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Cash resists, and increases

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A little over a year ago, at the start of the Covid-19 epidemic, calls to stop using cash due to health risks were increasing. Plunging into the breach, the players in electronic payments had hastened to extol their contactless means of payment, condemning our good old banknotes. Even the WHO had recommended using contactless means of payment to limit the risk of transmission of the coronavirus, before qualifying its remarks.

Were banknotes and other coins going to be permanently supplanted by credit cards and payment apps? Last spring, during the first semi-confinement, cash withdrawals from ATMs collapsed by 50% in Switzerland, the SIX group said on March 17. Over 2020 as a whole, cash machine operations fell by almost a quarter (-23%). The Swiss, like the Europeans, have turned to contactless payments, via their credit cards or dedicated applications.

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Asked in February by about their preferred means of payment, no less than 73% of Swiss respondents cited debit cards, followed by credit cards (71%) and finally cash (67%). In the previous poll in 2020, they were still 78% who could not do without cash.

Towards a digital currency?

The daily use of cash could also in the future be limited by States. In particular to avoid money laundering. Thus, our European neighbors have already introduced more or less severe restrictions.

In France, it is impossible for a merchant to accept more than 1000 euros in cash from a French tax resident or a professional. In Italy, if the cash is accepted up to 2,999.99 euros, Rome has set up a pilot project of cash back at the end of last year to reimburse part of the purchases by credit card and payment applications. The success was immediate and more than 7.6 million people signed up. For the time being, in Switzerland, cash payments remain anonymously authorized up to 100,000 francs.

The coup de grace could come from the central banks themselves because, faced with initiatives like Libra, they are seriously working on the issuance of digital currencies. Like the Fed, which says it is studying the scenario of a “digital dollar”, or the ECB, which has indicated through its president Christine Lagarde, to “be ready to issue a digital euro if that turns out to be necessary”.

“The paradox of banknotes”

Despite everything, the volume of banknotes in Switzerland increased sharply during the first wave of Covid-19, said Fritz Zurbrügg, vice-president of the general management of the Swiss National Bank, at the end of last year. A situation that is also found in the euro zone. The European Central Bank published a report on the “Banknote Paradox” on Thursday 25 March. Namely, if transactions using cash have decreased in recent years, their demand, and therefore their issuance, has never been greater.

The issuance of cash thus intensified during the Covid-19 pandemic. At the end of 2020, the value of euro banknotes in circulation amounted to 1,435 billion, an increase of 11% compared to the end of 2019. An exceptionally high growth rate compared to the previous ten years (5% on average). The months following the 2008 financial crisis were the only time the growth rate was higher.

More savings

How does the ECB explain these results? As in previous crises, Europeans are saving more, driven by increased uncertainty and reduced mobility. An observation shared in Switzerland: “This increase was mainly due to the demand for large denominations and testifies to an increased need for cash reserves”, explained Fritz Zurbrügg at the time. A situation further reinforced by the low rates offered by the banks on the assets of their customers.

If the liquid tends to be scarce in the wallet, it could well turn into a safe haven and find its place in the safes next to the gold bars.

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