Allister Heath is quite right here, there's those who would ban cash and we shouldn't allow them to get away with it:
The problem is that this will embolden those officials who wish to abolish cash altogether, and switch entirely to electronic and digital money. If savers were forced to keep their money in the bank, the argument goes, then they would be forced to put up with even huge negative rates. They would have no choice - and central banks would be able to engage in monetary easing even in a world of zero or negative inflation. They would not be forced to resort to quantitative easing or “helicopter money”.
The various bansturbators are already greeting the idea with glee: how can people tax evade, save without being seen, conduct themselves as they wish if all money is electronic and recorded? And for the very obvious reasons of liberty and choice we should not allow them to get away with it.
However, that's not the half of it. It's not just that you shouldn't ban cash, it's that you cannot. And people today are making a mistake when they think that they can.
For yes, it is true that money today is fiat money, it's just something that government says is worth x and so we use it as if it is worth x. The assumption is that if the pieces of paper are taken away then we'll be without something worth x to exchange. But that is to believe that governments created money, rather than that we've found that government created money is convenient to us. And historically this simply has not been true, there have been all sorts of variations upon money. Private bank notes were privately created money, the stones of Yap were culturally created money and so on and so on. And if the government declines to issue tokens that can be used in exchange then we'll all come up with something else that we can use. We've even heard that expensive paintings are used in this manner in the illegal drugs trade these days. No one ever intends converting them into cash, they're simply a conveniently high value piece of collateral.
Yes, it's entirely true that fiat money is created by governments, they produce a certain value to it by insisting that we can pay taxes with it. But that's not the definition of money at all.
To approach the point using a subject we care deeply about: beer and pubs. In the US, generally, you go down to the corner bar to meet the guys and you buy your own beer. In Britain you toddle off to meet the chaps and you buy in rounds. In the Czech Republic you buy your own beer but order the shots in rounds. And there's no law, no tax collecting authority, insisting upon the tit for tat of rounds but there's a heck of an amount of social pressure keeping everyone in line. And that buying of the round for round is a financial transaction, it's just one that is not mediated by cash at all, it's mediated by that social pressure.
And we all take part in exactly those sorts of transactions all the time: a promise to do something is a transaction, we make those all the time. The absence of cash as paper would simply expand the areas of life where we use reputation as the currency.
Yes, government created fiat cash money is very useful: and we don't want them to try and ban it for that reason alone. But a ban wouldn't work anyway, as we humans have found the basic idea too useful and every society has come up with some method of keeping tabs on who owes what to whom. That's not going to go away whether we've got notes with a piccie of the Monarch on them or not.