DFC

The outbreak of Covid-19 has caused a global increase in the amount of cash in the economies of Canada, Europe, US, and the UK. But the big increase in cash-in-circulation is not due to an increase in withdrawals of cash. There is much less cash being returned to banks and ATMs - businesses and individuals simply aren't redepositing their banknotes. This article argues that is probably being driven by an unwanted accumulation of cash by crooks, because the network of restaurants and other businesses that they rely on to launder their funds have all shut down thanks to virus fears and lockdowns. So throughout the pandemic they have been accumulating ever more cash from the drug using customers, with no place to offload it.

70% of U.S. consumers say that COVID-19 concerns have not caused them to avoid carrying or storing cash, according to a recent Fed survey. indicates that survey participants more than doubled the amount of cash they store at home and also increased the amount of cash they carry in their wallets.

This Bank of Canada study examines how the pandemic has influenced the demand for and use of cash using data from its Bank Note Distribution System. These data show that the value of notes in circulation grew sharply in March and April. Part of the increase reflects precautionary steps taken by financial institutions to increase their cash inventories during the pandemic, given concerns about possible disruptions to cash transportation services, and to reduce the risk of cash stockouts from potential customer demand. The flow of cash deposits from retailers to financial institutions, which would typically help replenish institutions’ note inventories, was disrupted during the pandemic. As a result, financial institutions compensated for this shortfall by drawing cash from the Bank of Canada.

The Bank of Canada's latest Cash Alternative Survey (CAS) found that Canadians’ cash holdings remain stable, and crypto-asset adoption remains limited and concentrated among few demographics. It found that only 5% of Canadians own crypto-assets (5%), though 85% had heard of them. 8% of people classed as having low financial literacy said they own crypto-assets, compared to 4% among those classed as having high financial literacy. But 90% of people with high financial literacy are aware of crypto-assets, versus only 72% of those with low financial literacy.

This commentary looks at the payments landscape through the lens of the Committee on Payments and Market Infrastructures (CPMI) 2019 Red Book statistics. It shows how consumers are increasingly shifting from physical to digital instruments, promoting efficient, faster and more convenient payments. However, cash, and in some jurisdictions, other paper-based payments such as cheques remain important payment instruments. In more than half of the CPMI jurisdictions, "cash is still king" and its circulation continues to grow. In the same time frame, more than half of the CPMI countries have experienced a switch from physical payment instruments to digital payments.

The European Central Bank (ECB) reported that Euro area consumers are gradually shifting towards cards for in-person retail payments, although cash remained the most used instrument at the end of 2019. In 2019, euro area adult consumers used cash for 73% of their point-of-sale and person-to-person retail transactions (48% in value terms). In a previous ECB study conducted in 2016, the figure was 79% of these transactions (54% in value terms). The ECB carried out an ad hoc survey in July 2020 that found that 40% of respondents had used cash less often since the start of the pandemic.

The Bank of France will shut down more than a third of its cash handling centers by the end of 2022 as the Covid-19 pandemic accelerates a decline in the use of notes and coins. Operations will cease at 14 of the 37 centers that stock currency and replace damaged notes and coins. The central bank estimates the network would be 40% underused if it remained as expansive as it is now.

The Coronavirus pandemic has cemented the role of contactless as the preferred way to pay in the UK, accounting for nine-in-ten of all elgible card transactions in 2020, according to figures from Barclaycard. In a survey of 2,000 people conducted by Which?, 34% reported being unable to pay with cash at least once when trying to buy something since March, when coronavirus restrictions were first introduced.

"We estimate the effect of Bitcoin ownership on the level of cash holdings of Canadian consumers. Bitcoin ownership positively correlates with cash holdings even after accounting for selection into ownership via a control function approach. On average, Bitcoin owners hold 83 percent (in 2018) to 95 percent (in 2017) more cash than non-owners. Focusing on the quantiles of cash holdings, we find that Bitcoin ownership has a highly nonlinear effect. For example, the difference in cash holdings between Bitcoin owners and non-owners in 2017 varies from 63 percent at the 25th quantile of cash to 176 percent at the 95th quantile of cash. Our results provide some evidence to reject the hypothesis that new digital currencies or technologies, such as Bitcoin, will lead to a decline in cash holdings."

