Demand for cash shows no sign of diminishing

Demand for cash shows no sign of diminishing

Despite the explosion of technology in the payments sector, demand for notes and coins continues to match or outpace GDP in all major economies bar Noway and Sweden, according to a report produced by the San Francisco Federal Reserve.

The Fed researchers looked at cash use in 42 economies across the globe, which together account for 75% of world GDP.

The study used currency in circulation (CIC) as as a proxy for cash use and compared it with GDP growth over the a ten-year period from 2006 to 2016.

The countries colored green saw CIC growth match or outpace the growth of GDP. The two countries colored red — Norway and Sweden — experienced outright declines in CIC over the past decade. The countries colored gray are those for which there was no comparable data.



Figure 1
CIC growth compared to GDP from 2006 to 2016
Currency In Circulation Map
Source: IMF and authors’ calculations.

"The predominance of countries colored green suggests that other factors besides income growth are fueling the growth in CIC," the report states, pointing out that  some countries like Mexico and South Korea saw CIC outpace GDP by more than 100 percentage points. "Presumably, 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."

Only Norway and Sweden bucked the trend,  mainly thanks to government initiatives, financial institution coordination, and widespread electronic payments infrastructures.

Norway’s central bank acknowledges that cash’s role “continues to diminish” as consumers move towards electronic payments, and it contemplates what the future form of money should be. The country’s largest bank, DNB, has eliminated cash in its branches, explaining that only six percent of Norwegians use cash on a daily basis. The bank has also proposed that Norway eliminate the 1,000 kroner note.

While Norway has been moving away from cash, Sweden has garnered attention as the poster child of cashless countries. Since the 1960s, Swedish banks have encouraged digital bank transfers, charged for cheques, and invested heavily in card and mobile payment systems.

"A look at the data shows that Mark Twain’s wise words ring true: reports of the death of cash have been greatly exaggerated," the report concludes. "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."

Comments: (6)

Bo Harald
Bo Harald - Transmeri, Demos, Real Time Economy Program,MyData - Helsinki Region 23 November, 2017, 11:00Be the first to give this comment the thumbs up 0 likes

Very steep decline in cash has continued in Finland since about 10 years. And why not...

Bo Harald
Bo Harald - Transmeri, Demos, Real Time Economy Program,MyData - Helsinki Region 23 November, 2017, 11:02Be the first to give this comment the thumbs up 0 likes

https://www.finextra.com/blogposting/14258/demise-of-cash

Robert Jarvis
Robert Jarvis - LFF - Luxembourg 23 November, 2017, 11:113 likes 3 likes

I think the time period of 10 years 2006-2016 is too large to show how technology is impacting payments.

I thinkfocussing on the last 2-3 years would show quite a lot more CIC declining in countries.

Ketharaman Swaminathan
Ketharaman Swaminathan - GTM360 Marketing Solutions - Pune 24 November, 2017, 16:011 like 1 like

Not really @RobertJarvis, at least not for USA, for which I have figures readily.

If you look at chart at the end of my post How To Really Kill Cash, CIC figures for USA are:

2005: $0.75T 

2012: $1.15T

2015: $1.38T

CAGR in Last 10 years is 6.29% and CAGR in Last 3 years is 6.27% i.e. are both ~6.3%.

Ergo no difference in CIC growth over last 10 or last 3 years.

Taco De Vries
Taco De Vries - Payments Advisory Group - Amsterdam 28 November, 2017, 21:29Be the first to give this comment the thumbs up 0 likes

Rather crude analysis with conclusions based on single metric (CIC/GDP), yet not necessarilly untrue.. Value of ATM withdrawals would be another indicator to use.. For more comprehensive research visit: https://www.linkedin.com/pulse/cash-europe-reports-my-death-have-been-greatly-taco-de-vries/ Working on World Cash Report as we speak, planned to be released in Q1-2018

Bo Harald
Bo Harald - Transmeri, Demos, Real Time Economy Program,MyData - Helsinki Region 29 November, 2017, 06:29Be the first to give this comment the thumbs up 0 likes

Cash is the criminal's best friend. And the grey economy's.  And so is paper and PDF invoicing for fraudsters. Should be outlawed.

 

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