Federal Reserve Bank expert offers cash usage insights

Cash can be a challenge to handle on many levels. There's the security challenge, transportation cost and other considerations. In addition, the use of cash has declined overall, but much confusion abounds over whether cash is going away or sticking around as a major payment method. It can help to get some perspective, and the Federal Reserve Bank can offer significant insight based on its 20,000-foot view.

Haley Gibson, senior manager, cash insights and policy analysis, Federal Reserve Financial Services, discussed key cash trends on the Federal Reserve side during the Cash in the USA event held on Oct. 22 in Nashville, Tennessee.

She pointed out that the payment landscape is evolving, driven by "growing card use and payment digitization." Although in-person payments are still dominate, remote, online and mobile payments are growing significantly.

In fact, Gibson said that the number of payments, "has risen 4% annually over the last two decades, driven largely by rising card payments." The growth in payments, according to a Federal Reserve Payments Study, has steadily increased over the last 20 years.

What does this mean for cash? Gibson said that we see an overall stability of cash payments, but with the payments pie growing, "cash takes up a smaller segment of the pie all the time."

Even as late as eight years ago, cash was the most common payment tool, but the huge shock in 2020 with COVID-19 caused a major drop off in cash. Since then, cash usage has remained steady until today in 2024.

Gibson said that her team believes "there's a floor to cash usage in the U.S." With everyone staying home, not going out in public as often in COVID-19, they still made seven payments per month with cash. She believes this shows that cash has a floor.

Cash, "isn't going away anytime soon," Gibson said. This is especially the case for lower income households, who rely on cash more.

On an age-based basis, Gibson shared data that showed that consumers 54 and under use card payments 60% more than older age groups. In addition, younger age groups, such as 18-to-24-year-olds, use cash four times monthly. However, even this payment trend reflects the overall trend that cash usage was pushed down in 2020 but has remained stable since then.

But, will these groups eventually stop using cash completely? Gibson said that based on the data, younger generations are more likely to say they will or have stopped using cash, with 16% of 25-to-34-year-olds saying they will stop using cash.

However, she pointed out that the vast majority of people of all age groups said they will never stop using cash.

"It comes back to the notion that it's good to have some on hand just in case," Gibson said.

Intriguingly, the Federal Reserve has seen a decrease in growth of payments and receipts for cash, at negative 3.0% and 3.3% respectively. Gibson believes this is due to both customers holding onto cash for longer periods of time and that businesses are increasingly adopting cash recycling technology.

When looking at cash in circulation, Gibson said that 35% of the notes in circulation are $100 bills, and more than 80% of the value of cash is held in $100s. However, much of that is held overseas and is not widely circulated in the U.S, Gibson said. It is estimated that just over half of all currency is held internationally.

On the U.S. consumer level, one in every four customers holds a $100 bill and one in every three holds a $20 bill. In addition, $100 denominations are the fastest-growing, especially for keeping cash for a rainy day in customer's homes.

When looking at velocity of cash, Gibson said that customers are making fewer withdrawals of cash either from banks or ATMs, but the amount they withdraw is larger each time. This can cause issues for the Federal Reserve, since the quality of a note can decline over time and the odds of counterfeit currency circulating for a longer amount of time increases.

Ultimately, Gibson said that while the floor for cash use will likely fall over time, cash still isn't going away anytime soon.