Saudi Central Bank (SAMA) issued a report on the results of an extensive study conducted to measure used payment methods in the Kingdom during 2021, which aimed to assess consumer payment habits (cash and non-cash), across all market sectors; individuals, business, and the government sector. The study indicated that - for the first time in the Kingdom - cash is no longer the most used method of payment by individuals, as electronic payments of individuals have grown significantly to reach 57% in 2021 of the total number of transactions executed, compared to just 36% in 2019.

Most Latin American consumers remain conspicuous cash users. Thus, CashTech could be very successful as specialists are looking for ways to bridge the gap between the digital economy and the cash economy, and many incumbents and startups have launched CashTech solutions in the region. For examples, banks have implemented cardless cash withdrawals through their apps, Amazon allows users in the region to pay for goods with cash through Amazon PayCode and Amazon Cash, and retail chain OXXO, which provides cash and correspondent banking services in its more than 19,000 stores in Mexico, has partnered with BBVA and Santander to offer cash-withdrawal services and with Ria Money Transfer to delivers cash remittances.

The Banca d'Italia published a paper that, based on data from a 2019 ECB survey of consumers, studies the determinants of Italian consumers' payment choices at the physical point of sale (POS). The study also assesses the reasons why consumers mainly use cash for their payments although they would prefer to use other instruments, such as cards. The acceptance of cashless instruments at the point of sale and the value of the transaction are the main factors influencing payment choice. Men and residents in Northern and Central Italy pay with cards more than women and residents in Southern Italy, but these gaps narrow among people with digital skills. Consumers pay in cash, even though they would prefer to use a different payment instrument, due to a lack of acceptance of cashless instruments by merchants.

"By limiting large cash payments, the EU will make it harder for criminals to launder dirty money. An EU-wide maximum limit of €10.000 is set for cash payments. Member states will have the flexibility to impose a lower maximum limit if they wish."

The Committee on Payments and Market Infrastructures (CPMI) published a brief that documents the acceleration of consumers' and businesses' migration away from cash and checks towards electronic payments, and a growing use of contactless and fast payments. The Covid-19 pandemic was likely responsible for the surge but at the same time, public demand for cash remains steady,  both as a means of payment and as a safe haven.

British banknote printer De La Rue has warned that its profits will miss full-year forecasts as demand for fresh cash fell to its weakest level in 20-years. It also said it was in discussions with its lenders to seek “an amendment to its banking covenants”. Last year, De La Rue found itself in a fight with its auditor after a “going concern warning” because of what EY said was a “severe but plausible downside scenario” where if the group lost key currency contracts, it would breach a debt covenant on the group’s credit facility.

In April 2022, twenty-three Dutch organisations, including major Dutch banks, signed a Cash Covenant, seeking to ensure that cash continues to function as a payment instrument in the face of a steady increase in electronic payments. The Ministry of Finance and De Nederlandsche Bank (DNB) then commissioned a study on the future system for banknote and coin deposits and withdrawals for consumers and retailers. The Finance Minister has now presented the results of the study to Parliament, concluding that legal intervention is needed to ensure that cash remains usable, available, accessible and affordable for users.

"Cash can co-exist with cards and apps, and when kept in balance, the different forms of payment can complement each other. It’s only when that balance is removed that the dark side of digital payments gets to flourish. Unfortunately, across the world we’re seeing the spread of so-called ‘cashlessness’, a type of contagion in which the option to pay with non-corporate and non-automated money is incrementally taken away from you. The fight against cashless society, then, is a fight against a state of unbalance. I’ve campaigned on this for eight years now, and in this piece I’ll lay out 10 talking points that you can use to make even the most ardent card-tapper have second thoughts about a totally bank-dominated society."

"The original $10,000 cash reporting threshold was set back in 1945 by Henry Morgenthau, a level that was ratified in 1972 after the passage of the Bank Secrecy Act. This level has never been adjusted. (Morgenthau also set a second and lower $1,000 threshohold, but this only applied when banknotes in denominations of $50 or higher were involved). Alas, inflation has been steadily eating into each thresholds' real value. When the Bank Secrecy Act was passed, $10,000 was worth $75,000 in today's dollars. In Morgenthau's time it was equal to $173,000. Either way, when the data collection apparatus was first established and the Pragmatic Compromise reached, most people's day-to-day cash withdrawals and deposits would have been sheltered from reported requirements. With the passage of time and inflation, a much wider swathe of civilian cash transactions have lost the protection offered by Morgenthau's $10,000 threshold. That means more snooping. It also means more debanking. Rather than absorbing the growing compliance costs of having "risky" cash-reliant customers, banks are closing accounts"

