I recently received, in my change, the first coin I had seen with King Charles III on it. More than a year on from his accession to the British Throne, this is still a novelty, albeit unsurprising, given that there are only 9.5 million Charles III coins in circulation. You need to keep a look out to spot them among the 29 billion coins showing the late Queen Elizabeth II.
The other reason that very few people have seen a Charles III coin is because cash itself is going out of fashion. Between 2016 and 2020 the number of people in the UK that used cash once a month or less increased six-fold.1
The UK is not alone. Cash use is on a sustained downward trend globally due to the speed and convenience of digital payments. A March 2023 IMF report2 found that cash use is falling for half of the global population, including in China, India, Russia, the US and the EU. In the EU cash use for everyday transactions fell from 72% in 2019 to 59% in 2022.3 The World Bank reports that two-thirds of all adults can now make digital payments.4 In the US digital methods will soon account for >90% of transactions.5
There are many reasons behind the rise of digital payments. You don’t have to seek out a bank or ATM for every small purchase. You don’t need to carry large quantities of cash, which many people think - often quite rightly - can make them a target for crime. Carrying wads of cash around is also deemed - again often rightly - as suspicious in many countries. As with other digital trends, Covid-19 sped up the adoption of digital payments, as people avoided grubbying their hands with other people’s cash.
But cash has many redeeming features. It remains the payment method of choice for people on low incomes, both in the developed and developing world. Such groups are more likely to be paid in cash and not have a bank account. Cash is also physically in front of people, making it easy to see how much is left in the budget. On top of this, cash doesn’t rely on internet access or rushing to pay with 1% phone battery.
Cash also retains 100% of its face value across multiple transactions, whereas digital payments do not. Many consumers don’t notice, because it doesn’t cost more to pay digitally. However, it does cost more for merchants to be paid digitally, typically 0.5 - 3.0% of the transaction value. This is often in addition to monthly rental costs and a flat fee per transaction, all paid to the terminal provider.
While these costs can be absorbed by big chains, smaller businesses can easily add up the cost. My local newsagent said that they pay a 0.9% fee for ‘ordinary’ cards, rising to 2.7% for corporate credit cards, as well as 3 pence per transaction on top. A sole-trader at a local food truck disconsolately told me that they ‘hand over thousands’ in transaction fees each year.
When compounded, these charges can hoover up large amounts of money. Rounding up the newsagent’s rate to 1.0%, they lose ¤1.00 for every ¤100 taken digitally, where ¤ stands for any currency. If they then make a card payment at a supplier, the value of the hypothetical ¤99 reduces to ¤98.01... then ¤97.03. After 10 such transactions, the compound payment to terminal providers would be ¤9.56, leaving just ¤90.44 in the hands of those earning and handling it. Perhaps it is unrealistic to suggest that 10 sequential transactions would take place in reality, but it illustrates how 1% here and 1% there soon adds up.
To combat this, local traders often impose minimum card spending limits. Several I know, from barbers to takeaways, accept cash only, while others give cash discounts of up to 10%. One establishment even recently switched to cash only. Locals know the terms, accept them and pay accordingly.
I try to do my bit to keep cash alive, particularly when dealing with individual traders. Indeed this is how I got my hands on a Charles III coin in the first place. It seems I am not alone. As this column went to press, the UK reported its first rise in cash use in 10 years.6 It was marginal, but perhaps the first sign that merchants and their customers are realising the value of cash in the everyday economy. While terminal providers and banks may encourage it, I think it’s a leap too far for any society to switch entirely to digital payments any time soon. Coins and bills, from Roman Emperors to famous Presidents and King Charles III, are here to stay. As they say, ‘Cash is King!’
