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The US and the Euro Area are Seeing a Surge in Cash Demand

Categories : Cash is a contingency and fall-back solution, Cash is also a store of value
April 8, 2020
Published in : Coronavirus, Demand, Euro, UK, US
The amount of cash in circulation has risen sharply in the past weeks in both the US and the Euro Area.
Guillaume Lepecq

US cash demand grew by $70 billion in a month

In the US, currency in circulation grew by over $70 billion between March 3 and April 1, to $1,876 billion, representing a 4% increase. This exceeds the spike that followed the collapse of Lehman Brothers in September 2008 and is the strongest increase since the Y2K bug when many feared that computer glitches would take down the financial system.

Source: Board of Governors of the Federal Reserve System (US), Liabilities and Capital: Other Factors Draining Reserve Balances: Currency in Circulation: Week Average [WCURCIR], retrieved from FRED, Federal Reserve Bank of St. Louis

 

Jelena McWilliams, chairman of the Federal Deposit Insurance Corporation, which safeguards bank accounts has encouraged bank customers to leave their money in the bank. “Just as it is not necessarily rational to hoard toilet paper, it is also not rational to hoard cash,” McWilliams said in an NPR interview. The Wall Street Journal reports that some banks have faced temporary cash shortages, often in affluent neighbourhoods, but regulators warn against keeping large amounts of money at home.

€ cash demand grew by €19 billion in a week

In the euro area, the cash in circulation figures for March have not yet been published. However, according to Bloomberg, cash in circulation increased by €19 billion ($20 billion) in the third week of March, representing the steepest demand for cash since October 2008. The Financial Times on 25 March reported that ATM withdrawals had more than doubled in Germany during the previous week. “The strong increase in weekly demand seen last week is to a large extent likely to be explained by people spending more in supermarkets and shops due to uncertainty related to the coronavirus pandemic,” an ECB spokesperson said to Bloomberg. “The demand for banknotes in that week was similar to the demand in the week for Christmas.”

Not all countries have followed this pattern. In the UK, the Guardian reported on 24 March that cash usage had halved within days due to a combination of shop closures, concerns that banknotes may spread the virus and a shift to digital payments. However, the latest figures by Link, the UK ATM network show that the ATM withdrawals have declined by 27% between March 2020 and March 2019. , or 2.3 withdrawals per person.

 

Source: Link
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