The paradoxical development of the two motives to use cash – the decline in its usage in payments accompanied by the growth of its holdings – has been evident for a number of years. However, this trend accelerated during the Covid-19 pandemic because of increasing use of online shopping and contactless and mobile payments. At the same time the precautionary demand for cash grew, as is typical in times of uncertainty, and the use of cash as a store of value reached record growth rates.
When the pandemic eased its grip towards the end of 2021, a kind of return to a new normal was visible in cash demand. However, the events since then showed this to be only temporary. Not only has the pandemic disrupted global supply chains, but the Russian invasion to Ukraine has created further uncertainty as well as an inflation of food and energy prices. Even if these events created new uncertainties, and further justified the precautionary demand for cash, its opportunity cost rose significantly as a result of the growing interest rates in 2022. The decreasing real income of citizens was evidently another good reason to give up cash savings and use them for consumption. Furthermore, the motivation of banks to keep cash in their vaults rather than deposit at the central bank disappeared at the same pace as the negative and minimal interest rates.
The presentation will focus on the development of banknote circulation during the major global turbulences since the millennium. Addressing the development also in volume terms, will shed further light on the store of value function of cash.
The two motives of cash usage going in opposite directions have raised questions about how to ensure the resilience of the cash infrastructure, and the access to and acceptance of cash. The development has also intensified discussion about central bank digital currency (CBDC) as a complementary form of public money. The presentation will conclude with observations regarding why the development of the cash infrastructure is as important as that of the CBDC from the point of view of the issuance of public money.