Cash and Snickers bars

There are several reasons why banknote demand has fallen. New versions can last longer; the UK now has polymer notes which last more than twice as long as the previous paper-based notes; banks are well-stocked with notes, having built up supplies during Covid-19; and the pandemic saw people increasingly use cards to avoid what they imagined was a risk of infection via banknotes. Many commentators reassure us that the death of cash is ‘much exaggerated’, that governments will find it necessary to legislate to ensure that banks ensure cash continues to circulate, as Sweden did in 2020.

But the reasons for protecting cash – such as not excluding from the financial system those who lack a bank account – are struggling against pressure from the opposite direction, the increasing digitalisation of our society, which (when it comes to the form of money regarded as legal tender by government) means Central Bank Digital Currencies (CBDCs).

Boiled frogs

In some respects what’s happening to our financial system is like the question of ‘how do you boil a frog?’ You don’t drop it into a vat of boiling water because it will immediately jump out; you place it in a vat of cold water and gradually bring that to the boil. The frog won’t realize what’s happening until it’s too late – at least, that’s the argument.

Many things are happening almost without our noticing. When did you last buy a Snickers bar? The bars have shrunk considerably. Before 2009 a Snickers bar in the UK weighed 62.5 grams; looking in my pantry I see the ones I have weigh 35.5 grams – 43% less. Not that the price is 43% lower. Manufacturers try to cut costs by making their products smaller, hoping consumers won’t notice any difference. Shrinkflation – trying to hoodwink the public – is everywhere.

Back in 2015 it was reported that some research from Lloyds Bank said one in three people in the UK expected to be using a mobile to make payments within five years, and that 25% thought they would no longer need cash by 2020 to pay for goods or services. That has come to pass. Not that the cashless society is universally welcomed. Link, the UK’s ATM network, said at the end of March that 20% of those surveyed and who had been unable to use cash (because only cards were accepted by the retailer) found this inconvenient. A fifth said they put their spare change in jars or piggy banks, a form of saving that of course earns them nothing.

The maximum amount that people in the UK can spend using contactless payments has risen from £20 in 2015 to £100 today, an increase of 400%. Wow! Meanwhile, the Pound Sterling’s purchasing power has suffered its biggest loss of purchasing lower since the 1970s. Today’s Pound buys just over 70% of that of 2015. So we may imagine we are getting more but in reality it’s less. Less Snickers, less buying power. But we are allowed to spend more of the smaller value we have. The frog has been boiled.

More frogs to boil

The beauty of cash, why it is so important, is that its use is anonymous. Of course this anonymity can hide a multitude of crimes and sins, but the freedom to use our money (paper or digital) as we choose without interference is an important, indeed a defining characteristic of freedom. The forward creep of CBDCs can be and is justified from many directions, including that it brings those who don’t have access to banking within the greater financial network, but a CBDC also represents an opportunity for greater government interference in personal life, as can be seen from China’s CBDC. As the 19th century British philosopher John Stuart Mill asserted in his book On Liberty, “liberty consists in doing what one desires” (so long as nobody else is harmed). That ‘what one desires’ has been progressively circumscribed; CBDCs offer the chance for further limitations.

The Bank for International Settlements (BiS) reckons that about 85 central banks are working on projects to create digital currencies.

Yet despite all the vaunted benefits of CBDCs by their promoters, publics around the world have yet to be convinced. In February this year, for example, Dutch people marched in Amsterdam against a digital Euro; the European Commission plans to propose by the end of June the legal framework for a digital Euro. The earliest a digital Euro could be issued is 2027, according to the European Central Bank (ECB), just four years’ away. Apart from China, CBDCs in action are not yet common. Nigeria is one of just four jurisdictions to have launched a CBDC for public use, but less than 1% of people used it in its first year. People don’t trust it.

A backlash is also being seen in the US, where a digital Dollar is being considered says Janet Yellen, US Treasury Secretary. Tom Emmer, a Republican in the House of Representatives, has introduced a Bill in Congress that would prevent the Federal Reserve from issuing a CBDC or using a CBDC to control monetary policy. Emmer’s anxiety about CBDCs stems from the fact that a CBDC would potentially considerably extend government oversight of how this legal tender was used, and extend the power of government to sanction those who use it in ways deemed unacceptable. Politicians everywhere naturally reject this as being far from their minds, but deference to authority is not what it was – scepticism abounds. According to Jim Rickards, the economist and financial commentator, “CBDCs are being sold as being better, faster and cheaper, but [they] will be weaponised to profile and identify political enemies”.

CBDCs are a way off for either the US or Europe. But such is the weight of support for them from politicians and others that – despite public doubt – they will inevitably come to replace paper money. Fortunately there exists a way to protect one’s assets against shrinkflation, against becoming a boiled frog, and even against CBDCs. It’s called Glint, where even pennies can be used to buy gold that can be used as money. Gold is security; Glint its key.

At Glint, we make every effort to demonstrate a balanced conversation between gold, crypto and fiat currencies when it comes to purchasing power and, while we strongly believe that gold is the fairest and most reliable currency on the planet, we need to point out that it isn’t 100% risk free. While we have seen a steady increase over time, the value of gold can fall, which means that its purchasing power can also decline.