Executive Summary: Payments have seen significant diversification in recent decades, with the emergence of new instruments, new players, and new operating models. One key driver has been the introduction of new technologies which have created new channels and new business models for transactions. The payments industry has adapted to this evolution by developing a range of new solutions. However, cash continues to play an essential role, as illustrated by the constant global growth in banknote volumes.
One explanation for this growth is that cash possesses unique attributes, which are mostly unmatched by alternative payment instruments. Cash also generates benefits for society that are not directly linked to its payments function. These features can be summarised by four core characteristics.
Cash is universal. Cash can be used by all and accepted by all. It does not require a bank account or a device by either party to a transaction. It does not depend on a telecommunications network. Whereas alternative payment instruments are increasingly specialised and dedicated to a specific type of transaction, cash is used for a broad range of transactions, in terms of value, the channels employed, and the interacting parties: person-to-person, person-to-business, person-to-machine etc. It has demonstrated a remarkable capacity to adapt to new transaction opportunities, such as e-commerce, where cash is used, for example by paying ‘cash-on-delivery’ for goods ordered on the internet. Cash is particularly suited to the more fragile segments of society, including small stores and individual businesses; the “unbanked”, which represent half of the world’s population; the blind and visually impaired.
Cash generates trust. Cash is recognised as a secure payment instrument as evidenced by extremely low levels of counterfeiting, in relation to the volume of notes in circulation. This is largely because banknotes rely on state-of-the-art technology to defeat the counterfeiters. But more importantly, with the exponential growth in data breaches and rising crimes of identity theft, cash provides a solution to protect personal information and privacy. Cash also plays an essential contingency role; many consumers carry some banknotes in case other payment instruments are not accepted or equipment is out of service. At a national level, in the event of natural or man-made disasters, cash is often the only available form of money and ensures that the economy can continue to operate.
Cash is efficient. Globally, cash is the most widely used payment instrument. Its efficiency compared to other payment instruments depends on the country and the methodology used, but it is the most efficient for low-value payments which represent the bulk of all transactions. Innovation has improved the efficiency of cash; banknotes are increasingly secure and durable; technology has facilitated the automation of cash handling, and cash management policies have accelerated the smooth flow of money within the economy. The market share of notes and coins makes them a benchmark and regulators attempt to ensure that non-cash payments achieve the same level of efficiency. Cash guarantees some competition between payment methods.
Cash connects people. Cash is probably the single most widely used product in the world. It contributes to a form of social cohesion; the same notes and coins are used by all, regardless of age, gender or class. Countries use notes to promote their heritage and values and the national currency is in many cases a symbol of sovereignty. All over the world, children learn to count and to read with banknotes and coins; they are an essential educational element in financial literacy. It is particularly difficult to quantify the value of cash to society. How important is it for a country to have its name, national symbols and mottos printed on millions or billions of banknotes? How important is it for an economy to have an emergency monetary mechanism when a tornado, a technological breakdown or a financial crisis occurs? What would be the cost of developing a payment infrastructure for the billions of people who are excluded from the formal banking sector? It is essential for regulators and central banks to consider these questions when they develop payment and cash management policies.
It is particularly difficult to quantify the value of cash to society. How important is it for a country to have its name, national symbols and mottos printed on millions or billions of banknotes? How important is it for an economy to have an emergency monetary mechanism when a tornado, a technological breakdown or a financial crisis occurs? What would be the cost of developing a payment infrastructure for the billions of people who are excluded from the formal banking sector? It is essential for regulators and central banks to consider these questions when they develop payment and cash management policies.
Agis Consulting, 2017. "A comprehensive white paper about the benefits of cash beyond payments" Cash Essentials PDF http://cashessentials.org/docs/default-source/booklet/CashEssentials.pdf?sfvrsn=8