Cash still 'king' despite rise of contactless payments

Saleha Riaz
·2 min read
Cash remains as a 'store of value' and a 'safe haven,' according to a study. Photo: Getty Images
Cash remains as a 'store of value' and a 'safe haven,' according to a study. Photo: Getty Images

Deutsche Bank (DBK.DE) has declared “cash is still king” despite reports that the use of cards and contactless payments has gained popularity during the pandemic because of concerns that banknotes can help spread germs.

According to Deutsche Bank, people regard cash as a “store of value“ and a “safe haven."

It noted that recently, the European Central Bank (ECB) reported that the circulation of euro banknotes surged 12% over the past year.

That was the highest growth rate in a decade and more than double the growth rate of 2019. During the three months prior to May 2020, the increase of banknotes in circulation in the eurozone was 75bn (£64bn, $88bn).

Chart: Deutsche Bank
Chart: Deutsche Bank

This was an all-time high that exceeded the increase of banknotes during the three months following the collapse of Lehman Brothers in late 2008, the study said.

This record increase in the eurozone can be explained in part by massive government fiscal efforts to support the economy and citizens, which resulted in higher rates of saving.

“We believe that cash will not likely disappear soon. In fact, the amount of cash in circulation has been surging and, more recently, the COVID-19 pandemic has caused the demand for cash to skyrocket,” the report said.

Meanwhile, the bank’s proprietary survey of 3,600 individuals across the UK, US, China, Germany, France, and Italy showed that one-third of Americans and Europeans rank cash as their favourite payment method.

More than half of those in developed countries believe that cash will always be around. This viewpoint has remained steady before and during the pandemic for all survey participants.

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READ MORE: 11.6 billion transactions in the UK to shift away from cash by 2023

The report also noted that low central bank interest rates play a role in increasing the amount of cash in circulation. The opposite is also true, as higher interest rates would likely help bring about the end of cash as a store of value.

The US Federal Reserve, the ECB, the Bank of England, and the Bank of Japan have all lowered interest rates to near or below zero. And this trend may continue for a while.

In November, it was reported that cash transactions are expected to rapidly decline in the UK, with Accenture (ACN) predicting 11.6 billion transactions, worth up to £155bn, will shift from cash to cards and digital payments by 2023.

Globally, the figure was expected to hit £5tn.

Accenture’s study noted that while cash usage has been on a downward trend in the UK, the impact of COVID-19 has been significant, as consumers avoid in-person payments during lockdown and turn to online shopping and mobile wallets.

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