"This paper develops a travel-based metric to measure Canadians’ access to cash from automated banking machines (ABMs) and financial institution branches. Our findings indicate that the average distance Canadians need to travel to reach the nearest ABM is 2.0 km, while the average distance to the nearest branch is 4.5 km. Moreover, more than 90% of Canadians live within 5 km of an ABM, and 84% live within 5 km of a branch. The total number of ABMs in Canada increased by 3.7% between 2019 and 2022, and our results show that, overall, access to cash remained stable in that period. However, the total number of branches decreased by 5.2%. The decline in branch coverage is concentrated in rural areas at 7.2%. This may increase the challenge of accessing cash in these regions. Rural Canadians already have less access to cash: they need to drive an average distance of 4.0 km to the nearest ABM and 9.6 km to the nearest branch, each distance twice the national average."

The Reserve Bank of Australia's (RBA's) Consumer Payment Survey showed that Australians making in-person payments with cash has dropped from 32% of total payments in 2019 to 16% in 2022. Just over half did not use cash at all in 2022, up from about one-third in 2019. However, around 5% use cash for all in-person payments, privacy and security or budgeting. 29% of Australians hold no cash on their person versus 22% in 2019. The share of people holding cash in other places was unchanged from 2019 at around 40%, consistent with precautionary or store-of-wealth demand. This is seen most in the growth of high denomination banknotes in circulation.

"The Future of Cash conference in Istanbul saw some big conversations about cash today and its future. The mood was more upbeat this year as transactional demand for cash has primarily rebounded from the lows of the pandemic, and the access to cash agenda has gathered pace in countries facing the reality of less cash."

"In our overview of open banking in Europe, we look at what open banking really means in Europe relative to the rest of the world and caveat that its evolution into open finance is more than just about expanded scope. We then justify our choice to focus on the Netherlands, France, Spain and Switzerland instead of on Europe’s top-four open banking performers of Sweden, Denmark, Norway and the UK."

The British Retail Consortium’s (BRC) Payments Survey 2023 shows that cash transactions grew in 2023 for the first time in a decade, both by volume and value. According to the Bank of England (BOE), cash in circulation has declined very slightly (-0.45%) in 2023, but the value of the £20 denomination which is the most widely used transactional note increased by 3.6%. The BRC says that “this reflects a choice by many households to use cash to budget more carefully during the onset of the cost of living crisis, as well as a natural return to cash usage following the move to contactless during Covid.”

The Reserve Bank of Australia (RBA) published an article that examines the value of banknotes used for each component of cash demand and how it has changed since the COVID-19 pandemic. The estimated share of banknotes used for transactions in Australia has declined by around 5 percentage points since early 2020. We estimate that of all the banknotes currently in circulation, 9–26% are used for transactional purposes, 5–9% are lost, 7–11% are used in the shadow economy, and 55–80% are hoarded domestically or internationally.

The Bank of Canada published the results from the 2022 Methods-of-Payment Survey, including updated payment shares based on a three-day shopping diary. It highlights long-term trends in cash holdings, management and use observed across results from previous surveys in 2009, 2013 and 2017. It also reviews recent trends relating to the COVID-19 pandemic using data from 2020 and 2021. Then the paper assesses various factors associated with long-term trends in cash use.

The Eurosystem has a mandate to promote the smooth functioning of the payment system from a holistic perspective. From the perspective of retail payments, the smooth functioning of the payment system means ensuring that, in their tangible interaction with the euro, people and businesses are able to make safe and efficient payments and thus their trust in the currency is maintained. To this end, the Eurosystem is responsible for issuing public money, currently in the form of cash, which may possibly be complemented by a digital version, i.e. a digital euro. In addition, the Eurosystem can act: (i) as a catalyst for change, promoting efficiency in the field of retail payments; (ii) as overseer, setting retail payment standards and rules and ensuring compliance; and (iii) as an operator, having the possibility to set up public infrastructures. The trends at work in the retail payments landscape have the potential to bring benefits to consumers and businesses alike. However, they also carry risk and will require the Eurosystem to take action in its different capacities. This article looks at the changing retail payments ecosystem, before turning to the Eurosystem’s multi-faceted policy response and providing perspectives on the way ahead.