May 24, 2024




© Luke MacGregor/Bloomberg
Jon Cunliffe, deputy governor for financial stability at the Bank of England (BOE) – Luke MacGregor/Bloomberg

Cash is to become “less useable” as shoppers embrace the internet and high street stores increasingly reject bank notes, the deputy governor of the Bank of England has warned.

Sir Jon Cunliffe said that it will become harder to spend physical money in coming years owing to the rise of online shopping and contactless payments.

He added that it is therefore essential for Threadneedle Street to press ahead with developing an electronic version of sterling – the so-called digital pound – which can underpin future confidence in the financial system.

Speaking at the Innovate Finance Global Summit on Monday, Sir Jon said: “Cash is likely to decline further and cash itself will become less useable in everyday transactions, for example if internet commerce grows and if merchants increasingly accept only digital payment.”

The mass shift away from physical cash to electronic payments has been “very clear” and is set to continue, he added.

Card payments took over cash as the most dominant form of payment for retail in 2016. By 2021, 85pc of payments were made electronically, through either card payments or bank transfers.

Nine in 10 people use contactless payments and nearly a third of all UK adults now use mobile payment apps such as ApplePay and GooglePay. 

It is now commonplace for stores in major cities to be cashless.

Sir Jon said: “Most obviously, what I have called the digitalisation of everyday life will continue.

“The growth of internet commerce or use of banking and payments apps, for example, is forecast to grow and unlikely to stop.”

Mr Cunliffe’s words followed a 2021 speech by Victoria Cleland, the Bank’s executive director of payments, who said cash was no longer king, and that by 2028 just 9pc of all payments would be made in physical currency.

The Bank has said it will continue to issue cash “as long as there is any demand for it”.

A significant minority of the population, often those who are most vulnerable, is still heavily reliant on physical currency and Sir Jon said the institution would not abandon them.

As cash continues to decline, new, non-bank financial institutions are likely to start issuing private money such as stablecoins – a type of cryptocurrency that are pegged to a central currency – to be used for payments.

The Bank of England is consulting on a digital pound, which would be the anchor for these cryptocurrencies in lieu of cash.

The Bank must keep ahead of the changes so that it does not have to play a difficult game of regulatory catch up, Sir Jon said.

The Financial Services and Markets Bill will give the Bank powers to regulate providers of stablecoins that are used on a large scale in the UK. 

The Bank plans to consult later this year with the Financial Conduct Authority on the regulatory framework for how these cryptocurrencies will be issued and transferred.

There will be a risk to financial stability, which means the Bank may need to introduce limits on how stablecoins can be adopted in the initial phases, Mr Cunliffe added.

Separately, the City minister Andrew Griffith announced a new push for Open Banking, a system used by seven million people that allows banks to open up data to secure third parties.

Speaking at the summit, he said: “This will be the year of delivery on the next generation of Open Banking.”

The Government plans to move Open Banking onto a new regulatory framework with high standards of corporate governance this year.

Seven million consumers and three-quarters of a million small and medium sized businesses are using Open Banking products. 

Mr Griffith also called on firms to use artificial intelligence to combat fraud and create chatbots to enhance customer service.

He said: “This technology has immense potential to transform the financial services sector.”

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