Most of us walk around with very little cash in our pockets. Credit cards seem to weigh down our wallets and paying on credit is certainly the name of the game in today’s economy. But what would happen if we were told by the banks that we could only pay with a plastic and that bills and coins were no longer legally acceptable as payment?

This seems to be the fear in several European countries. Noise about ‘going cashless” or “cash free” is intensifying throughout the continent and fears that cash will be abolished are accelerating. The European Central Bank (ECB) and the Swedish central bank, the Riksbank, have pushed their interest rates deep into negative territory as have Denmark and Switzerland while the Bank of Japan just became another major central bank to go below zero. Is abolishing cash the next step by these central banks?

The Bank of England’s chief economist Andrew Haldane said back in September 2015, that abolishing cash would help the central bank to implement a negative interest rate policy more efficiently.

According to Haldane, “If global real interest rates are persistently lower, central banks may then need to think imaginatively about how to deal on a more durable basis with the technological constraint imposed by the zero lower bound (ZLB) on interest rates.” Haldane and some other economists believe that the way to remove the ZLB would be to abolish paper money altogether, leaving consumers no alternative but to use their credit cards to pay for all needs.

Less Savings, More Spending?

By forcing people and companies to convert their paper money into bank deposits, the hope is that they can be persuaded (coerced?) to spend that money rather than save it because those deposits will carry considerable costs (negative interest rates and/or fees).

Discussions of removing some notes have already been voiced. During a hearing in the European Parliament, European Central Bank President Mario Draghi stressed the fact that there was “increasing conviction in world public opinion” that the 500 euros banknote, the highest euro denomination, should be withdrawn, citing their extensive use in criminal activity.