This article was published on: 11/4/20

Storms and Cash

by Daryl Cornell

One of the inevitable results of our recent brush with Hurricane Zeta was the failure of credit and debit as reliable forms of payment. Widespread power outages, internet disruption and physical infrastructure damage rendered all electronic payments useless for the better part of a week. Once again, cash proved to be king, as it always does in the wake of not only hurricanes but tornadoes, floods, earthquakes, forest fires and other natural disasters.

So the next time you hear predictions of merchant locations, retail chains or even countries going “cashless,” remember why this is a really bad idea. In addition to facilitating commerce in the wake of storms, cash also offers a host of other benefits, including:

Cash is convenient and nearly universally accepted for the purchase of goods and services. Proponents of the death of cash argue that it is the inconvenience and cost of acquiring and carrying cash which will drive the use of alternative payment methods. This argument ignores the “service interruption risk” of electronic payments regularly arising from inclement weather, domestic disturbance, war or other natural catastrophes. When electronic payments are seen as less than fully reliable, cash use will remain robust.

Cash is anonymous. This advantage applies not only to illegal transactions or the estimated $400 billion in “tax leakage.” The anonymity of cash also allows the buyer, the seller and the transaction itself to remain anonymous for whatever reason. Now that all digital activities including payments are rumored to be stored in “the cloud,” look for the use of cash to increase.

Cash is a store of value. As a recent bankrate.com survey reported, cash appears to have replaced stocks and bonds as preferred long-term investments. While it may be convenient to pin the blame on financial illiteracy, it is also true that people gravitate to cash in times of political unrest, war or financial crises. Keeping in mind that rule number one in investing is to “not lose money,” the perception of a riskier world will continue to drive the increased use of cash.

The holding costs of cash decline with interest rates. In a current environment of near-zero interest rates, cash stuffed in the mattress isn’t missing out on much in the way of return. This simplifies the cash holding decision to, “Do I believe my home safe to be more secure than the bank?” Toss into the mix reports of countries where deposits have been confiscated and the mattress begins to look like a safer choice. Where interest rates remain low and banks are viewed as less than 100% secure, cash use will increase.

Hurricane Zeta was truly a headache for all in its path. However, it served as a fresh reminder of why cash will and should remain part of the global payments infrastructure.

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