If the barbarian armies were at the gates and the government had thrown in the towel; if your neighbours had fled to the highways, already jammed with panicking families; if the pillars of civilized life were tottering, what would you stuff in your pockets as you herded your family into the back of the station wagon? Would it be plastic cards or paper bills?
There is indeed a war on, but there is no need yet to panic. The aggressors are treasuries and central banks and the victim is likely to be cash. Apparently, there is too much of it stashed away, doing no good to anyone, in foreign bank accounts, under mattresses and in sock drawers. The chief economist of the Bank of England, Andy Haldane, thinks it is time for the U.K. to go totally digital. His thinking follows that of Ken Rogoff, the Harvard professor and former IMF chief economist who reckons that concealment (money laundering and tax evasion) is the justification for half of cash transactions in developed economies.
So, the case for abolishing cash is finding favour at the European Commission where there is talk of imposing a ceiling on cash transactions as part of the fight against terrorism, and the European Central Bank (ECB) is considering abolishing the elephant of the paper-currency world, the €500 ($785) note. There is apparently €290-billion of the jumbo notes in circulation but so prized are they among criminals that they are rarely seen in polite society, and most Europeans were unaware they existed until the ECB declared it a problem.
Still, you might wonder, why the fuss – after all, criminals have always dealt in cash and it is still a small part of total money in circulation, just 3 per cent of sterling but 10 per cent of U.S. dollars, mainly because foreigners in inflation-prone economies love to hoard $100 bills.
It is the expanding piles of inactive money that worries central banks and government finance ministers who know that if money does not circulate, the economy is prone to stagnation and recession. In Washington, the knives are out for the mountains of cash held by U.S. corporations offshore. More than $1-trillion, analysts say, owned by a few dozen multinationals, is gathering moss for fear that repatriation or dividend will generate a tax bill.
Congress is already talking of "deemed" repatriation – treating corporate cash held overseas as if it was in the United States – but there is a bigger worry out there for the IMF and the central bankers and it is negative interest rates and deflation. This week, the Japanese government 10-year bond yield went negative and Japanese savers became the first among developed economies to suffer such an income blow.
In a desperate effort to force money into motion, central banks in Japan, Sweden, Switzerland and Denmark have formally adopted negative-rate stances. The idea is that if you charge depositors instead of paying them income, they will stop parking money and, instead, spend or invest, thus boosting economic activity. Unfortunately, it is not working well; big companies are still sitting on their riches and ordinary folk are not spending the windfall from low gas prices.
Meanwhile, central bankers have spotted a potential loophole in their negative-rate strategy. If ordinary depositors want to avoid bank charges that erode their savings, will they not just store the money in cash?
The problem is that people still believe in those bits of paper with pictures of dead world leaders and the trust held in paper money is far more enduring than the faith held in banking institutions. Consider Switzerland, a country where banking is the economy's bread and butter: cash in circulation is equivalent to a 10th of GDP, while in Japan cash represents as much as a fifth of the size of the Japanese economy.
What is astonishing is not that cash is so enduring but that governments and central banks don't seem to understand why workers, consumers and savers have more faith in bits of paper than bytes in the data servers operated by private financial institutions. If there were even moderate trust in money managers, gold would not have survived as a store of value. It explains the universal obsession with land, homes, precious stones and some paper money.
Instead of abolishing euro banknotes, the ECB should find some comfort in the widespread public trust in a currency that is only 23 years old. The same cannot be said for the public and private institutions of many European countries that in recent years have flirted with insolvency or been rescued from bankruptcy.
People give their trust to things that are shown to be reliable. As European governments flounder in their search for solutions to the migrant crisis, it is worth considering what the flotsam and jetsam from Syria, Iraq, Afghanistan, Egypt and sub-Saharan Africa will be carrying with them. They will have the clothes on their backs, some gold jewellery and a wad of dollar and euro notes.
Carl Mortished is a Canadian financial journalist based in London.