Might we be witnessing cash in its death throes at the bloody hands of coronavirus? Some who would benefit from the would-be demise of physical money see a silver lining in the most brutal recession since the 1930s.
The argument is that digital payments have grown exponentially in the coronavirus pandemic, capping a decade of sustained growth in new ways to shop and pay, from contactless cards to payment apps and the current explosion in cryptocurrencies. Cash, it is held, is under existential pressure.
But central banks have recorded exceptional spikes in demand for cash in the pandemic as consumers boost their precautionary holdings, confirming the role of cash as a crisis safe haven. Never has there been so much cash in circulation. In the US, the value of cash in circulation grew by almost $300 billion in 2020, a year-on-year increase of 16.5%. And yet public and investor interest focuses more on those seeking to displace cash than innovators intent on facilitating its use.
The banking system has changed like never before as a result of advancements in technology. With the rapid use of automated teller machines, internet banking, and other technologies, there has been a change in consumers’ experience. This revolution is also growing with the use of mobile banking.
It has been recorded that digital payment has been growing for the past few years. The current explosion in cryptocurrency, and payments apps has also decreased the use of cash.
Cash is king to the financial institutions and consumers
“Cash is king” is a slang term reflecting the belief that money (cash) is more valuable than any other form of investment tools, such as stocks or bonds. … Many businesses only accept cash as a form of payment, as opposed to credit cards or checks, hence the phrase “cash is king.”
Cash is the lifeblood of a business and a business needs to generate enough cash from its activities so that it can meet its expenses and have enough left over to repay investors and grow the business. While a company can fudge its earnings, its cash flow provides an idea about its real health.
Cash has been a major source of payment for many centuries. The ability to receive money is very important and it’s a basic need and cash has been fulfilling this need for many years. This has led to the creation of a cash management system which has made cash more efficient and accessible. These cash management systems include cash deposit machines, counters in banks, ATMs, and others.
The central bank has also recorded an increase in cash demand during the pandemic. This is because many consumers want to improve their precautionary holdings. This further buttresses the role of cash and it’s importance during a crisis.
Cash is also a primary source of exchange for goods and services and has also maintained a dominant position in the market around the world. Also, continents such as Asia are cash-centric relative to the United States of America and Europe.
In 2019, more than 70% of person-to-person payments in the euro area are made by cash. Research has also shown that many countries with great economies make use of cash. The ones with the most advanced and different types of payment technology also have the highest levels of cash in circulation.
This has also further proven the importance of cash. Therefore, it is necessary to harness technology to ensure the flow of cash in the future instead of working to overturn it.
The role of technology in the future of the cash
While technology has given us more control over our financial lives — online shopping, online banking, mobile payments, automatic deposits — it may also be changing how we view and value money. Lessons over time from other influences, such as school and social media, further shape attitudes towards money.
Banks should make use of newly emerging technologies to upgrade their system and also provide faster transactions. Technology should be their core competency and the cost of transaction from person to person should be minimal.
Innovation of product design and creating a system with the help of technology to reach the unreached is also an important factor. The provision of convenience and ease of services will drive many people to get cash from banks and use it for their day-to-day activities. The improvements of users’ experience and value for money in banks is vital and this is what technology will help in achieving.
Trust is also an important factor in banking relations. Consistency, authenticity, accuracy, and reliability are the hallmarks in services to build trust. And this can only be achieved with the right technologies in place.
Bottom line
With the use of technology, cash usage can be made simpler. The cash cycle can also be shortened in order to circulate faster and better while reducing banks handling cost.
Author Bio
This is a guest contribution by Harleen Kaur, a Chartered Accountant, a finance enthusiast and a passionate blogger running a personal finance blog @ Fintrakk.com sharing knowledge and simplifying things in the field of finance and investment for the common man.
