Cash in the Pandemic: European Round Up

The ECB has published a comprehensive report of what has happened to cash in the euro area during the pandemic.

Within Europe, and the Eurosystem, the detail is, of course, nuanced country by country. Central banks are not the only organisations to follow cash and here we report on cash in Italy, Spain, the Netherlands and the UK from a variety of sources, only one of which is a central bank, the Dutch National Bank (DNB).

In Italy and Spain, a report by Outman Consulting considers its new survey of the public, which found that cash use for payments under €10 fell from 78% to 48%. It looks at the reasons for cash being preferred – a large number of small retailers, a large shadow economy, a large elderly population and a culture that is risk averse. It then considers the forces moving both countries to a digital future – government initiatives, the rising number of Millennials and Gen Z in the workforce and the activities of the banks.

The Enryo consultancy found cash transactions down 53% in the UK. It has conducted five public surveys since April 2020 and has tracked changing payment behaviour. It has issued a report which ends with three cash scenarios between now and 2030, none of which is exactly cheerful.

The report is clear that there is a hard core of people who need to use cash and it suggests that cash usage will, increasingly, be concentrated in this group. The survey provides clear data on where people use cash and what is currently driving people away from it. It is interesting that most of those places will soon be opening up and the drivers reducing cash usage are likely to fade away.

ADAM, a cash management software provider, has issued its third pandemic report giving detailed information about what is happening to cash in Italy (for example, ATM withdrawals down 39.95% in December 2020).

It shows a change between Italy’s first wave, when cash usage declined in line with the incidence of the disease, and its second wave, when cash usage followed the lockdown rather than the disease. It also makes a credible claim that Italy’s ‘cashback’ initiative, which incentivised digital payments, reduced cash usage.

Finally, we cover the DNB’s recent press release about how and why it has become a net issuer of euro banknotes, the first time this has happened. It notes that in-store cash spending has dropped from 32% to 20% and ATM withdrawals are down 37%. It ends up suggesting that less cash usage is likely to stay.

These reports are mainly snapshots of the last year. They suggest cash decline but struggle to convince about the level, speed or certainty of it. A recent paper by the Indian Institute of Management, Kozhikode, studied the impact that a crisis has when it forces a technology change. The paper looked at how India’s demonetisation exercise drove an increase in digital payments but found that the effect faded away as the moment of crisis has passed.

It will be interesting to see what happens to cash in Europe as and when we learn to live with COVID-19.