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."