On 4 December the House of Commons Public Accounts Committee published a report which accused the Bank of England of not knowing where £50 billion’s worth of its bank notes were or what they were being used for. This, despite declining cash transactions as ‘cash was used in six out of 10 transactions a decade ago but in 2019 it was less than three in 10’.
The Committee put forward some possible explanations for what it called ‘the missing £50 billion’: overseas transactions and savings; undeclared domestic savings (as under the bed); and ‘use in the shadow economy’. This suggests that some at least of the notes were in circulation and used in buying transactions not counted by the Bank.
Commentators suggested that many of them would be being used in ‘the shadow economy’ (as to avoid paying VAT). According to David Smith, Economics Editor of the Sunday Times:
‘Research by HM Revenue & Customs in 2017 suggested that roughly 5 per cent of people were operating in the hidden economy. The Institute of Economic Affairs suggests something larger, between 9 per cent and 12 per cent of gross domestic product, or roughly £200 billion. Quite a bit of that missing £50 billion of cash is in the black economy’ (Times, 9 December).
It’s the same in Germany where €6 billion worth of old money (the Deutschmark) have still not been converted into euros, some of which the tax authorities think could be being used to ‘wipe away traces of illicit deals’ (Times, 18 December).
To avoid the state keeping tabs on how you spend – or obtain – your money is an obvious advantage of cash for those who don’t want the state to know this. With electronic transactions, on the other hand, it is possible to tell how money got into the hands of the seller as there will be an electronic record of the sale somewhere. It was for this reason that some anti-state ‘libertarians’ thought up Bitcoin as an electronic equivalent of cash. As the mysterious Satoshi Nakomoto put in the original 2007 paper outlining the proposal:
‘A purely peer-to-peer version of electronic cash would allow online payments to be sent directly from one party to another without going through a financial institution’.
After it was launched in 2009 it worked but involved complicated computing using large amounts of electricity. In the event bitcoins have been used more as a crypto-asset (held to gamble on its price rising – at the end of last year the price of one bitcoin had risen to a then record £25,000 and it’s now been higher – than a crypto-currency (means of payment), though undoubtedly it has been used for various illicit transactions, not that these are entirely untraceable if they involve conversions into and out of state currencies. Only bitcoins that are ‘mined’ (those behind the idea wanted to invent not just electronic cash but the equivalent of metallic commodity money) are truly anonymous, electronic cash.
Economists speak of the decline in cash transactions alongside a rise in the amounts of notes and coins as the ‘cash paradox’. Socialists can think of another paradox: the existence of computing power capable of helping solve the logistical problem of ensuring that physical goods are available where they are needed for people to take and use, alongside the use of this power to record zillions of individual payments and other monetary transactions. This scandalous misuse of computing power can only be ended in a world of common ownership and democratic control of productive resources where useful things will no longer be produced for sale on a market with a view to profit and where, therefore, money, whether physical or electronic, will have no place.
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