It seems to be the common consensus among certain commentators that cash is on the way out. In a world of contactless payment cards, ubiquitous mobile devices and P2P services, humble notes and coins seem perhaps a bit old-fashioned. But despite these beliefs, reality does not seem to be bearing that out.
This was the headline finding from a recent study by the Federal Reserve Bank of San Francisco (FRBSF), where the main takeaway was clear – to paraphrase Mark Twain, reports of cash’s death have been greatly exaggerated.
Cash use remains strong around the world
One of the challenges when looking to determine cash’s popularity is that there can be several ways of measuring its use. For instance, do you look at it by the value of notes printed, the number of transactions or as a payment value percentage? These metrics may give different figures and can lead to widely differing impressions of cash use.
For example, studies that look at cash as a percentage of payment value may find more dramatic falls as people favor credit and debit cards for larger purchases. But these will not count the many smaller payments people make every day that they may not even think twice about.
The FRBSF’s study opted to look at the total amount of cash in circulation (CIC) as a proxy for cash use, which covers all cash held by the public, including businesses, banks, and consumers. It explained that as people hold on to more cash, central banks will respond by adding more into the banking system, making CIC a useful way to determine people’s attitudes to cash.
What it found was that 40 of the 42 countries it studied – making up 75 percent of global GDP – experienced an increase in CIC that outpaced GDP. In some cases, such as Mexico and South Korea, CIC outpaced GDP by more than 100 percentage points.
Why cash remains popular
The growth of CIC shows people value cash for two main reasons. The first – as a means of payment – in obvious, as it is easy to use, accepted everywhere and does not need any additional requirements, such as access to a bank account or mobile phone. Cash is also an important store of value – people feel comforted by having physical assets to hold on to in case they need immediate access to funds.
The study highlighted two key factors that also influence how much cash people hold – income levels and interest rates. Naturally, as people’s incomes rise, they have more money to spend, which means greater need for cash. At the same time, low interest rates mean there is less value in putting money into saving accounts or other investments, rather than holding on to cash.
FRBSF noted: “Very low interest rates in many countries over the past decade has been one factor boosting the demand for cash, as well as uncertainty following the global financial crisis.”
What about the outliers?
Only two nations saw an outright decline in CIC, Norway and Sweden. This should come as no surprise, as these countries are often cited as being among the most advanced on the journey to a cashless society, helped by policies at industry and governmental level to encourage digital options.
Norway’s largest bank, DNB, estimates that just six percent of citizens use cash on a daily basis, and has therefore eliminated cash in its branches. Sweden, meanwhile, has been heavily encouraging digital and mobile P2P and card payments for decades.
However, these countries are very much the exception to the rule. FRBSF noted that Sweden, for example, has a strong cultural aversion to cash that is not replicated elsewhere. While other countries have attempted to move away from cash – such as Kenya, where 60 percent of people use the M-PESA mobile money app – this has not seen a decline in CIC.
The FRBSF concluded: “A few countries have managed to move away from notes and coins in favor of digital payments. But despite the plethora of digital options, in most countries, demand for notes and coins is strong and shows no signs of slowing down.”
In summary, despite the many emerging payment methods that we are seeing increasing globally, the role of cash and the importance of the ATM should not be underestimated. There are over 3.2 million ATMs installed globally that dispensed over $13.6 trillion in cash last year, according to Retail Banking Research’s Global ATM Market and Forecasts to 2022 report, which highlights that notes and coins remain important to consumers as part of the payments mix.