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Roula Khalaf, Editor of the FT, selects her favourite stories in this weekly newsletter.
There are plenty of places for investors to park their wealth, from bitcoin and cocoa futures to Tesco shares. But when the grid goes down — as it did in Spain this week — one little-loved asset suddenly regains its subtle charms. No portfolio should be without the humble bank note.
Cash, as in the real crinkly kind rather than the conceptual accounting kind, has been locked in a decades-long battle for survival. A UK parliamentary committee report on Wednesday confirmed the long-term trend. Cash made up 51 per cent of payments by number in 2013, but by 2023, that had fallen to 12 per cent. The reasons are straightforward: better digital alternatives; bank branch closures; a pandemic.
Traditional tenders’ death, though, has been prematurely foretold multiple times. Sweden, for example, set out to minimise its use of cash. Stockholm’s Abba Museum was an early advocate of what it calls a “cashless society”, after band member Björn Ulvaeus decided years ago to live without physical money. The Nordic state has since changed course. Last year, a report from its central bank noted that payment services were insufficiently accessible, and continued access to cash is one solution.
Ulvaeus, who had fretted about the role of cash in drug dealing and bike theft, had a point. It’s hard to know where cash goes and how it’s used, but the UK government in the past argued that 90 per cent of no-longer-issued €500 notes present in the country were involved in criminal activity. Australia’s central bank estimates that up to 11 per cent of all bank notes are used in the so-called shadow economy.
There are other compelling reasons to eschew grubby notes, or at least de-emphasise their use. The stash under the mattress pays no interest, and offers no protection against inflation. The Bank of England has in the past noted that the use of cash has a theoretical effect on monetary policy; any attempt to cut rates below zero gives people a reason to switch to holding paper.
For now, the UK is taking a cautiously tolerant approach. Unlike in New York, where businesses are mandated to keep accepting cash, its restaurants, car parks and market stall owners are free to insist on card or digital payments. Parliamentarians on Wednesday warned the government not to “sleepwalk into a loss of cash acceptance for those who need it”.
For those looking to bet on the continued use of fivers and tenners, options are dwindling. De La Rue, which produces UK currency, said in December that its orders for bank notes had tripled. Many central-bank clients are upgrading to polymer-based currency. But the company may soon disappear from the market: it agreed this month to sell itself to US private equity firm Atlas for £263mn. The offer is, needless to say, all cash.
