Despite regular reports in the media over the past decade on the imminent death of cash amid rapid innovation in payment technologies, cash in circulation has actually been growing strongly in many countries. Perhaps unsurprisingly given coronavirus-related health concerns, there have recently been renewed calls to abandon cash and some observers have argued the virus will accelerate its demise. This column argues that the data so far indicate that currency in circulation has actually surged in a number of countries. While the economic shutdowns and increased use of online retailing have recently been diminishing cash’s traditional function as a medium of exchange, it seems that this has been more than offset by panic-driven hoarding of banknotes.
When it first became realised that Covid-19 would have a significant and deleterious effect on economic activity, there was a ‘dash for cash’, as emphasised by
Perhaps unsurprisingly, though, given fears that Covid-19 can be transmitted over surfaces and via objects, there have been calls by some governments and various institutions for consumers to use electronic payments instead of cash (Cohn and Megaw 2020) and former US Commerce Secretary
With a reasonable amount of data now available, we have examined the latest trends in cash in circulation in a number of countries affected by Covid-19 to see what was going on (Ashworth and Goodhart 2020). We had thought that there might be a subsequent reversal of the initial surge but, so far at any rate, there has been very little sign of that; rather, the increase in currency usage has continued. The surge in cash in circulation has been particularly notable in the US,
In the US, cash in circulation increased by 0.9% in the week to 23 March, which was the third largest increase on record after the surges in late
Figure 1US weekly currency in circulation (%Y)
The euro area has also seen huge surges in currency in circulation. In the week to 16 March, it increased by 1.5%, which was the largest gain since
We have also seen very noticeable surges in cash demand in a number of other countries such as
In contrast to typical panic driven surges in cash demand, however, currency-to-deposit ratios – a metric used by economists to gauge the magnitude of the shift from bank deposits into cash (e.g. Ashworth and Goodhart 2015) – may not necessarily have risen, and could actually have fallen. This reflects the fact that due to the enforced shutdowns of major parts of most economies, deposits at commercial banks have also been growing sharply as businesses and households have refrained from spending, or been unable to spend, money on some of their usual activities. As Figure 3 highlights for the US, the value of commercial bank deposits is currently growing at a year-on-year rate of 21% on the latest available data. This has resulted in a declining currency-to-deposit ratio.
Figure 3Growth in US currency and commercial bank deposits (%Y)
The surge in cash demand has not been quite as consistent and pronounced across all major countries, although even some of the initial laggards are now seeing material rises. In the
All in all, only time will tell if the experience of Covid-19 becomes an additional factor alongside technological advances in payment systems in reducing cash usage. Thus far, the economic shutdowns in most countries and increased use of online retailing have clearly diminished, at least temporarily, one of cash’s main traditional functions, namely, as a medium of exchange. However, the data actually suggest that cash in circulation has surged in a number of countries affected by Covid-19. Even after the initial March jumps in some countries, subsequent gains have been large. The rise likely reflects the use of cash for one of its other traditional functions – panic-driven hoarding – although some of the belated increases could also reflect the opening up of cash intensive sectors where internet retailing had not been a substitute.
*About the authors:
Arnold, M (2020), “Banknote virus fears won’t stop Germans hoarding cash”,
Arnold, M and O Storbeck (2020), “European consumers stockpile savings, adding to economic drag”,
Ashworth, J and C A E Goodhart (2015), “Measuring public panic in the Great Financial Crisis”, VoxEU.org, 28 April.
Ashworth, J and C A E Goodhart (2020), “Coronavirus panic fuels a surge in cash demand”, CEPR Discussion Paper 14910.
Cohn, G (2020), “Coronavirus is speeding up the disappearance of cash”,
Hauser, A (2020), “Seven Moments in Spring: Covid-19, financial markets and the
Thomas, D and N Megaw, (2020), “Coronavirus accelerates shift away from cash”,
The article Coronavirus Panic Fuels A Surge In Cash Demand – Analysis appeared first on Eurasia Review.