Cash Beats the Odds on Coronavirus

Cash Beats the Odds on Coronavirus

In the past, the growth of cash circulation has been subject to major fluctuations. Particularly in times of great uncertainty, circulation has seen significant increases. This has also been confirmed during the coronavirus crisis, although cash withdrawals at ATMs did temporarily decrease sharply.

However, cash remains widespread and popular – and the results of the current survey on payment methods will show to just what extent.

Major Fluctuations in Times of Crisis

Although cash in circulation has continuously increased over the past 100 years, the growth rates varied considerably over time, as the amount of cash is driven by various different factors. First, it increases along with economic growth. Second, demand for cash increases in phases of low interest rates, as the opportunity costs of holding cash then decrease. In addition, demand for Swiss cash may increase when the franc is strong. By contrast, the spread of new payment technologies has a curbing effect. Particularly in times of crisis or great uncertainty, the amount of cash in circulation increases significantly. For example, very high growth rates were recorded when the financial crisis escalated in 2008 and during the sovereign debt crisis in 2011–2012 (see Chart 1). In times of crisis, cash circulation may be affected not only by the traditional factors, but also by a flight to secure investments and by consumers and companies holding cash as a precaution.

Increase of Cash in Circulation

Since September 2019 After a phase of low growth rates, cash in circulation started to increase again from September 2019 with the prospect of low interest rates in the longer term and as the franc became stronger (see Chart 1). After the Swiss Federal Council announced an extraordinary situation in accordance with the Epidemic Act in March 2020, growth rates increased further. While large denomination notes were in greater demand, a decline in demand for smaller denominations and coins could be observed. Coins in circulation even saw the lowest growth rates since 2002. This is probably due in part to the fact that small-denomination notes and coins are used particularly often in the catering sector. In addition, hygiene concerns are likely to have contributed to the reduced use of cash, although it has not yet been proven whether cash may play a role as a potential transmitter of the coronavirus.

Temporary Sharp Decrease in ATM Withdrawals

Following the announcement of the extraordinary situation, transactions with payment cards – i.e. cash withdrawals and card payments – also decreased significantly. For example, daily ATM withdrawals halved in comparison to the previous months during the closure of many shops, markets, restaurants, bars, and entertainment and leisure venues. When the measures were eased at the end of May, withdrawals picked up again and by the end of June they were only slightly below the level from the beginning of the year (see Chart 2). The average amount of cash withdrawn increased by almost half during the crisis. This is probably partly a result of lower mobility leading consumer to withdraw cash less frequently but in larger amounts each time. In addition, the increase indicates a greater need for a reserve in the form of cash.
This average amount has largely returned to normal levels again since early June. The use of non-cash payment methods also declined as a result of the crisis, but has actually increased to above the pre-crisis level since the measures were eased. Accordingly, card payments are recovering faster than cash withdrawals.

Cash Still Widespread and Popular

Cash remains widespread and popular in Switzerland. This is reflected not least in the development of cash in circulation and cash withdrawals and was also confirmed by the results of the previous survey on payment methods. Despite the spread of alternative forms of payment, cash has certainly not been displaced as a payment method. Both cash and cash deposits have an important economic function in payment transactions. The Swiss National Bank (SNB) does not adopt a position in favor of any particular payment method. Rather, its mandate comprises the responsibility both to ensure the supply of cash and to facilitate and secure functioning cash-free payment systems. The decisive factor for the SNB is therefore the payment habits of the population and businesses. The long-term effects of the coronavirus crisis on payment habits in Switzerland cannot yet be assessed. However, the survey on payment methods currently being conducted on behalf of the SNB will provide some important indications.

Author: Market Analysis team Cash division, Swiss National Bank


More about the survey on payment methods 2020 by SNB.