Cash demand

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.

A new ECB report concludes that the exceptional demand for banknotes during the pandemic is driven by an increase in precautionary holdings in times of uncertainty as well as by international demand, a phenomenon known as the cash paradox.

Cash in circulation grew by 5% in value in 2020. The growth is due exclusively to the increased demand for the 10,000 yen note, signaling as in many other countries the role of cash as a safe haven in times of crisis.

The dual role of currency both as a store of wealth and means of payment has never been more apparent, as the numbers that report cash on issue and cash use remain dramatically different.

This year has been very dramatic for the global society. The full effects of the COVID-19 pandemic are still unknown and depend on the length of the exceptional period in various parts of the world.

The mythical war on cash is not new, far from it. It is however often unclear who is waging it. During the Covid-19 pandemic, some of the enemies of cash have become more outspoken.Here are some of those who want to get rid of cash.

Has Covid-19 speeded up a phenomenon already under way, favouring online retailing and the many alternative means of payment? Not quite as the banknote industry hits back against claims on the decline of cash.

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.