Last week I left home without my wallet.  I realised that it didn’t really matter.  I could even manage without a plastic card. My phone can summon and pay for a taxi, buy a cup of coffee, and purchase a train ticket.   This year, the proportion of transactions in Britain made in cash is likely to fall below 50%.  Since cash is mainly used for low value transactions, cards and electronic payment account for most of the value of payments.

Last week Andrew Haldane, chief economist at the Bank of England, speculated about a cashless future.  And yet, as two of his colleagues explained in an article published at almost the same time, cash in circulation has been increasing more rapidly than national income. The total volume of notes in issue is equivalent to £1000 for every man, woman and child in Britain.  The US figure is more than $2000.   And the quantity of euros issued  has expanded threefold since the single currency was established.

Where is all this money?  Not in your wallet, or mine.  Even in Germany or Austria, where consumers are reluctant to use anything but cash, the average amount people have on their person is little more than €100.   Some of that is transferred during the day to the tills of shops, which generally bank it at the end of the day. But cash in bank vaults is only around 10% of the total.

The pollsters who failed to persuade voters to reveal how they would cast their ballots in the general election are not very likely to have secured honest and reliable responses to the question ‘how much money do you have under your mattress?’ They acknowledge that the answers are likely to be an underestimate, but the Bank of England speculates that hoarding of notes may account for another 10% of the note issue. 

      One third of the value of euros in circulation is made up of 500 euro notes.  But most Europeans report that they have never seen a 500 euro note, and few retailers will accept them.  500 euro notes are useful for hoarders.  But, like the 1000 Swiss franc note, such currency is also useful for people who wish to make large transactions outside the banking system.   The US Treasury and Bank of England have been unwilling to issue similar high denomination notes.

It seems likely that illegal activity accounts for a high proportion of the currency in circulation, that many of the dollars in use are outside the United States, and that the creation of the euro provided an alternative to the dollar as a widely available medium of illicit exchange and store of criminally acquired value. 

       Some unlawful transactions may be essentially benign – the builder who pays and is paid in cash.  Some are marginally lawful and far from benign – the rape of parts of the former Soviet Union by oligarchs, and of resource rich countries by corrupt politicians. Some currency use may be for terrorist finance or the rewards of drug dealing and people trafficking.  The volume of currency in circulation has risen as the need for such currency in legitimate activity has declined. Not a comforting statistic.

Policymakers should help to accelerate the goal of the cashless society.  Haldane made his comments in the context of concern about the ‘zero lower bound’ – the inability of Central Banks to set interest rates other than marginally below zero.   The fanciful idea that currency might have an expiry date, which could make negative interest rates possible, has implications for both the conduct of monetary policy and the battle against crime.

One day, perhaps. carrying cash  will be as much a cause for suspicion as possession of a jemmy or a knife.