Doubt over cashless economy: how trust in cash increased during covid-19 crisis

The pandemic has had many surprising consequences for society. It has even impacted how we think about money. For instance, public concern about Covid-19 forced the Bank of England to assure people that the risk of infection posed by banknotes was “no greater than touching any other common surfaces, such as handrails, doorknobs, or credit cards.”
Still, some experts indicate that trust in cash may be down. This coincides with a seven-year acceleration in digital trends, with digital spending on apps and with cards on the rise.
Clearly, something has changed in the way consumers use their money. But, while down, cash use trends could represent a transformation, rather than a fall from grace.
In the eurozone, cash continues to play a vital role, with demand remaining high, according to the European Central Bank (ECB).
“Though its use as a means of payment has declined during the pandemic, demand for cash has risen," explained Fabio Panetta, a member of the executive board at the ECB.
So, what’s going on?
The paradox of cash demand
It is the case that the volume of cash lodged at central and commercial banks has fallen by around a fifth since early last year. A survey showed that 4 out of 10 respondents were using cash less frequently.
However, there has been “a parallel, huge rise in the demand for euro banknotes over the past year," Panetta said, during his keynote address to a Deutsche Bundesbank conference.
The increase was around €190 billion – or €550 per capita – between March 2020 and May of 2021, Panetta explained.
While surveys show that cash use as a means of payment in the euro area has decreased, the digital payment revolution has not brought about a decrease in demand for cash. It might seem counterintuitive, but the number of banknotes has increased continuously over the past 14 years.
This can be explained by increased demand for banknotes as a store of value in the euro area, particularly during moments of uncertainty — coupled with demand for euro banknotes outside of Europe.
Faith in banknotes
It is not just large banks that are holding on to cash right now, the public are doing it as well. The rationale is multi-layered.
A crucial consideration, historically low interest rates have persisted for the past decade. This disincentivises savers from seeking out investment opportunities. With yields so low, the risk-reward ratio means that holding on to cash makes more sense much of the time.
Another consideration are consumer perceptions about the security of different payment options.
A survey into public perceptions about mobile payments revealed that three-quarters of consumers are reluctant to use them due to security concerns.
“Mobile fraud is omnipresent. While some users have already encountered it, others are reluctant to use mobile payments simply because of this risk,” said David Lotfi, CEO of mobile payments cybersecurity provider Evina.
The world is changing at an exponential rate. Unfortunately, as the headlines keep reminding consumers, the digital world is a frontier of cybercrime and opportunistic fraud. This uncertainty could be part of the driving force behind the public’s use of cash as a safe harbour.
As a society, we are accustomed to cash and know what we are getting when we use it. In this sense, it is deemed far more trustworthy than innovative financial technologies.
In India, deep-rooted trust in cash was cited as one of the main obstacles to greater market penetration by local digital payments service providers. Better the devil you know, it would seem.
"Given its many functions, I expect cash to survive the digital revolution and that people will continue to use it for many years to come," concluded Fabio Panetta.
Despite security concerns, when asked, respondents tend to indicate convenience as the main reason for using digital payments. But when it comes to saving, consumers are placing more faith in cash.

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