Cash is also a store of value

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.

Despite the time lag – the payments figures just reported by the Reserve Bank of Australia are for activity in the month of May – the stellar cash circulation figures contrast starkly with the much weaker cash transaction numbers. Cash use in Australia has a long and uncertain road to recovery. This can also be said of other payment methods, as well as the wider economy.

Set against the profound health and economic consequences of the global COVID-19 pandemic, the Reserve Bank of Australia’s reporting that at the end of April, the Australian Dollar currency in circulation hit a new all-time high, in part fueled by a large jump in Australian Dollar $50 and $100 banknotes issued at the end of March 2020. In fact, in the month of March currency in circulation grew by $2,200 million, the 15th largest single monthly rise on record and the highest (by value) March increase ever.

Cash demand is soaring in Russia. The country joins Argentina, Australia, the Euro area and the US, which have also seen a sharp rise in cash in circulation.

The value of cash in circulation has increased sharply in March in Argentina, Australia, the Euro Area and the US. In spite of reports that banknotes and coins could be responsible for spreading the Covid-19, cash demand is stronger than ever.

The amount of cash in circulation has risen sharply in the past weeks in both the US and the Euro Area.

The economic fallout of the pandemic is still in its very early stages, but the visible signs are spectacular: some industries have grinded to a complete halt; unemployment has risen massively; transaction volumes have dropped as consumers are increasingly in lockdown. So far, the impact on cash demand varies significantly from country to country.

Te Pūtea Matua, the Reserve Bank of New Zealand has engaged in a three-year Future of Cash programme aimed at scoping the dynamics of cash use and assessing whether there is a role to act in either preserving the cash system for future years or meeting the needs of cash users in other ways.

The Japanese government introduces incentives to promote electronic payments. The measure consists in a point-of-sale discount if approved digital payment are used. It poses challenges for the elderly and small shops.

Swiss payments services provider Six published a white paper on “The Future of Money”. The scenario-planning exercise designs seven medium-term scenarios, which all involve a sharp decline in cash demand or its disappearance. Meanwhile, the Swiss payment card network crashed on 19 November.

In its recent publication (‘The Cash Industry in Transition’), Currency Research makes the argument that the next decade, 2019–2029, will be one of dramatic worldwide change for the cash and payments industry. Some impacts of the changes in the payments landscape, like the decreasing share of cash in transactions, have been evident already a while, and have been confirmed in the payment studies conducted by several central banks. Also the interest in digital currencies among central banks has increased worldwide simultaneously with concerns regarding cybersecurity.

The ATM doesn't just dispense cash, it dispenses value way beyond that of the banknotes it disgorges. They play a pivotal role in disaster risk reduction, poverty alleviation and social protection. But they could do more.