Should cash be eliminated, there would be nothing to stop “stimulators” from pushing interest rates to negative 5 percent, wiping out small savings and making speculative real-estate and private-equity investments hugely profitable. That would be inflationary — further damaging savers.

Or here is what I wrote in NRODT back in 2016:

In a speech last September, 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.

Before dismissing this as a form of madness that only Europeans could embrace, check out what Harvard’s Kenneth Rogoff has been saying. Writing in the Financial Times in May 2014, he argued that replacing paper money with an electronic alternative “would kill two birds with one stone.” It would strike a blow against crime, and it would free central banks from a bind that has “handcuffed” them since the financial crisis. “At present, if central banks try setting rates too far below zero, people will start bailing out into cash.”

Indeed, they will: To its credit, the central bank of Switzerland, one of the countries now burdened with negative interest rates, has made it clear that it has no plans to junk its thousand-franc bills. It accepts that these are used as a store of value, something that Rogoff, no friend of the saver, might regard as reprehensible but the sensible Swiss do not….

“Hoarding cash may be inconvenient and risky,” wrote Rogoff in a related paper, “but if rates become too negative, it becomes worth it.” He would clearly prefer to see that emergency exit locked and the key thrown away, leaving savers helpless in the face of whatever central bankers (and not only central bankers) might dream up.

We have been warned.