Cash is a contingency and fall-back solution

Cash demonstrated its resilience in the aftermath of snowstorm Uri in Texas. Widespread power outages lead to electronic payments failure, the shutdown of financial infrastructure, and electricity price gouging.

Payment preference is a luxury that half the world’s population can’t afford. For those who can, preferences often reflect individual benefits rather than social good.

A new study by De Nederlandsche Bank (DNB) concludes that cash plays an essential role in society. The cash infrastructure is under pressure and this threatens the access to and acceptance of cash as a means of payment. DNB has therefore commissioned an external study on the future sustainability of the cash infrastructure.

The European Payments Council (EPC) Cash Efficiency Working Group (CEWG) has published some observations on trends and drivers for cash usage and related challenges for the cash cycle. The CEWG is responsible for formulating proposals for increasing the efficiency of cash handling and making recommendations for best practices to be shared within the entire SEPA community.

The ECB SPACE study investigates the Payment Attitudes of Consumers in the Euro Area in 2019. It concludes that 73% of Point-of-Sale and Person-to person payments were made using cash. In value terms, cash accounted for 48% of all transactions.

The review analyses the acceleration of the ‘cash paradox’ during the pandemic: declining cash transactions and increasing precautionary demand for banknotes. It also publishes the findings of laboratory testing on the risks of transmission of Covid-19 via banknotes.

Nina Wenning, the CEO of Bankomat, the Swedish bank-owned ATM operator calls for the central bank to incentivise retailers to accept cash by subsidising the cash cycle.

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.

Riksbank governor calls for stronger legal protection for cash. The Central Bank recommends to review the concept of legal tender. “If it were to be established by law that one was forced to accept cash in Sweden, more of us would probably choose to have cash in our wallets.” says Ingves.

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.

The use of cash fell substantially in the early days of the Covid-19 pandemic with the acceleration in online shopping and contactless payments – but cash usage has bounced back as lockdown has eased. Long-term prospects for retail payments remain uncertain.

With the coronavirus pandemic moving past the six-month mark, one of the first notable side effects was a reduction in the use of physical greenbacks. The cash-out had several drivers: Most retail stores were closed or saw their operations greatly reduced, virtually all bars and restaurants that remained open could provide takeout service only, almost everyone who was able to began working from home, and online shopping from Amazon and other home-delivery options boomed.