What Happens When COVID Restrictions Lift? Canada’s Story

The Bank of Canada conducted studies into cash usage in April and July 2020*. This March it updated its staff discussion paper 2021-23 reflecting on these surveys and what they tell us about cash as pandemic containment measures lift.

First results suggest that people returned to using cash and that cash stored for value stays out there, at least to some extent. These studies are the baseline for additional surveys carried out in November 2020 and planned for spring 2021 which will tell us more – the impact of renewed restrictions, the effects of a disrupted year on behaviour and habits.

The value of notes in circulation (NIC) increased significantly in the early months of the pandemic, and growth of NIC slowed materially only in July. The value of NIC in late September was 16% higher, $96.4 billion, than in the corresponding week in 2019.

To assess the impact of the pandemic, the authors created a simple projection of what might have been expected if the COVID-19 shock had not occurred. This suggested that the pandemic added about $8.4 billion to NIC by late September compared with what could have been expected in a typical year, which would have been about $4.7 billion.

The report carried out a similar exercise looking at high denomination notes, $50 and $100s, and low denomination notes. The number of high value notes increased and ran ahead of what might have been expected from the start of the pandemic to September, apart from occasional momentary cross overs. It is assumed this reflected the wish of the public to hold value in banknotes. Low value notes increased initially and then ran slightly lower, and behind, what might have been expected.

Canada lifted most of its restrictions at the end of July 2020 and at that point weekly banknote withdrawals fell back to mimic the pattern of the previous two years. In contrast, bank deposits have remained lower than the historic pattern, presumably reflecting notes held in the system and a retention of value in wallets and homes.

In July 2020 the Bank carried out a Cash Pulse Survey of the public. The results showed a drop in cash held in hand back to pre-pandemic levels, $85 to $70; cash usage returned, increasing from 36% in April to 54% in July and respondents don’t intend to go cashless, 78%, up from 74% in April. Other findings included a drop in the number of retail outlets refusing cash from 12% to 9%.

It will be interesting to see what subsequent surveys report. As above, the Bank conducted another survey of methods of payment in November 2020 and has planned a follow-up survey for spring 2021.

* Bank of Canada: Staff Discussion Paper – 2021-3. Cash and COVID-19: The effects of lifting containment measures on cash demand and use. Heng Chen, Walter Engert, Kim P. Huynh, Gradon Nicholls and Julia Zhu.