Bitcoin bitcoin bitcoin. All I ever hear about is bitcoin. (And when it’s not bitcoin, it’s often other cryptocurrencies.) But there is another means of payment that doesn’t get as much love, despite growing in popularity. It’s called cash.
According to a new report by the Bank for International Settlements (BIS), cash use is on the rise across the world. Overall, cash in circulation as a share of GDP rose from 7% in 2010 to 9% in 2016 for a group of countries that comprise more than 80% of the world’s economy.
No single country is responsible for the trend. Since 2007, cash has been rising in the majority of countries covered by the BIS data. The chart below shows a sample of cash in circulation for a representative set of eight countries that the BIS tracks:
One might think that people are keeping more cash for use in small transactions. For example, I need cash to purchase coffee at a cafe near my house with a minimum credit card charge of $5.
But that isn’t it. The BIS data show that the trends is towards using credit and debit cards for smaller transactions. The average value of a card payment across the world has nearly halved since 2000, from $61 to $36.
So what’s going on? The BIS researchers think people were spooked by the 2008 financial crisis. With less trust in banks, people now choose to keep more of their savings in cash.
The researchers show that while circulation of both small and large bills have risen, it is larger bills, the ones less likely to be used for everyday transactions, that have increased the most, as a share of GDP, since 2007. In just four years, from 2007 to 2011, the share of bills worth $75 or more increased from 4.8% of world GDP to 6.2%. In some countries, like South Korea and Russia, the share of small-denomination bills actually fell while the share of high denomination bills rose.
In Iceland, which was hit particularly hard by the financial crisis, a trend towards physical money almost disappearing was reversed. The share of cash in circulation in the country rose from less than 1% in 2007 to almost 2.5% today.
There, as elsewhere, a prolonged period of stability in the financial system could revive talk about cash’s obsolescence. So far, however, rumors of its demise are greatly exaggerated.