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

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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

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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

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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

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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

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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

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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

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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

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