July 13, 2011 3:03 pm

Cheques: “barbarous relic” remains

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UK banks have backtracked on a plan to eliminate cheques by 2018

In what way is France more like the US than Germany? In the usage of cheques for payments. This very old technology still accounts for about 20 per cent of payments in the backward two, while it is 0.3 per cent in Germany according to the Bank of International Settlements. In the UK the proportion has slipped to 7 per cent. But Wednesday brought news that the British pen-and-paper crowd has cowed the nation’s banks into dropping a plan to eliminate cheques by 2018. The French banks are not even trying to force the issue.

Cheques are on the wane everywhere. The decline is fairly rapid: an annual rate of 4 per cent since 2005 in France, 10 per cent in the UK (where many retailers no longer accept them) and 6 per cent in the US.

Cheques’ continued popularity is a puzzle. If people and businesses were as efficiency-minded as most economists assume, the rest of the world would follow the German (and Swiss, Swedish and Belgian) example. Even with clever equipment to read and sort them, cheques are much more costly to process than plastic and electrons.

Cheques might seem like another “barbarous relic”, as John Maynard Keynes once described the gold standard. But the popular attitude towards everything connected with money is infected with what Keynes called “a somewhat disgusting morbidity”. In some countries, a symptom of that malady seems to be a fondness for a tangible representation of financial claims.

More materially, at least part of the attachment is down to uneconomic pricing. Americans generally pay for the inconvenience of paper, but French and British banks are afraid to pass on the full cost. Perhaps the UK’s banks owe it to their shareholders to charge cheque-writers for their predilection, and see what happens.

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