Sitting in a café in Paris, I air-scribble towards the waiter to request the bill. I realize how obsolete this gesture has become, as the Gen-Z waiter promptly arrives holding a POS (point of sale) terminal, spontaneously directing it towards my phone. He smiles compassionately, as I pull out a crisp blue banknote from my wallet.
The scene is commonplace across Europe and some – but not all – parts of the world, as digital payments have become ubiquitous and seemingly diversified. This diversity in form factors is misleading, as it conceals the extreme concentration of the digital payments market, in the hands of a few global giants. Cards, wallets, contactless, payment apps, QR codes, fobs, wearables, invisible payments or biometrics all seem to be displacing cash, turning it into an artifact reminiscent of old forms of money.
However, nothing is further from the truth.
As we celebrate the 20th anniversary of euro banknotes and coins, European Central Bank (ECB) data shows that the value of euro cash in circulation has increased eightfold since its introduction and now exceeds €1.6 trillion. ECB consumer research shows that in 2019, 73% of all retail transactions in the euro area were settled in cash.
One explanation is that cash possesses unique attributes, which are mostly unmatched by alternative payment instruments. As wisely stated by Hyun Song Shin, economic adviser for the Bank for International Settlements, “the resilience of cash as a social institution reminds us of the importance of understanding the economic functions of money, beyond just the innovations in technology.”
Cash has four unique, interconnected attributes – universality, resilience, anonymity and it is public money.
Cash is Universal
Cash can be used by all and accepted by all. It is inclusive. It does not require a bank account or a device by either party to a transaction. It does not discriminate against age, gender, wealth or ethnicity.
Cash covers a broad range of transactions, in terms of value, the channels employed, and the interacting parties (ie. person-to person, person-to-business, person-to-machine etc). It has demonstrated a remarkable capacity to adapt to new transaction opportunities, such as e-commerce, where cash is used for example, to pay ‘cash-on-delivery’ for goods ordered online.
It is particularly suited to the more fragile segments of society, the unbanked (13 million adults in Europe); the underbanked; the blind and visually impaired (30 million people), the poor (96 million people were at risk of poverty and social exclusion in 2020) as well as other vulnerable groups. ECB research shows that it is mostly older age, lower income and lower educational level that lack access to electronic payment options. In addition, those who receive their income in cash are also more likely to be unbanked.