The rumours of the death of cash have been greatly exaggerated, writes TBA tutor Edith Rigler - there are plenty of reasons why cash will be king for a long time to come
That the future of cash has become hotly debated there can be no doubt. Many observers predict the demise of notes and coins as an outdated and obsolete mode of payment. For example, at last year’s World Economic Forum summit in Davos, Deutsche Bank’s chief executive officer (CEO), John Cryan, observed that as cash was both costly and inefficient, it would no longer exist in another 10 years. Notes and coins would disappear. Technology would triumph.
Further fuel for the debate has from come from the European Central Bank (ECB). Last May, the ECB announced it will stop issuing the €500 note from the end of 2018 – due to a concern that the higher denomination note could facilitate illicit activities.
Yet cash is very much alive – and here to stay as a payment method, precisely because it is convenient, anonymous and safe. Globally 85% of payments are made in cash, and the amount of cash in circulation is growing, not shrinking.
According to research undertaken by Deutsche Bank, euro cash in circulation actually grew over the years, namely to €1.1 trillion by Q3 of 2016, three times as much as in 2003. As cash grew faster than GDP in most periods, the ratio of cash to gross domestic product (GDP) rose from 5% to 10%. The Bank of England (BoE) comes to a similar conclusion: there has been a growing demand for cash in recent decades, not just in the UK but also in other countries including Australia, the US, and Canada. Even in Sweden, where many cashless payment methods have become popular, cash is still present.
Growing demand for cash
It is interesting to look at where the demand for cash comes from: is it the domestic economy, the overseas market, or the shadow economy? The ECB estimates that more than 70% of cash is used domestically, for transactions or cash “hoarding”, about one fourth is held outside the euro area and only a very small percentage is held in banks´ vaults.
So, the problem of cash in the domestic economy is a “big one” and thus worth looking at.
Consumer usage of cash varies widely by country, as evidenced by a cross-country comparison by the ECB. But it is not only the level of cash usage which differs across the seven countries studied. Differences can also be found in terms of the type of alternatives used for cash – for example, credit cards versus debit cards. One explanation for these cross-country differences is attributed to differences in market structures and the pricing policies re. retail payments.
Germany, EU’s largest economy, is a cash-intensive country. Research after research points to the fact that while consumers are increasingly using the internet for their banking needs, cash is still the predominant method of payment. A 2016 German Central Bank study highlights that 79 % of all transactions in Germany are paid via notes and coins. Moreover, payment habits have not changed much since 2014: in that year the percentage of cash transactions was 80%.
But, cash need not stay as popular as it is today, say those who foresee its demise or who would have government abolish its use. The proponents of a cashless economy argue the following:
Hold on to cash!
This simple phrase sums up the position of those who want to be able to keep using cash. By the way that’s about 91% of the German population, according to a survey by the German Postbank.
The defenders of cash point to several advantages:
The future of cash
Evidence from various sources shows very clearly that while payments have increasingly moved from paper to electronics and new technologies enable cashless payments, cash usage and holding have not disappeared. In fact, cash is still used extensively in some countries.
What does the future hold? The future of cash depends on a multitude of factors which makes any type of prediction difficult. These factors include:
If cash could speak, it might very well end this article – while tipping its hat to Mark Twain – with the following quote: “The reports of my death are greatly exaggerated.”
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