[Dave Birch] In the recent thread concerning the views of economist Willem Buiter ("Immoral earnings"), I mentioned in passing the idea of some kind of "analogue switch off" of physical notes and coins, somewhat analagous to the analogue switch off of TV. This may seem implausible at first, but the fate of the cheque in Europe would seem to indicate that it is possible for payment mechanism to be withdrawn in favour of digital alternatives. Even in the UK, cheques may have less than a decade to run, and another small step on the path to extinction is imminent, with the end of the cheque guarantee card. I suspect no-one under 21 has actually written a cheque and wouldn't know what a cheque guarantee card was for. The use of cheques continues to shrink and cards are making inroads into all areas. For example, when I called our repair guy to fix the dishwasher (an absolutely A1 guy, by the way, if anyone's looking for a repair guy in the Woking area) even I was slightly taken aback when, after fixing it, I said "I'll go and find the cheque book" and he whipped out a chip and PIN terminal. So surprised that I took a picture.
He said cheques are a pain because they might bounce (perhaps there are fewer people with cheque guarantee cards than I imagine) but mostly because he has to collect them up and go and pay them in when he could be doing something more useful, like earning a living or hanging out with his family. Anyway, Several million people still do use cheque guarantee cards, but we're still getting rid of them.
Last year, of the 1,400 million cheque transactions, just under 7% were supported by a cheque guarantee card and although around four million consumers still guaranteed cheques regularly, in many cases the guarantee function is not an essential part of the transaction.
[From Cheque guarantee scheme to go in 2011]
The issue here is about having a reasonable alternative, isn't it? We don't have to wait for all cheques or all cash to go away, we just need to ensure that there is a reasonable alternative and then once we're down to the last quarter or fifth of the population using an old and inefficient mechanism then we can starting think about a switchover.
What would be the impact on innovation? Suppose that there was a deadline analagous to the switch off of analogue television signals. On the one hand this would boost the businesses of incumbent e-payment providers enormously without them having to do any work (except scale up their networks and processing to handle the boom) and so the impact on innovation would be lessened, because the incumbents now have one less competitor. On the other hand, the vast increase in the size of the e-payment market would make it more attractive to competitors from outside the industry to come into it, wouldn't it? Just as it is hard to buy a TV without a digital terrestrial TV decoder built in to it, so the next generation of TVs would come with payments built in, so when my mum wants to send one of her grandkids a tenner to go and buy a treat, she could do it from her TV and send the money to their mobile phone instead of doing what she does now, which is put ten quid in an envelope, post it and hope it gets there.
Perhaps the most important use of money - It saves time.
Author W. Somerset Maugham (1943).
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