One increasingly faces this rejection throughout the West. I’ve certainly heard it so many times in London that I’ve stopped carrying cash, except on Sundays, when I need a banknote for the collection plate.
This aversion to paper money would be easy to understand if a shifty-looking chap tried to pay for a Mercedes with a suitcase full of cash. But I last heard that lapidary phrase the other day, when buying a cup of coffee at a theatre café.
Extrapolating from that experience, one finds out (in my case, from an excellent article by Oliver Bullough) that in 2024 just “nine per cent of payments were made with cash, down from more than half of transactions a decade earlier. Almost half the British population now uses cash just once a month, or not at all.”
And most of those transactions are small: some cafés in Britain must still be prepared to take your fiver. This situation isn’t unique to the UK though: some 40 per cent of Americans never use cash, and similar proportions hold true in France, Spain, Italy, Switzerland and so forth.
So how should central banks respond to a world going cashless? The answer is as simple as it is logical: they should drastically reduce their output of banknotes, and those they do print should be of smaller denominations.
Thus speaks common sense. Yet that faculty shuts up in the face of brutal facts. For what’s happening is exactly the opposite of that logical inference.
“In November last year,” writes Mr Bullough, “the value of all the dollar bills in circulation hit a new all-time high of $2.422 trillion (it hits new highs every month, so may well have done so again before you read this), which is almost exactly double the total a decade earlier, and that was in turn almost exactly double the total a decade before that. In fact the total value of notes in circulation, as reported by the Fed, has been doubling every decade for as long as I’ve been alive.
“For euros, the picture is similar. The most recent figure for the total circulating value of the European Union’s single currency is €1.619 trillion, which is also an all-time high, and also significantly higher than the €1.083 trillion of December 2015 and the €565 billion of a decade before that.”
But surely most of those banknotes were small, to reflect the way most people use cash? So demands that restless common sense, reluctant to admit defeat.
Sorry, wrong again: “Two decades ago the $100 bill was only the third most common banknote in circulation, but it overtook the $20 at some point in 2008 and then the dollar bill eight years later. Today there are more than 18 billion of them in circulation, 55 for every American. In raw value terms, about 80 per cent of all the paper dollars out there are made up of $100 bills… .”
This isn’t unique to the US. “Some 690 billion – almost half – of the euros in circulation are in the form of €100, €200 or €500 notes. The biggest denominations are also popular in Britain, Australia and Canada, while more than 90 per cent of all Swiss francs in circulation by value are in the form of the 1,000 franc note.”
Let’s sum up. Corporate transactions are never carried out in readies, this is obvious. Apparently, people don’t buy things for cash any longer either, and are often prevented from doing so even when they try. So what happens to all those truckloads of large-denomination notes?
Do people hoard cash under the proverbial mattress? If they do, they didn’t pay attention in history classes. Otherwise they’d know that the combined inflation over the second half of the 20th century was 2,000 per cent, compared to just 10 per cent for the second half of the 19th century. Hence that comfy mattress is an incinerator of cash, and the longer it houses money, the more it burns.
This leaves only one possibility: high-value banknotes are used by people operating in the shadow economy, which is to say common-or-garden criminals, terrorists and tax evaders. And Western governments, acting through their quasi-independent central banks are the criminals’ accomplices.
“Untraceable, untaxable income in the hands of criminals is the new lingua franca of organised crime,” says Davis Veness, former commissioner of the Metropolitan Police. Hence the popularity of high-denomination banknotes.
Back in Soviet times, a $100 note could be exchanged for 20 per cent more in the black market than smaller denominations. Apparently, exactly the same premium is placed on that banknote these days, and one can understand why: the higher the denomination, the smaller the bulk of the wad, which is an advantage for criminals circulating cash between cities or countries.
Some central banks understand this perfectly well, which is why the production of €500 notes ceased in 2019. But by and large, Western printing presses and the governments that operate them are complicit in criminal activities, and Mr Bullough takes the shortest route to this uncompromising conclusion.
He uses the example of the Albanian gangs that have cornered the UK cocaine market in the past 10 years. “During this period, the annual repatriation of cash pounds from Albania to the UK has increased from about £65 million a year to £400 million, much of which had been smuggled to Albania, then paid into a friendly bank branch far from the UK authorities before being sent back by the official route.”
All doubtless true. But while highlighting the illicit activities of organised and individual criminals, Mr Bullough left out an important and ever-expanding category of cash lovers: criminal states.
Unlike puny gangs measuring cash in traditional denominations, criminal states measure it in units of weight, and Russia leads the way. When President Trump introduced the first tranche of crippling sanctions on Iran in 2018, Putin was on hand to give his friends a leg up.
In the first four months of that year, Russia’s state-owned bank sent over to Iran some five tonnes of banknotes totalling about $2.5 billion. There is every indication that even larger amounts are being shipped now, some as assistance to a fraternal regime, some as payment for the swarms of kamikaze drones and short-range ballistic missiles Iran is supplying to Russia.
The original infusion of cash came in several shipments across the Caspian Sea. The analysis of the weight and value of each shipment suggests that the cash came in €500 notes. This may be why the European Central Bank stopped printing that denomination the next year, but that was merely a palliative measure.
While Western governments impose punitive sanctions on criminal regimes, Western central banks happily make sanction-busting easier. They’d do well to remember to what use the Russians put those drones and missiles purchased with Western cash.
The words aiding and abetting spring to mind, but as long as the letter of the law is obeyed, everyone is happy, except Ukrainian civilians buried under the rubble of their homes. But money talks louder than their dying screams.