Cash Is More Than a Public Good

A new CashEssentials paper addresses the questions ‘Is cash a public good?’ and ‘Is it a basic right?’ with the aim of clarifying the debate and advancing policy recommendations.

The paper, authored by Héctor Labat, Franz Seitz, and Guillaume Lepecq, is based on a literature review carried out by Labat which offers a comprehensive taxonomy to frame the conversation. It was followed by a research seminar held in Istanbul in October 2023, bringing together a multidisciplinary panel of experts:

  • Héctor Labat, Research Fellow, CashEssentials
  • Tim Stuchtey, Brandenburg Institute for Society and Security
  • Frédéric Allemand, Robert Schuman Institute, University of Luxembourg
  • Carin van der Cruijsen, De Nederlandsche Bank
  • Franz Seitz, Weiden Technical University of Applied Sciences, Weiden
  • Ursula Dalinghaus, Ripon College

Cash is a good of public interest

Banknotes and coins constitute a form of public money as they are issued by a public institution, but like private money, serve private purposes, and therefore are not a public good per se. However, cash contributes to several social benefits which are of public interest.

The cash ecosystem and its collective benefits – financial and social inclusion, economic stabilisation, resilience of the payments and system, protection of privacy –are public goods in the economic sense. They are non-rivalrous in consumption – all people can benefit equally from it – and nobody can be excluded from using them. Economic theory suggests that, without the participation of the government, their provision cannot be guaranteed.

Cash is a good that is accessible to the public. Its tangibility makes it suitable for the elderly, the unbanked and groups at risk and makes it possible to use it without a device, third- party intermediation, or being online. The public sector also issues and regulates cash to guarantee its public access and its widespread acceptance. Cash ensures universal access to the monetary system and economic life, promoting financial, social and payments inclusion of all.

Cash guarantees the respect of several rights deemed important for society, such as the right to privacy, freedom of choice and other civil liberties. In addition, it contributes to guaranteeing a more resilient and cohesive society. Thus, cash is a good of public interest and contributes to the welfare of the general public.

Digital payments are imperfect substitutes for cash

Digital monies and electronic payment systems are only imperfect substitutes for cash in any of its societal roles.

Being digital, they cannot fully ensure privacy protection, economic inclusion and resilience to power outages, cyberattacks, and crises. Private monies and systems may contribute to efficiency but are profit-driven, which limits the extent to which they can contribute to the public good. Central Bank Digital Currencies (CBDCs) can potentially be designed to serve the interests of society in better ways than private alternatives do. However, due to their digital nature, they cannot deliver public benefits to the same extent that cash does.

The cash ecosystem is a public good

The use of cash depends on the stability of the cash ecosystem, to which both the private and the public sectors contribute. If the private sector disengages from its role, then the public sector must react to realign private interests with the public interest or fill the gap itself.

The active use of cash must remain above a certain threshold to keep the cash infrastructure alive – in terms of access, acceptance, availability and affordability – and profitable for the private sector. The government can stimulate the use of cash through informational campaigns that raise awareness of the societal benefits (positive externalities) of cash and new legislation favouring cash.

The cash system requires an appropriate legal framework and institutional support for cash to be trusted and credible. The government should strengthen cash access (cash deposit and withdrawal), convertibility (deposit into bank accounts), and acceptance rules to support the use of cash and establish rights to access and pay in cash.

The cash infrastructure must be adapted to the needs of cash users, who, otherwise, will have no option but to shift to electronic payment alternatives. This would generate negative externalities in terms of financial inclusion, resilience of the payments infrastructure, the protection of privacy and civil liberties as well as economic stabilisation in the case of a crisis.

The cash ecosystem, and many of its collective benefits, qualify as public goods as everyone can enjoy them simultaneously without restriction. If cash is not profitable for private providers, the government should fill the gap by, at least partly, funding the private sector or taking direct responsibility for its provision. In addition, it can set the scope for innovations that render the infrastructure more efficient.

Final word

Many of the decisions which would contribute to ensuring good access to and acceptance of cash are ‘political’ rather than technical. Addressing the question of ‘public good’ and/or ‘basic right’ is, therefore, important to make the case for public support for cash and cash infrastructure.

Equally, the paper provides examples of options for public support. While every situation is different, again the paper usefully puts many sensible options on the table. Even if not necessarily ‘right’, they provide readers with the right scale of choices and decisions required.

All in all, therefore, this work is a well-timed and important contribution to the cash debate.