Report: UK cash system ‘on the verge of collapse’
More than eight million UK adults would struggle to cope in a cashless society, according to a major report which claims that the country’s ‘cash infrastructure’ is in danger of collapsing.
With Britons increasingly turning to digital payments, and bank branches and ATMS closing, the Access to Cash Review said companies and organizations providing ‘essential’ services should be required to ensure that consumers can continue to pay by cash, according to theguardian.com.
The review is funded by cash machine network Link, but is independent from it, and is chaired by the former head of the Financial Ombudsman Service Natalie Ceeney, with other members including Richard Lloyd, the former executive director of consumer group Which?
Ceeney said that “17 percent of the UK population — over million adults — would struggle to cope in a cashless society”.
Debit cards last year officially overtook notes and coins as the most popular form of payment in the UK for the first time, and the review’s report predicted that cash could fall to just 10 percent of all payments within the next 15 years.
It also called on the government, regulators and banks to “act now or risk leaving millions behind”. A spokesman for the review claimed the UK’S cash system was ‘on the verge of collapse’.
The bill for running the UK’S cash infrastructure — from ATMS to cash-sorting centers — was about £5 billion a year, paid for predominantly by banks (and, ultimately, consumers), said the report. But while the costs were largely fixed, income was declining quickly.
As a result, it said, “we have a cash infrastructure which is fast becoming unsustainable”.
The report added, “Some of these companies may consider exiting the market as its profitability declines — leading to the risk of disorderly collapse … Without an effective wholesale cash infrastructure, ATMS won’t get filled, cash deposits won’t get counted, and we won’t trust the value of money.”
The report’s authors said the UK was ‘not ready’ to go cashless, and that despite the runaway growth of contactless and mobile payments, a ‘significant number’ of people — about 2.2 million — were currently using cash for all their day-to-day transactions.
Nevertheless, the volume of cash removed from ATMS is falling fast, and Which? has estimated that cash machines around the UK are closing at a rate of 300 a month.
The consumer group this week also highlighted the vulnerability of digital banking, revealing that British banks were being hit by IT or security failures that prevented customers from making payments at an average rate of more than once a day.
Nicky Morgan MP, chair of the Commons Treasury committee, welcomed the report, saying that “the simple truth is that leaving the future of cash to be determined by market forces will not work”.
Jonathan Reynolds, the shadow economic secretary to the Treasury, said Labour agreed with the conclusions of the report and was calling on the Treasury to open an urgent consultation into its recommendations.
lending.
Shadow banking refers to activities performed by financial firms outside the formal banking sector, and therefore subject to lower levels of regulatory oversight and higher risks.
State-owned banks usually prefer lending to companies owned by the government, and as a result, private companies have turned to shadow banking.
Productivity and work force
Apart from the debt issue, Williams said the underlying engines of rapid growth in the country’s economy are also fading. He cited a declining work force — hit by its One Child Policy introduced in the 1970s — and weakening drivers of productivity.
In a January report, Capital Economics projected that a shrinking labor force may result in a decline of about 0.5 percent in GDP growth by 2030.
The research firm pointed to China’s working population which is currently falling by about 0.2 percent per year. There were only 15 million babies born in China in 2018 — a 12-percent drop from the year before, and nearly a third below official forecasts made three years ago. In 2015, China started allowing couples to have two children.
But “the main drag on China will be coming from much weaker productivity growth,” Williams added.
While many emerging markets rely on exports to drive productivity, China’s share of the export market is already very large, and will need to rely more on domestic growth to drive productivity, he said.
“The only way to raise productivity, if you can’t do it by investing and building more, is to raise the productivity in workers ... It means you want your companies to move closer to the technological frontier,” Williams concluded.
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