For years people have been predicting the end of cash. Jack Lefler in 1968 wrote about a cashless society where people use a single ID card for all transactions. The Economist in 2007 predicted cash was a dinosaur doomed to extinction in a cover article entitled “The End of the Cash Era.”
More recently at the onset of the COVID-19 pandemic, anecdotal tales spread like wildfire about cash being denied by wary merchants and the rise in online shopping making the humble dollar bill obsolete.
Turns out they were wrong. New studies by Deutsche Bank Research and the Bank of Canada say cash is not likely to disappear soon; in fact its circulation has increased during the pandemic.
Cash in circulation in Canada jumped from $83 billion before the pandemic to more than $96 billion this past September, according to a study by the Bank of Canada. Calculating how much cash would be in circulation under normal circumstances, the Bank concluded that COVID-19 added about $8.4 billion more to the cash in our pockets.
“Cash outstanding in Canada increased sharply from March through September 2020, and the pandemic significantly increased the demand for bank notes,” a trend also seen in Australia, Germany, New Zealand, the U.K. and U.S., said the study.
In Europe last month, circulation of euro banknotes surged 12% over the past year, the highest growth rate in a decade and more than double the growth rate of 2019, says Deutsche.
In the three months before May 2020, banknotes in circulation in the eurozone increased by 75 billion euros, an record high that exceeded the increase of banknotes during the three months after the collapse of Lehman Brothers in 2008.
One explanation is the unprecedented amounts of government stimulus being pumped into developed economies to offset the impact of the pandemic, resulting in a spike in savings rates.
Cash also remains king for consumers, said Deutsche. Its survey found that a third of Americans and Europeans still rank cash as their favourite payment method and more than half believe that it will always be around.
In a Bank of Canada survey in July, more than half of Canadians (54%) used cash as a form of payment, while 62% used debit and 67% credit.
While electronic payments still dominate, the percentage of Canadians using cash is rising. The survey also found that the number of people who have no plans to go cashless in the next five years increased from 74% in April to 78% in July.
In these uncertain times, cash is regarded as a “store of value” and “safe haven,” said Deutsche. One curious finding in Canada was that the “extraordinary increase” in cash in circulation was driven largely by large denomination notes, ($50 and $100) “suggesting that store-of-value was an important factor,” said the BoC study.
Low interest rates have also helped increase the amount of cash out there, said Deutsche. Moving the cash from under the mattress is less enticing when your money will earn little to nothing in the bank, it said. Cash deposits have also been unusually low in Canada.
The Bank of Canada study expects some of the notes to return to the Bank once we get out of the pandemic, but thinks it likely that cash in circulation will remain high.
And how has it worked out for countries who have famously eschewed cash? They now seem to be having second thoughts.
Recently, the government of Norway, which has the lowest cash usage in the world (just 3-4% of transactions), expressed concern that the country had gone too far down the road to cashlessness, when commercial banks began to refuse to offer cash services.
Sweden, another low-cash society, has had to legally require banks to provide cash services, saying the complete disappearance of paper money would pose a number of risks, Bloomberg reports.