Statistics of numerous countries worldwide indicate that the demand for cash has been steadily growing over the past years, sometimes reaching unprecedented levels. Yet, the share of transactions made in cash have remained constant over the same period, suggesting that consumers are using paper money for other purposes.
In the UK, the demand for cash has grown extremely rapidly since December 2016. Today, the value of banknotes in circulation amounts to £83 billion, or £1,200 per inhabitant. However, studies indicate that people have on average £77 in cash at home and in their wallet, suggesting that a share of the population is stockpiling extremely large amounts of money. Indeed, experts agree to say that an increasing number of consumers are not using cash as a transaction tool but as a store of value, which was actually its historic function before World War I. The same findings apply to the US and the Eurozone, where the demand for cash grew by an annual 6%.
This hoarding trend was triggered by the 2008 financial crisis, where it was made clear that no one is immune from bankruptcy – not even central banks. The crisis severely damaged consumers’ trust in financial institutions, encouraging them to pull their money out of the banking system by fear of further downturn. In addition, the extremely low interest rates currently in force make bank deposits relatively unprofitable. In the UK, the soaring rise of banknotes in circulation suggests that Britons are unsure of the consequences Brexit will have on the economy, experts say.
Victoria Cleland – Chief Cashier at the Bank of England – added that cash is also used as a budgeting tool. Indeed, various reports indicate that people tend to spend less when paying with tangible money. In tough economic times, it is thus common to see more people relying on cash. In the UK, around 2.7 million Britons rely mainly on paper money, of whom 1.5 million are unbanked.
Nevertheless, the circulation of large amounts of cash raises concerns about criminality and counterfeiting. As a result, central banks strive to remain one step ahead of fraudsters with increasingly sophisticated security features. For instance, Britain’s new banknote series is made of polymer, a modern material that is extremely resistant and practically impossible to reproduce. By investing in this new series represents, the Bank of England is sending out a strong message: that it is well aware of cash’s usefulness and bright future, regardless of the diversification of payment instruments.
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