Thursday, March 21, 2019

I Promise To Pay The Bearer - Nothing, by JD

Reading this in the Daily Mail the other day reminded me that I had seen people waving their cards at the tills and then walking away without collecting any receipt or verification. How do they know at the end of the day what they have spent and where? Do they all have such wonderful photographic memories? Very often the purchase is for a minimal amount which baffles me even more.

But the use of credit cards and debit cards is annoyingly widespread. I say annoying because the users of cards are the ones who hold up the queue while they fumble in purse or wallet trying to find the card. Then they take an age to put their pin number into the reader and then take their time replacing said card in purse or wallet.

(It doesn't really annoy me, it just amuses me and I have all the time in the world.)

But in among the comments was this: "A misleading article. Whilst payment volume is higher by card, transaction volume is still note and coin ahead of card, including contactless."

So what exactly is the percentage of cashless transactions in the 'market place' and what is the percentage of cash purchases?

An illustrative tale:

I was watching the racing from Cheltenham last Friday (Gold Cup day) and enjoying it as usual of course. The coverage includes news from the 'betting ring' at regular intervals. There is one reporter standing watching the bookmakers and telling us about the changing odds. Before one of the races he was standing with £10,000 in cash in his hand and saying it was from a punter who was waging it on a particular horse, he then threw the money into the bookmaker's satchel while shouting at the camera. He did the same again before the Gold Cup. He counted out five bundles of £1000 each and said 'this is for a friend of mine' and he handed the money to the bookie and received a betting slip in return. (Both horses lost, by the way!)

So I thought to myself: how is that going to work in our new exciting and wonderful cashless society? And if 'cashless' betting ever arrives, what happens if you have a winner and you go to collect your winnings? "Give me your bank details please and we will transfer your winnings electronically.", no I don't think so.

 I can't imagine that the bookies will welcome such a thing. More to the point, owners and professional gamblers are all happier to deal in cash and some owners are very rich men indeed and are not without influence in this country.

And then I thought of other instances where cash is the best choice; car boot sales or craft fairs or 'flea' markets and other second hand markets.

My father always had a pocket full of cash and so did I in the days we were building houses. Most traders did prefer cash because it was and is quicker and easier than anything else if you need to buy materials and other odds and ends during the working day. In fact up to the early seventies there were still things like wage packets and people were paid with real cash money! (Pound notes are not 'real' money; they are promissory notes. It is written on every bank note - 'I promise to pay the bearer on demand the sum of £xyz')

I still pay for everything with cash as far as possible. In fact I have forgotten the pin number for my credit card; if I use it at all it is for buying on line. Last time I used it outside was to buy a second hand car - half cash and half card! I suppose I would get arrested if I tried to do that now :)

Will we all be forced into this plastic world or will enough people resist? And is it as widespread as the papers are telling us because I have seen contradictory articles saying that there is still £x billion in notes in circulation.

As my grandfather used to say when he looked at the state of the world "I'm glad I'm on the way out!" and then start laughing at the absurdity of life. I am pleased to say I have inherited his sense of humour!
Sackerson says:

The Bank of England responded to a Freedom Of Information request several years ago, saying:

"The link with gold was finally broken in 1931 and since that time there has been no other asset into which holders have the right to convert Bank of England notes. They can only be exchanged for other Bank of England notes. Nowadays public faith in the pound is maintained in a different way - through the Bank's operation of monetary policy, the object of which, by statute, is price stability."

Faith and trust are in short supply these days; and "price stability" doesn't mean what it used to. The BoE says: 

"Monetary policy affects how much prices are rising – called the rate of inflation. We set monetary policy to achieve the Government’s target of keeping inflation at 2%.

"Low and stable inflation is good for the UK’s economy and it is our main monetary policy aim."

To keep pace with target inflation (and how is that measured? RPI? CPI? Something else?) you need your bank account to give you 2.5% per annum pre-basic rate tax - on all your savings, not up to some wretchedly low limit.

Money used to be a store of value. For centuries, a loaf of bread was a penny. And as I said a few years ago:

"The Bank of England's website has a page that lets you calculate cumulative inflation for any period from 1750 onwards. According to them, a basket of goods and services costing £1 in 1750 would have cost (the equivalent of) £1.80 in 1900 - an average annual inflation rate of 0.3%. That period covers the tremendous increase in productivity introduced by the Industrial Revolution and further late-nineteenth-century scientific and technological developments, so inflation is not needed for business and prosperity."

Then there's the danger of strangers electronically hacking into one's bank account; and the wholesale spying by retailers and potentially the Government, on all our transactions.

But if you want something worse to worry about, there's the EU's Bank Recovery and Resolution Directive (BRRD). Under this, if a bank is in crisis, it can cut its debt to creditors and/or exchange the debt for a share in the ownership of the bank ("Congratulations! You are now part owner of a dodgy business!")

So what, silly creditors, who'd lend money to a bank, you might think. What many people still don't realise is that their bank deposits are no such thing - money left with a bank is, legally, an investment. And, dear "depositor", you are not first in the queue to be paid when a bank defaults.

If more people understood the implications, they would be a little less likely to leave their life savings in those reassuringly solid marble-and-plate-glass fortresses. This is causing concern in high finance circles, too.

Except holding cash - paper receipts for Nothing At All - is hardly an attractive alternative.

Can you imagine that at a time like this, Canada's comical boy PM sold off the rest of the country's gold? Keynes called gold a "barbarous relic", but it has an intrinsic value - they used to say that "an ounce of gold buys a handmade suit" and that's still pretty much true. Compare that with a rotting paper relic.

Clap hands for Tinkerbell, everyone. Only the power of faith keeps us aloft.

1 comment:

CherryPie said...

Yes the withdrawal agreement binds us to the EU and leaves us without a voice. The withdrawal agreement is worse than the current arrangement we have with the EU, where at least we do have a voice.

The agreement is in no way Brexit and neither is it Remain it is something far worse than either of those choices.