Cash demand

Domestic ATM cash withdrawals are subject to interchange fees, which are designed to compensate ATM deployers for operational costs. These fees have remained largely unchanged for years, in spite of rising operational costs. This divergence poses a threat to the sustainability of ATM networks.

After exceptional growth during the Covid-19 pandemic, global cash demand was negatively impacted by the return of inflation in 2022. Early figures for 2024, indicate that demand is picking up. As central banks vigorously tackle inflation, the precautionary demand for banknotes in the increasingly uncertain world will likely grow. .

For the first time in a decade, U.K. cash payments at the point of sale have increased as consumers turn to cash to better manage their budget during the cost-of-living crisis.

A recent IMF paper suggests that ATM cash withdrawals are better indicators of the use of cash for payments than the traditional metric of currency in circulation. However, the reasoning is somewhat biased and includes unconvincing arguments.

A comprehensive review of economic research on cash usage and consumer holdings concludes cash is alive and well.

After record growth in 2020, global demand for banknotes has returned to a normal situation. More recently, rising inflation and increasing interest rates have been negatively impacting cash balances. More concerning is the decreasing transactional use of cash, which puts pressure on the cash infrastructure. The cash community should make the case that cash is part of a critical public infrastructure, the maintenance and development of which should be financed accordingly.

In 2021, global cash demand returned to a normal pre-covid distribution, which is quite remarkable after the exceptional growth in 2020. Looking forward, demand will be influenced negatively by rising interest rates and positively by geopolitical tensions. More than ever, a well-functioning cash infrastructure is essential to meet volatile demand.

Following exceptional growth in 2020, cash demand has returned to 'normal' growth in 2021. Looking forward, the rapidly rising interest will increase the opportunity cost of holding cash, while geopolitical tensions will increase the precautionary motive to keep cash.

Elsewhere on the Web provides weekly updates and links to articles related to cash and money, curated on the web. Last week, the focus was on how the Ukraine war triggered a run on cash in neighbouring countries.

A paper by Ashworth and Goodhart shows that the pandemic fuelled a remarkable surge in currency in circulation, with cash once again defying premature obituaries of its demise. In a major crisis people still want to retreat to the security and safety of holding bank notes, to provide reassurance.

Marc Schwartz, CEO of the Monnaie de Paris, the French Mint, and Yannis Messaoui have recently published a study, “The great paradox or why the reign of cash is far from over”. They discuss here the history of money and explain why cash is not in the process of extinction.

The exceptional growth of the volume of banknotes in circulation in 2020 illustrate global trust in banknotes. The shift of demand towards middle and high-denomination notes demonstrates the importance of the store of value function of cash, particularly in times of uncertainty.