Dollar bills y’all
Bitcoin bitcoin bitcoin. All we ever hear about is bitcoin. (And when it’s not bitcoin, it’s other cryptocurrencies.) But there is another means of payment that doesn’t get as much love, despite growing in popularity.
It’s called cash.
According to a recent report by the Bank for International Settlements (BIS), the amount of hard currency being printed is still on the rise in more than half of the big countries that make up its members. At the same time, people aren’t paying with notes and coins nearly as much as they used to—more and more we are swiping and tapping and pulling out phones instead of (physical) wallets.
So what’s going on? How can digital payments and money printing go up at the same time?
If we had to choose one word to describe what’s going on, it would be fear.
25%: Increase in US dollars in circulation in September 2021 from two years earlier
19%: Share of US transactions made in cash in 2020—down from 26% the year before, per a Federal Reserve survey (pdf)
1%: Ratio of cash in circulation to GDP in Sweden, a country that is truly “cash light”
21%: Ratio of cash to GDP in Japan, which is truly “cash heavy”
$15 trillion: Card payments made in BIS member countries in 2019
$356 billion: Cash in circulation in India in November 2020, a new record
Holding on
Cornell University economics professor Eswar Prasad, on the rise of cash holdings, if not cash usage, during the pandemic:
“Cash does come through in a pinch when you have natural disasters or other phenomena that cause communications systems to break down because of electricity failures and so on. So what characterizes the doomsday demand for cash may arrive at a time when people see a lot of troubling things happening around them.”
Which countries are going cashless?
People hoard cash for many reasons—they might be worried about what Covid-19 could do to the economy, they might not trust their banks or government, or they might want to avoid paying taxes. But digital payments are faster and easier, and a growing number of businesses no longer accept paper or metal money. This trend was supercharged during the pandemic.
“The case against cash is often presented as a sensible solution to an obvious problem. But the solution is not sensible and the problem is not obvious. Demonetization advocates show little respect for financial privacy and see nothing wrong with restricting personal liberty. It is unlikely that even the best demonetization proposals would improve matters.”
—Economist William Luther argues that eliminating a way to anonymously exchange funds may decrease crime, but it also assumes government regulations will always be morally sound.
Pop quiz How much does it cost the US mint to produce a penny? |
Ugh, hard currency is the worst
If you want a clue about what’s going on with money, check out the Benjamins.
There have been more $100 notes in circulation than $1 bills since 2016, according to Federal Reserve data. That’s a signal that people are using physical currency for saving, or hoarding, instead of paying for things. The demand for greenbacks shot up after the pandemic hit.
BIS researchers think something similar happened in 2008, when people were spooked by the 2008 financial crisis. With less trust in banks, people began keeping more of their savings in cash. Their findings show that while circulation of both small and large bills has risen, it is larger bills—the ones less likely to be used for everyday transactions—that increased the most as a share of GDP since 2007.
A subcontinental shortage
Back in 2018, ATM operators across India put up “no cash” signs, setting off a panic wave. It was just one more indication that prime minister Narendra Modi’s shock demonetization had backfired on the economy. Indians were still using fistfuls of cash, contrary to what the government would’ve hoped for. While digital payments are gaining traction now, back then there wasn’t enough cash to go around.
25%: Increase in US dollars in circulation in September 2021 from two years earlier
19%: Share of US transactions made in cash in 2020—down from 26% the year before, per a Federal Reserve survey (pdf)
1%: Ratio of cash in circulation to GDP in Sweden, a country that is truly “cash light”
21%: Ratio of cash to GDP in Japan, which is truly “cash heavy”
$15 trillion: Card payments made in BIS member countries in 2019
$356 billion: Cash in circulation in India in November 2020, a new record
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