According to figures of the Bank of Japan (BOJ), the demand for banknotes has inexorably been rising in the country over the past years and has doubled since 1997. Inversely, economic and population growth have both slowed down. The chart here below demonstrates the increase of cash in circulation versus Japan’s GDP growth since December 2012.
About $966 billion notes were circulating in Japan in October 2016. Furthermore, cash was used for 80% of transactions by value in 2014, despite the rapid adoption of digital technologies such as Apple Pay. In comparison, South Korea used paper money for less than 20% of payments and Singapore for about 45%.
Nevertheless, this passion for cash embarrasses the BOJ in the implementation of its monetary policies. Indeed, any attempt to impose lower negative interest rates will most probably encourage the population to withdraw all their money from the financial system to store it in the form of notes under their mattress. In the same vein, the central bank of Sweden recently affirmed that lowering interest rates below zero is much easier in a cashless society. Sweden’s rates are currently negative 0.5, an impossible rate for Japan, as former BOJ board member Sayuri Shirai stated. Yet, it also shows that consumers have the freedom to choose their preferred method of payment and, thanks to the existence of cash, they can avoid being charged by banks for storing their money – an impossible feat in a cashless society.
To read the original article, please click here.