Cash - tried and tested, and with a future

May 12, 2017 Share Source

The last few months and years have witnessed a growing debate on the future of cash. Its critics say that cash should be abolished, or that cashless alternatives will in any case gradually render it obsolete. However, to paraphrase Mark Twain: Reports of the death of cash have been greatly exaggerated.

This is reflected in the continuing robust demand for cash on the part of the general public. In many countries, the value of cash in circulation relative to GDP has increased over the last few years; a development that can be attributed to occasional periods of heightened uncertainty about the stability of banks in the wake of the financial crisis. Another factor is the low level of interest rates on transaction accounts, and hence the low opportunity cost of holding cash.

Moreover, surveys and anecdotal evidence suggest that cash is still widely and readily used for payments. This might seem surprising at first glance, given the numerous alternatives to cash, but there are a number of reasons. For instance, people like to use cash for personal reasons, because it allows more effective budget control or because it does not require technical know-how. People's tastes can change, yet cash has properties that cashless methods do not have to the same extent.

It is more reliable because it does not depend on the use of a technical infrastructure. It also offers comprehensive protection as regards financial privacy. Only the availability of cash guarantees that the data owner really has control over the decision on how much financial information to share, and with whom.

In addition to these demand-side considerations...

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Source:

Zurbrügg, Fritz. "Cash - tried and tested, and with a future." Swiss National Bank (SNB). February 22, 2017. Accessed May 11, 2017. http://www.snb.ch/en/mmr/speeches/id/ref_20170227_zur.

Last Updated: July 27, 2017