This blog is one in a series provided by board members of the Tech Faculty offering their insights and lessons learned during the COVID-19 pandemic. In this blog, board member and resident of Sydney, Simon Keeling, asks how the role of cash has been impacted by the pandemic, and what is its role in the future.
Impact of the pandemic on the use of cash
The Fintech market saw unparalleled investment growth in 2019, immediately followed by accelerated growth in contactless payments due to the global Coronavirus pandemic. Ongoing and future investment into this space is expected by many to far exceed what was seen in 2019.
Across the world, bank branches and cash machines have been closing, and in numerous cases permanently, as businesses use the opportunity to restructure their physical assets.
Major economies are accelerating their shift towards a cashless economy. Even before the pandemic took hold, the use of cash in the Swedish economy was at the 10% level as it approached a near-cashless society. The Bank of Australia found that in 2010, cash was used in 62% of all Australian transactions. By 2019 this had fallen to 27% and since January 2020 it is estimated that this has plunged to around 10%.
Cash is expensive for banks and central governments to manage and financial institutions have used this as an opportunity to build trust in the cashless systems. In Australia for example, the contactless or “tap and go” individual transaction limit was increased from AUD100 to AUD200 (c.£55 to £110), in the UK the limit was increased in April 2020, but from only £30 to £45.
It’s evident that the world after the coronavirus will be far more digitised, and the way that everyone conducts financial transactions will likely to be impacted for the better.
Let me Google that - cleaning cash
In its April 2020 Bulletin (“Covid-19, cash, and the future of Payments”) The Bank for International Settlements (“BIS”) said the outbreak had led to public concerns about viral transmission via cash, with central banks reporting a large increase in media inquiries about the safety of using cash and internet searches for the combination of “cash” and “virus” soaring.
Central banks have literally been cleaning vast amounts of cash throughout the pandemic. From America to South Korea, central banks have quarantined and disinfected potentially contaminated banknotes.
Google trends search: “cash” & “virus”
Source: Google Trends
BIS highlights that looking ahead, developments could speed up the shift toward digital payments. This could open a divide in access to payments instruments, which could negatively impact unbanked and older consumers. The pandemic may amplify calls to defend the role of cash – but also calls for central bank digital currencies.
Fuelled by the media attention and subsequent stalling of the Facebook attempt to launch its own digital currency, Libra, central banks are investigating the potential for centralised, digital currencies.
The Libra rollout stalled after some of its core backers pulled out in the face of strong central bank and legislators’ opposition to the notion of a privately-owned digital currency, and it appears Facebook might try to alter its strategy towards the use of Libra’s infrastructure as a platform for third parties’ digital payment ambitions. Libra’s strategy was to match the value or be pegged against real-life physical assets, a “stable coin”.
Central banks are, and should be, wary about rushing towards a digital currency future, given the potential disruptions it might cause. There’s benefit in being late to the party; however, the likelihood that other countries will move early and the potential for the big tech companies like Facebook, Google or Amazon to create their own currencies and payment systems outside traditional banking systems, means the central banks have no option but to continue to explore the potential of digital currencies. In May this year, in the midst of the pandemic, China started testing the Digital Yuan which could forever reshape the relationship between money, economic power and geopolitical clout.
The Bank of England governor, Mark Carney, shocked many last year when he advocated development of a "multi-polar" digital currency to displace the USD. The US accounts for only about 10% of world trade and 15% of global GDP but circa two thirds of all countries peg their currency to the USD, and more than half of global trade is invoiced in USD. Carney argued that there was growing asymmetry between the dominance of the USD in the global financial system and the diminished US share of global economic activity.
Necessity versus trust
COVID-19 has brought the debate around the need for a cash economy back on the radar for many and has fuelled a recent drive by Fintechs around the world to bolster their offerings. I’ve seen some great developments and strides forward from the tech community here in Sydney and further afar as a response to the pandemic, and consumer trust is outweighed by necessity. The last time I used a cash machine was over 6 months ago and I don’t see myself needing to use one in the next 6 months.
Technological advances have radically altered the cost/benefit relationship between digital and cash payments over recent decades with the most recent "step change" being contactless money transfers. However in my view that does not mean physcial cash will not have a role to play for the forseeable future. Not all financial transfers involve (at least one) relatively large organisation. Leaving aside children and the digitally excluded (together I guess around 30% of the population), trying to run a community social event or club depends on cash because there is no practical alternative. The reasons why various forms of physical "cash" where invented have not gone away.