Cash in Circulation Is Soaring

11 Feb 2021 News

Worldwide cash in circulation has increased significantly since the pandemic started. We have looked at the main western markets – US, UK and Europe – to shed some light on the phenomenon.

After reading, you will see why big increases in demand for cash usually signal a turn in the economic cycle and have led to booms.

How did the pandemic influence the trend?

Growth in demand for bills and change increased slightly in late March. This is likely to be due to people withdrawing some extra cash as a precautionary response to heightened uncertainty. The trend of increasing cash demand continued when non-essential shops, bars and restaurants began to gradually reopen across the west.

Nearly all established markets saw an increase in the value of cash in circulation during the pandemic. In both the US and the euro area, total currency in circulation in September 2020 was more than 10% higher than a year earlier, with a similar pattern in Canada and many other countries.

Key Drivers  – What is behind the increase in cash?

The first key driver was the big fall in consumption at the start of the pandemic. The temporary closure of shops and restaurants, and the implementation of social distancing rules during the Covid pandemic, led to significant declines in household spending. This meant that people were holding onto their spare cash for longer.

The decline in household spending also led to a decrease in debit and credit card and cash use: total household expenditure fell by almost 30% in April 2020, according to Visa, while the value and volume of contactless card transactions also fell in April, by 40% and 44% respectively.

Where is all the cash being held?

Human behaviour suggests that when events happen that impact the economy negatively, people tend to stash more cash at home in uncertain times or when they feel they cannot trust banks and interest is generally low.

When Covid hit, it triggered a change in behavior and banknotes started being held — among retailers, financial institutions, ATMs, or the public — and weren’t returned as usual. Here is why:

  • People holding more cash than before the Covid crisis began, e.g. for contingency reasons, in line with cash’s established role as an emergency means of payment. People may also be holding more cash because they have less opportunity to spend it, e.g. many venues where cash is often spent, such as bars and restaurants, have been closed, or when are open are subject to restrictions.
  • It is also possible that cash use — particularly in non-retail environments — recovered, but cash took longer to be deposited. Cash is often used for person-to-person transactions, such as between family and friends. It is likely that cash payments are being made by isolating households to friends and family in return for shopping or other services. Cash-in-hand is also popular for household services including house cleaning, window cleaning and landscaping.
  • Banks, financial institutions and ATMs are typically prepared to be fully stocked with banknotes for an incident such as a pandemic. As such, higher cash holdings among ATMs and bank branches are likely to be a contributing factor to the increase in cash demand, but not as major as the reasons mentioned above.


There are many variables that could influence both how cash is used and where it is used

In interviews with a sample of large retailers in June 2020, BoE found that the majority of retailers expect cash usage levels to recover, but to remain below pre-Covid levels in the medium to long term. Retailers suggest that the payment methods offered to customers will be driven by customer demand.

Finally, times of economic hardship were historically accompanied with rises of currency in circulation. The upside to this is that when all that cash builds up, it tends to look for a place to go, leading to economic growth and recovery.

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