The amount of cash currently in circulation has reached $A94 billion, growing by $A11 billion during the pandemic.
RBA Governor Philip Lowe told a parliamentary committee some people seem to be wanting to keep extra physical money at home. Meanwhile, Deloitte noted low interest rate environments added to the desire to hold onto physical money, fuelled by fear of recession.
So big was demand for cash during the pandemic, the RBA opened its "contingency" distribution site twice – once in March and once in July - to send $A50 and $A100 notes to banks who requested them. At the same time, banks held back on returning poor-quality notes to the RBA in case they were needed. The value of cash in circulation – calculated as the value of notes issued in excess of those returned - soared 13 per cent per cent during 2020 according to the RBA.
The value of cash
All this begs the question: if data show use of cash in transactions is declining rapidly then why do some people still hold onto it?
In early 2020, ANZ commissioned a review of cash logistic programs globally which highlighted the unique and valued attributes of cash.
Some of these attributes included 100 per cent availability and reliability, anonymity and direct settlement without the need for a technical infrastructure. This might go some way in explaining the continued use of cash even when provided an alternative.
The report also noted some people prefer cash for reasons of privacy, security and convenience. Others live in areas where inadequate mobile phone coverage and frequent electricity outages make cash the most reliable way to pay. This is certainly true in Australia where geographic isolation is a real concern in our regional and rural areas. Research by the RBA similarly found 5 per cent of respondents noted no other way to pay and 5 per cent noted poor internet access.
ANZ and RBA data would suggest cash, to some degree, is still king for older Australians, those living remotely and the vulnerable.
The RBA study also highlighted regional and remote residents were higher users of cash than metropolitan residents. Those who live in regional areas also tended to be older and have inferior internet access relative to capital city dwellers. These factors too are associated with higher cash use.
Similarly, lower socio-economic households had significantly higher use of cash and if cash were removed the vast majority of heavy/intermediate cash users will experience major inconvenience or genuine hardship.
Beyond that, in regional and remote Australia cash is also used heavily in agriculture – particularly through wholesale produce and livestock markets.
Cash in hand
As a society and major bank, it is incumbent on ANZ to continue providing cash services to these customers and the businesses who serve them.
Major industry sectors including retail, gambling and hospitality are still relatively heavy recipients of cash. By virtue of time, they often have well established cash management routines with their financial institution, usually involving tellers and couriers who could be staff or professional security services.
However, although most business customers are happy with the efficiency of cash, the true cost of this management remains largely hidden.
It remains difficult to accurately measure the cost of cash management but there are some obvious costs such as time management, reconciliation and servicing cash. Most businesses are cognisant of the security risks that arise when dealing with cash, with most having well managed mitigation strategies in place.
Beyond the ongoing challenges and implications of the pandemic, it’s clear cash must remain accessible as a public good and made efficient to use to ensure the older and vulnerable members of community have access to payments. At the same time, as a sector it’s important to collectively help all people have better access and capability with all emerging payment options.
The Bank for International Settlements sees long term trends in a similar way.
“Looking ahead, developments could speed up the shift toward digital payments,” the BIS explains. “This could open a divide in access to payments instruments, which could negatively impact unbanked and older consumers. The pandemic may amplify calls to defend the role of cash - but also calls for central bank digital currencies.”
Globally there have been a number of attempts for collective solutions to servicing business and customer needs with limited success. Perhaps learning from other sectors like Uber and enhancing the way businesses of all sizes manage cash to their place of business is the key.
Despite technology and digital payment ecosystems contributing to the reduced need for cash, there will always be a need for physical money from individuals who prefer it and businesses looking to meet these customer’s needs – banks included.
Jodie LeeTet is Value Stream Lead, Cash Strategy at ANZ
This article was produced with support from Michael Daddo at The Shannon Company