Central banks are issuing more cash than ever, but like many consumers, they’ve lately found themselves asking where it all goes.
Across advanced economies, data shows transactional cash use declining while cash in circulation (CiC) continues to grow. This has come to be known as the ‘paradox of banknotes'.
The phenomenon was initially identified by Andrew Bailey, when he was Chief Cashier at the Bank of England, having become apparent in the aftermath of the global financial crisis (GFC).
The gap between CiC and cash transactions has become more pronounced every year since.
So, what’s driving this paradox? And how is it affecting consumers and central banks?
The paradox of banknotes is most striking in developed economies where digital payments have driven a substantial decline in the use of cash for transactions, especially in recent years.
The uncertainty engendered by COVID-19 drove CiC to historic highs, despite pandemic policies discouraging the use of cash – and this was true across most advanced economies.
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The full article can be viewed in Specimen Magazine — issue 12.
