Global banknote developments before and after Covid-19

The full effects of the Covid-19 pandemic are still unknown and depend on the length of the exceptional period in various parts of the world. Besides the health concerns, the most severe consequences of Covid-19 are its economic impacts. Not only does the economy suffer due to the imposed lockdowns and travel restrictions, but the pandemic is having a great influence also on retail payments. Among these latter effects is the decrease in the use of cash in transactions. 

Even if it is still early days to assess the long-term impacts on the future of cash, a few observations can be made. Therefore, I will share some analysis of developments since the outbreak of Covid-19, and take a look at the longer-term trend over the entire past decade.

Banknote developments since Covid-19

Up-to-date statistics about the value of banknotes in circulation are readily available on more than 50 currencies across all continents. Even if these currencies do not represent a scientific sample, the information reflects global developments quite well. The following picture emerges.¹

In mid-2020, the median annual growth rate of 53 currencies was 14.5%, in comparison with the same indicator among the very same currencies in 2019, which was 6.7%. Therefore, in contrast to the decreasing use in transactions after the Covid-19 outbreak, the precautionary demand for cash has really exploded.² More than 60% of these 53 currencies recently saw their highest annual growth in the value of banknotes in circulation for the entire last decade. This points to the importance of cash as a source of trust and resilience in crisis situations, and highlights its role as an essential public good and part of the public infrastructure.

Trends in circulation by value

In order to get more perspective, let us look at the developments from 2011–19 including 141 currencies.³ The trend of the median annual growth rate of the value of banknotes in circulation has been slightly decreasing (see figure 1). However, there are ups and downs, e.g. the median growth rate was almost the same in 2019 as it was in 2017 and 2015. Furthermore, it is worth noting the median growth rates are higher than those of nominal GDP.

Even if the median growth rate was in 2011 more than four percentage points higher than in 2019, there was no major difference in the number of currencies with a negative annual growth rate: nine in 2019 and seven in 2011. There has only been a clear declining trend in the case of Swedish krona and Norwegian krone, both having seven years with negative annual growth rates in the 2010s. In the former case, the development has at least temporarily turned.

Developments in volume terms

The development of the volume of banknotes in circulation is a more interesting piece of information to the banknote community than that of the value, but the data is more scarce. The annual growth rates of the number of banknotes in circulation were available from 93 currencies in 2019 and 2018. This means that around a third of central banks do not publish this information. Considering that many of these central banks publish volume information on non-cash payment instruments, issued by the private sector, it seems odd that similar information is not provided on their own product of banknotes.

At any rate, a couple of interesting conclusions can be drawn. The median annual volume growth of banknotes was 5.8% in 2019 (4.7% in 2018) in comparison to growth in value terms of 8.0% in 2019 (7.0% in 2018). The difference between these two growth rates is in line with expectations, with the growing banknote demand being partly explained by the store of value function of banknotes, for which the higher denominations are used.

Drawing conclusions

After the outbreak of the Covid-19 pandemic, in contrast to the declining use of cash in transactions, precautionary demand for banknotes has increased generally at rates that have not been experienced during the entire last decade.

The trend of the median annual growth rate of the value of banknotes in circulation was slightly decreasing in the 2010s. However, there are ups and downs and the median growth rate was almost the same in 2019 as in 2017 and 2015. Furthermore, the growth rates are generally higher than that of the nominal GDP. Only a couple of currencies have a decreasing trend of the value of banknotes in circulation.

As regards the banknote volumes in circulation, they are in general growing slower than the values. This points to the increasing role of the store-of-value function of banknotes, which has been also mirrored in public behaviour since the outbreak of Covid-19 pandemic. This development highlights the role of cash as a public infrastructure, and the importance of access to and acceptance of cash during normal times. One cannot have cash as a fall-back in a crisis if the infrastructure is not regularly used and available. Should market forces no longer guarantee the existence of a functioning cash infrastructure, central banks should consider ensuring the access to and acceptance of cash by regulation or subsidies, as well as more proactively promoting confidence in cash payments.

Notes

1. The 53 currencies addressed in this section are divided by continents as follows: Africa 8, Americas 16, Asia 13, Europe 13 and Oceania 3.
2. See also Goodhart, Charles and Ashworth, Jonathan: Coronavirus panic fuels a surge in cash demand, Central Banking, July 1, 2020.
3. These 141 (137 currencies in 2011) cover all but seven currencies where the respective central bank either does not have a website or it does not include the relevant information.