Cash: Do we still need it in the post-COVID era?
Living in 2023 feels like living in a digital world, where we work, connect with friends and have fun online. We also use the Internet to spend money – and the more we hear about cryptocurrencies and new e-payment methods, the more it seems like nobody needs good old bills and coins anymore. However, the reality of cash payments doesn’t quite match this belief. “Cash remains”, confidently states the Bank of International Settlements, and, although its role is changing, it still in demand across the world. Come look into how banknotes manage to stay afloat, and why people still rely on them in times of peace and crisis.
How did COVID-19 change the perception of cash?
Let’s start with the COVID-19 pandemic, when most countries imposed restrictive measures, and news of the coronavirus dominated the headlines. Lockdowns, the “wash your hands and don’t touch anything” agenda, and the forced escape into online literally compelled people to switch to digital payments and shove bills away. At that, hardly anyone abandoned cash altogether – people simply started to see it as a means of savings and a reserve for emergencies.
There is a simple psychological explanation for this. Think back to the panic and frustration you felt when the image in your Zoom meeting froze right in the middle of an important discussion, or when a long-awaited online delivery was delayed. Technology can be fast and convenient, but when it comes to what’s important, it’s better to have a backup and be sure you have a reliable alternative. And in the case of personal finances, this was seen in the increase in cash holdings across the world seen during the pandemic, as study of the Bank of International Settlements shows.
People began to accumulate cash because of its very physical nature and their confidence in the tangible form of payment that they can hold and verify. Paper money does not depend on external factors such as electricity or internet connectivity, making it accessible even in the most difficult circumstances. Turns out, it was the sense of security that made banknotes indispensable for feeling better when everything else is uncertain.
“Cash has been on the rise during the pandemic – as it always is in times of crisis or uncertainty. Although digitalization of the payment landscape is advancing quickly, cash keeps playing a vital role in the variety of payment methods. It’s simple, it’s easily accessible to everyone and universally accepted,” says Ralf Wintergerst, CEO of German banknote printer Giesecke+Devrient. The company deals with payments in all their diversity, covering both e-money and cash, and holds a unique position to observe the evolution of payment media from both sides. During the pandemic, G+D noted a high demand for both banknote printing and electronic payment products, and reasoned that what matters is not the means of payment, but the freedom to choose what’s convenient for you.
What makes banknotes still popular?
The trend of continued cash use persisted after the pandemic, as studies by central banks show. “The increased popularity of credit cards has not decreased the demand for cash,” writes the US Fed’s Diary of Consumer Payment Choice, adding that “most consumers do not expect to stop using cash in the near future.” The regulator expects some decline in the use of banknotes and coins later, but notes that the underlying demand remains strong, and that support in this area must continue.
What’s interesting is the proposed way of ensuring access to cash. Instead of the seemingly obvious campaigns to protect the physical money and raise the public awareness, the Fed emphasizes the importance of continued investment in the banknote industry. This may seem strange at first, but a closer look provides a clear explanation.
According to a study by the European Central Bank, some of the main reasons why people still choose to make payments in cash are the possibility of immediate settlement, universal acceptance and privacy protection. Indeed, as soon as you hold a banknote in your hand, your mind automatically recognises the “feel” of the paper and the security features, and you accept it with confidence – without the need to verify the payer’s identity or waiting for the bank’s approval. And when people have confidence in the authenticity and quality of banknotes, cash lives up to the idea of a means of payment universal for anyone, be it a well-to-do hi-tech user or an unbanked have-not (the global number of whom stood at 1.4 billion in 2021).
The Fed’s proposed investment is necessary to support this convenience and trust. All the features that users take for granted are the result of sophisticated technological processes. In turn, these processes come after extensive R&D activities of security paper printers around the world. Innovations in banknote printing look delicate and seamless to the everyday user, but their advanced security features, distinctive design and special inks require long and expensive labor. “Every year we devote a sizeable budget to research and development. Whether in paper, printing techniques, ink or security elements, our different fields of activity are constantly making technological advances,” tells Thomas Savare, CEO of French security printer Oberthur Fiduciaire. Here, innovation is not a one-time shot, but a continuous process of investing time and money, such as the French printer’s acquisition of Swedish micro-optical security solutions Rolling Optics: “Our vision is to carry on investing in world class security technologies. We are well aware of the long-term view, and the high resources required to develop and promote such a disruptive technology towards end customers,” explains the company.
Why is the security of banknotes important?
There’s something else apart from the users’ comfort. As technology becomes more accessible, fraudsters are inventing more sophisticated ways to counterfeit banknotes, from tampering with security features with superglue to using sophisticated industrial equipment. To counter this without disrupting the convenience of cash handling, central banks are delicately updating security elements on banknotes without changing the visual and tactile features that users are accustomed to – as the Central Bank of Guyana recently did with its upgraded $5,000 banknote, which won the 2023 Best New Banknote award. The printer, already mentioned Oberthur Fiduciaire, incorporated several cutting-edge security features into the product, including a colorshift thread with dynamic optical movement and an additional layer of security that looks like Guyana’s national animal, the majestic jaguar. As a result, the people of Guyana will continue to enjoy the convenience of using their familiar banknote, while counterfeiters will be kept at bay.
Another well-known banknote printer, De La Rue, sticks to the same attitude: “We recognize that financial inclusion is critical and that the currency in people’s hands has to be authentic and easily available,” says Ruth Euling, De La Rue’s Global Account Management Director, commenting on the introduction of an updated Maldives’s new secure 5 Rifiyaa banknote.
All in all, despite the headlines about high-tech finance, cash is far from being an outdated or obsolete means of payment. Its enduring popularity and trustworthiness stems from its reliability, security and innovative features, and it continues to provide confidence and efficiency in emergency situations. Its role and perception may have changed slightly, but there’s still no doubt that paper money is an essential part of everyday life.
