The Stabilizing Role of Cash in times of Uncertainty and Crises

The presentation focusses on the stabilizing role of cash from a macroeconomic and society perspective. As this role becomes apparent especially during periods of crisis and uncertainty, we exemplify the general reasoning with a comparison of the Great Depression (1929 – 1933) with the Great Recession (2008/09). In a second step, we extend this analysis and distinguish between uncertainty of the digital infrastructures, confidence crises of the financial system, natural disasters, political uncertainties, and inflationary crises. We derive a classification scheme how cash holdings typically evolve in each of these types of uncertainty by separating between demand for domestic and international cash as well as between transaction and store of value balances. A few country case studies supplement the arguments. The conclusions are two-fold: First, an efficient payment mix necessarily includes cash. Second, it should be the undisputed task of central banks to ensure that cash remains in circulation in normal times and is provided in a fully elastic way in times of crisis and uncertainty.