Myth: Cash Demand is Declining - March 20, 2017

Myth: Cash Demand is Declining

Monday, March 20, 2017

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Company: ATM Industry Association

By Currency Research

The credit card companies and the commercial banks would lead consumers to believe that their so-called “War on Cash” is being won.

Examining the statistics worldwide on cash issuance and usage, one concludes that while, as stated above, the rate of growth in cash (not cash itself) may be declining in some countries, cash overall continues to grow worldwide between 5% and 8% per year.

Supporting this trend are the following banknote circulation and growth charts from the European Central Bank (ECB) and the US Federal Reserve respectively:

Source European Bank

Source Federal Reserve

In both developed and developing economies, cash continues to grow worldwide and has yet to show signs of decline in either use or preference.

The Bank of England banknote statistics in the two tables below clearly demonstrate that every indicator for cash in circulation is up: 50

According to the Reserve Bank of Australia’s (RBA) 2012 Annual Report, banknotes in circulation continue to grow year on year: 51

Banknotes in Circulation

Currency News commented on Australia’s growing demand for cash in its April 2014 issue:
Despite strong growth in the use of electronic payment methods in Australia, the RBA notes that demand for cash continues to grow, at rate of around 5% per annum over the past decade and totaling around 1.3 billion banknotes in circulation as at the beginning of 2014. Consumer studies show that cash is used for 60% of all transactions, rising to 80% for transactions under $25. 52

Giesecke & Devrient predicts the yearly growth of banknote circulation at +4%: 53

Banknotes in Circulation

During recent ICCOS Cash Cycle Seminar presentations in Istanbul (February 2014) and Bangkok (October 2013), the Central Banks of Turkey and Indonesia, and a study from China, all echoed the upward march of currency:

The Present and Future

And bolstered by such evidence, De La Rue, the world’s largest integrated commercial banknote printer, proclaims that “CASH IS KING”:
Cash is the preferred method of payment all over the world – over 50 per cent of people prefer to pay with notes and coins. Despite predictions that currency as a means of exchange will become obsolete in an increasingly technological world, cash usage remains strong. The alternatives of cheques, cards and electronic payment have not substantially reduced our reliance on cash – as the evidence shows. 54

Cash continues to be a preferred method of payment worldwide, and in some cases the preferred method. In a recent US Federal Reserve study on payment trends presented at ICCOS 2012, cash was the second choice for the majority of cases where other payment methods were the first choice.55 These findings are discussed below in Myth #7.

Similarly, coin circulation is in a growth mode, as seen from this slide presented at the October 2013 Coin Conference by the International Association of Currency Affairs (IACA):

Coin Circulation Trends

While the total percentage of cash transactions may decline locally as a percentage of total transactions, with the growth in the total numbers of payments the overall use of cash, both in developed and developing economies, is growing.

In the May 2013 Currency Conference session, “The Impact of Payments Innovation on Consumer Cash Usage: Not as much as you think,” Patrick Anderson of Loomis AB and David Evans of Market Platform Dynamics (MPD) presented the following slide, which predicts a decline in the propensity to use cash in only three countries by 2020:

The Change in Cash

As above in Sweden, which is often promoted as a model of the cashless future and where there is evidence of declining cash in circulation, the decrease in cash payments could be caused by the growth in the Euro and the Euro’s popularity in Sweden as a stored value, as well as a transaction, or even investment, instrument. In the 12-year period between January 1, 2002 and January 1, 2014, the Euro to Swedish kroner rate of exchange fluctuated between 8.25 and 11.25, making the Euro a sound investment depending on timing.

This article has been posted with permission from Currency Research and is excerpted from The Case for Cash Part 1: Myths Dispelled. To request a copy of the full report or to learn more about Currency Research, please click here

48 Slide presented at Currency Conference May 2013 by ECB
50 A
53 G&D presentation at the Currency Conference, May 2013

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