HAS CASH A FUTURE?
Cash endures. Comparing data from the Reserve Bank of Australia, two opposing trends appear to be taking place. ATM withdrawals, the standard proxy for cash use, are declining. The proxy is accurate because in order to have cash to use, people either need to go to a bank branch, get cash out with an Eftpos transaction or use an ATM. ATM data work well.
The RBA has also seen a surge in currency in circulation. What is happening here is ‘circulation’ is probably a misnomer – what is happening is more cash is simply being held as a store of value rather than a means to transact.
Tony Richards, the head of the RBA’s Payments Policy Department argued in a speech earlier this year cash “continues to have an important role as a store of value and there is some evidence – from demand for larger denomination notes – that this increased following the global financial crisis”.
“So, despite the decline in use in transactions, cash is likely to remain an important part of both the payments system and the economy more broadly for the foreseeable future,” Richards said.
“In particular, significant parts of the population appear to remain more comfortable with cash than with other payment methods in terms of ease of use for transactions or transfers, as a backup when electronic payment methods may not be available, or as an aide for household budgeting.”
The implications of cash versus digital payments go beyond the point of sale or smart technology. There are already signs of impact on bank balance sheets.
The more consumers leave cash in their accounts and deplete it piecemeal, via many small transactions, the less they debit their accounts in larger blocks. They don’t take $200 out in one go – debiting the account all at once – but take out $11.50, $3.50, $4.80, $15.60 and so on over time. The result is higher average account balances.
This is good for banks – they retain access to valuable deposits – but it is also better for consumers. While interest rates on transaction accounts are low, they exist. They don’t on cash withdrawn which, while it has a face value which can be transacted, is actually not worth the paper or polymer it is printed on when in a purse. Money in accounts is not lost or stolen either.
While for individuals this value is small, in aggregate for the banking system it will be significant as less cash is taken out in large amounts.
Andrew Cornell is managing editor at BlueNotes