Cash and Crises

The benefits of humanitarian financial assistance – what the aid world calls ‘Cash & Voucher Assistance (CVA)’ – are pretty well known: Giving people cash instead of food or other forms of in-kind commodity empowers recipients to address their own priorities, reduces opportunities for corruption, and pumps money into local economies. It is, generally speaking, a much more dignified and cost-effective way of meeting beneficiary needs.

Since the beginning of the pandemic, a steady flow of disinformation has distorted the role cash may play in spreading Covid-19. Now, Australia’s national science agency has published a controversial study suggesting that the virus could survive up to 28 days on banknotes in strict laboratory conditions. However, the study’s lead author, confusingly, is minimizing the infection risk presented in his own work.

A new report by H.E. Reimers, F. Schneider and F. Seitz analyses the determinants of cash holdings of private households in the euro area between 2002 and 2019 and aims to shed light on the complex relationship between cash holdings on the one hand and transaction volumes, store of value motives, alternative payment instruments, the size of the shadow economy and crisis-related as well as precautionary demand on the other.

In 2012 an ATM selling cupcakes opened in New York City. Eight years later, Food ATMs are dispensing free rice and other essential staples to those affected by the Covid-19 pandemic in Jakarta, Indonesia and Ho Chi Minh city in Vietnam. The service is proving vital for thousands of people whose nutritional status has been compromised by losing their livelihoods as a result of the pandemic.

This year has been very dramatic for the global society. The full effects of the COVID-19 pandemic are still unknown and depend on the length of the exceptional period in various parts of the world.

Reductions in the ability of people to access cash and the increasing cost to business of using cash is likely to increase the risk of financial exclusion for sections of society dependent on cash if not managed. Maintaining access to cash should be part of any aid organisation’s fiduciary risk approach to cash assistance. Cash coordination groups currently active around the world should therefore work with their respective central and commercial bank partners to better understand the political economy of cash as used by their collective beneficiaries.