Can the Netherlands manage without cash?

Current issues related to economy, (responsible) investment, pension and income: every week an APG expert gives a clear answer to the question of the week. This time: macroeconomist and senior strategist Maarten Lafeber on why we cannot manage without cash in the Netherlands.

The trend has been clear in recent years; the number of cash payments in stores, cinemas and pharmacies, among others, fell sharply in favor of debit card payments. The reason? Cashless payments are easy and safe for many business owners. As a result, in more and more places, consumers can actually pay only by debit or credit card. This applies, for example, to half of the parking garages, the Dutch Central Bank (DNB) reports. 

But the same DNB also notes a stabilization in the decline of cash payments. After bottoming out in 2021, the second year of the Covid pandemic, both the number of cash payments and the value of these payments in coins and bills increased. Indeed, the value of all cash payments increased by 8 percent in 2023 compared to 2022. For debit card payments there was “only” a 4 percent growth, several media report based on DNB figures. This begs the question of why we cannot manage without cash payments in the Netherlands.

Nuances

“It’s good to bring in some nuances first,” says Lafeber. He picks up the figures and observes that although the number of cash payments is on the rise, in absolute numbers they are heavily outnumbered by the number of debit card payments. “Moreover, the total value of those debit card payments is also many times higher than that of cash.” But that does not take away from the fact that cash still plays an important role. “And it will continue to do so for some time,” the macroeconomist says resolutely.

Indeed, according to Lafeber, cash plays an important role in several areas. “For example, it helps people budget and keep a grip on their spending.” For example, there are still many elderly people and low-income earners who regularly withdraw an amount to buy groceries. This way, they can keep track of what they spend and do not spend more than they have on hand. Lafeber: “With digital money this is much more difficult, especially if people have a credit card in addition to their debit card with which they can also easily make large purchases.” 

Universal, anonymous, robust and public

Even when Lafeber zooms out a bit further, he sees the advantages of cash in addition to cashless money. He points to four key characteristics: cash is universal, robust, anonymous and public. “By universal, I mean that cash doesn’t discriminate. You don’t need a commercial bank or bank account to do the transaction. Banks in recent years have been very strict about providing bank accounts; not everyone can just qualify. Foundations, for example. Cash bypasses that problem.”

Moreover, Lafeber argues, cash is also anonymous. “When there is no more cash, and we can only do shopping with cashless money, some of our privacy also disappears. Commercial banks and large parties that control payment traffic can see all your transactions.”

500-euro bill: the Bin Laden of payment transactions

But, Lafeber realizes, privacy also has its downside. “The 500-euro bill showed us that. This bill was also called the ‘Bin Laden of payment transactions’: you knew it existed, but you never saw it because it was mainly used by criminals. It was the reason the European Central Bank (ECB) removed this bill from circulation in 2019. This highlights the double-edged sword of cash: anonymity can also have disadvantages.”

Despite this, the function of cash in being and remaining independent from commercial parties is great. On top of this, according to Lafeber, the cash system is also robust. “What if the power goes out or we face a cyber attack? Then you can no longer use debit cards. That’s why I - and probably many with me - always carry a tenner or fifty with me for emergencies.” Then, in Lafeber’s view, there is the public function of cash. “Coins and bills are public money, and are issued by the central bank. The latter also oversees that large banks provide a nationwide basic infrastructure of ATMs, for example. This allows us to be confident that if we want to withdraw money from our bank account, we can always do so.”

More than ones and zeros

Lafeber is aware that trust is incredibly important. "The importance of trusting money cannot be overstated. Cash is tangible and provides trust that money in the bank account really exists. Cash is more than just ones and zeros in the account; you can see it, feel it, hold it, and it is therefore an important component of our entire monetary system.”

APG’s macroeconomist therefore concludes that the stabilization of the decline in cash payments is a logical consequence of the strong function it fulfills, and that the Netherlands cannot manage without cash for the time being. “The Netherlands is not alone in this. Take Germany, for example. There, cash takes an even more important role. Partly because, unlike our country, they have not embraced digitalization as quickly, and have invested less in a good infrastructure for cashless payments. You still can’t use your debit card to pay for everything there.” In addition, Lafeber believes, cultural differences play a role. “The GDR era still plays a role in Germany; people there are a lot more traditional and cautious.”