A recent report by the Bank of England shows that bank notes worth £63bn were in circulation at the end of July 2015, with suggestions that individuals are holding or hoarding anywhere between £3bn and £5bn worth of cash. The Bank of England recognises that disproportionately large amounts of cash are circulating in the 'informal economy'.
So the recent call by Andrew Haldane, the Bank of England’s chief economist, to scrap cash altogether has received a mixed reception. Of course, one can understand where he is coming from: moving to a cashless economy makes it easier for central banks to stimulate a depressed economy. In particular, negative interest rates could be charged on balances to drive expenditure and therefore growth.
Nevertheless, with the amount of cash in circulation continuing to increase, there has predictably been significant pushback against Mr Haldane’s recommendations. Critics range from civil liberty groups and non-digital businesses on the one hand to economists and politicians on the other.
One voice has been missing from this debate, and that’s HMRC’s. One can easily imagine that the taxman might be very pleased to get rid of cash completely. For one thing, it would mean in the digital world that there was much less scope for tax evasion. This would also fit well with plans to introduce pre-populated tax returns and personal digital tax accounts.
More immediately, leaving aside recognised worries about the digitally excluded and the occupants of care homes, at a time when Parliament is talking about 'small government' it’s inconsistent to see the Bank of England talking about 'big central banking' to the exclusion of cash and much else.