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The Great Paradox of Cash and Whyits Reign is Far From Over
Marc Schwartz (Monnaie de Paris & Sciences Po Paris)Yannis Messaoui (Yale University & HEC Paris)
January 2021
Date
p. 1Titre de la présentation
MONNAIE DE PARIS
The great paradox – what does it mean?
2
1) The volume of a cash in circulation is on an ever-increasing trend
• Continuous growth over the past twenty years
• Significant increase in 2020
2) Cash still plays an important role as a means of payment
• Cash remains the primary means of payment in Europe
• Transactional use of cash is declining
• People do not want a cashless society
3) A shifting paradigm: from the death of cash to its defense
• Against the death of cash: cash as a public good
• Arguements in favor of keeping cash
4) Towards a central bank digital currency?
5) Conclusion: a public good which must be protected
MONNAIE DE PARIS
The circulation of euros (coins and bills) experiences continuousgrowth and has been multiplied by a six-fold factor since 2002
3
Mrd €
200 Mrd €
400 Mrd €
600 Mrd €
800 Mrd €
1 000 Mrd €
1 200 Mrd €
1 400 Mrd €
1 600 Mrd €
Cash in Circulation, billions of Euros
Annual average growth
rate: +10 %
Source: ECB
MONNAIE DE PARIS
The circulation of US Dollars (coins and bills) is experiencingcontinuous growth and has been multiplied by a three-fold factor since 2002
4
Annual average growth rate for dollars in circulation: +6,4%
7%
6%5%
4%3%
1%
7%
5% 5%6%
9% 8%
6%
8%
7%6%
7%6%
5%
15%
Source: Federal Reserve System
MONNAIE DE PARIS
Cash in circulation increased faster in 2020 than in recent years
5
Billions of Euro, base 100, January
98
100
102
104
106
108
110
112
114
116
2018 2019 2020
Evolution of cash in circulation
98
100
102
104
106
108
110
112
114
116
2018 2019 2020
Billions of Dollars, base 100, January
Source: Federal Reserve SystemSource: European Central Bank
MONNAIE DE PARIS
The ratio of cash in circulation to GDP is increasing in mosteconomies
6
13,5%
12,…
9,1%8,0% 8,0%
6,0%5,1%
4,0% 3,8% 3,4% 3,2% 3,0% 2,7%
11,4%
14,6%
4,4%
21,3%
12,1%
18,5%
10,3%
8,3%
11,1%
7,1%
4,3%
6,6%
3,4% 3,6% 3,9%
9,6%8,3%
1,3%
2006 2019
Source: Bank of International Settlements
MONNAIE DE PARIS
The share of cash payments in the payment mix varies significantly between countries
7
77%
37%
44%
23%
59%
34%
11%13%
73%
27%
51%
18%
23%
16%
25%22%
5%
0%
48%
9%
0%
10%
20%
30%
40%
50%
60%
70%
80%
Allemagne Australie Canada Danemark France Pays-Bas Norvège Suède Zone Euro Etats-Unis
Volume Valeur
Sources: International Monetary Fund, European Central Bank
MONNAIE DE PARIS
Date8Titre de la présentation
MONNAIE DE PARIS
Cash remains the most favored means of payment for Europeanconsumers
9
Source: European Central Bank
54%
79%
39%
19%
7%
2%
0% 20% 40% 60% 80% 100%
Value
Volume
Cash Cards Others
48%
73%
41%
24%
11%
3%
0% 20% 40% 60% 80% 100%
Cash Cards Others
2016 2019
MONNAIE DE PARIS
The decreasing transactional use of cash is a long term trend
10
Market share of different means of payment in
the United States
31%26%
7%
5%
18%24%
27% 30%
4% 2%
10% 11%
3% 2%
2016 2019
Cash Check Credit Debit Prepaid Electronic Other
Source: Federal Reserve System
MONNAIE DE PARIS
Citizens overwhelmingly reject the idea of a cashless society
11
46%
33%
16%
5%
France
Non, pas du tout Non, plutôt pas
Oui, plutôt Oui, tout à fait
Total No 79%
Total Yes21%
67%
9%
16%
7%
United States
Against it No opinion OK with it All for it
Total No 67%
Total Yes23%
Source: IFOP Source: Civic Science
MONNAIE DE PARIS
Ten reasons why citizens are still using cash and want to keep it
12
Rational Reasons Emotional Reasons
Electronic payments are not yet accepted
everywhere and for every transaction
Cash is the physical embodiment of monetary
value
Paying with cash helps with budgetting
Coins and bills have a symbolic value: they carry
signs that manifest and create a sense of
belonging
Cash is the fastest way to settle small
transactions
People trust cash, which was able to withstand
fraud and counterfeiting
A significant proportion of the world population
does not have a bank account
Cash is perceived as a safe store of value in times
of crisis
Cash can always be used, even in case of a power
outage
Privacy: many people dislike the idea that their
payment habits can be tracked and recorded
MONNAIE DE PARIS
Arguments in favor of keeping cash as a public good
➢ Is universal, free and easy to use
➢ Is inclusive
➢ Is resilient
➢ Preserves freedom of choice and guarantees trust in money
➢ Protects personal data
➢ Upholds the social contract of money
➢ Is not the only means of payment that can be used to fraudulent ends
Cash…
➢ Should feature the same advantages as cash: trust, availability, ease of use, resilience, safety. It
should also guarantee the integrity and safety of payments
➢ Could fragilize the financial system, creating an existential risk for commercial banks. In times of
crisis, CBDC might cause a run on the central bank
A central bank digital currency
13