March 2021 – It’s a paradox: the use of cash dropped during the COVID lockdowns of 2020, but demand for bank notes rose.
The rise in demand for cash can be shown in the chart below. The Reserve Bank of Australia (RBA) attributes it to people wanting to hold cash in an emergency, noting the jump in demand for ‘real money’ began in mid-March 2020, around the time that lockdowns were imposed.
It says citizens may have wanted to hoard cash in case of bank systems breaking down. The RBA went back to recessions in the 1960s, 1970s and 1980s and the dotcom boom to find that demand for cash rises in times of economic uncertainty.
The value of banknotes in circulation grew by 17.1 per cent over the year to February 2021, reaching $97.3 billion. This compares with average annual growth in banknotes outstanding of around 5 per cent over the previous decade, says the RBA in a study.
Around 70 per cent of the volume of banknotes issued since mid-March 2020 were $50 notes and almost 20 per cent were $100 notes. Apart from people being in lockdown and businesses closed, many retailers don’t welcome receiving a $100 when they have to hand back a load of change.
The RBA notes there has been little issuance of low-value notes during the pandemic as consumers can’t spend in person and merchants don’t need to hold change.
The use of cash for payment has been in a long decline, from 69 per cent in 2007 to 27 per cent in 2019 and as we move out of lockdowns, more retailers are not accepting cash payment.
The RBA notes it received a small number of inquiries about the virus risk around handling cash (it recommends good hygiene).
More people moved to online purchases during the pandemic lockdowns and it is widely assumed that this will continue. Only time will tell. It will also be interesting to see if people start spending their cash hoards now that we can move about more freely. Interest rates aren’t forecast to rise for a couple of years but, until then, there isn’t much incentive (apart from risk of robbery) to returning cash to bank accounts.