Since the onset of Covid-19, the value of bank notes has risen sharply.

The Covid-19 Pandemic has had a huge impact on the global economy and the way businesses have operated to survive. One would be forgiven for thinking that during this period (due to the need for hygienic cashless transactions) that the value of the cash in circulation would have dropped dramatically. However, the truth is that the opposite has taken place. According to the RBA (reserve bank of Australia), the onset of Covid-19 radically increased the value of banknotes bank notes in circulation. This is consistent with other periods of economic uncertainty as people seek to hold cash for precautionary store of wealth purposes. This trend is not just in Australia but was seen in many other countries such as Japan, USA, UK, Canada, Israel, New Zealand and more. You can view the report in more detail here.

Cash is not leveraged by digital technology

Cash’s use as a precautionary store of wealth is not limited to global pandemics. Recent flooding events in NSW which effected a variety of essential services such as the region’s energy infrastructure proved another great upside to cash – it is not leveraged by digital technology. As Reserve Bank Governor Philip Lowe put it “cash does not require the internet to be up, electricity to be working and the banks’ systems to be operational”. In an age where our vital systems are becoming more technologically advanced using digital mechanisms, this failsafe is incredibly important.

Such a need is obviously not isolated to flooding, but relates to anytime an event effects our digital systems. The 2019-2020 bushfires which burned more than 46 million acres and at least 3,500 homes also had a substantial impact on the nation’s digital networks.

The Australian Communications & Media Authority made the following observations on our telecommunications & internet facilities:

• 1,390 facilities were impacted by the bushfires, directly or indirectly, during the review period.
• Of all the facilities impacted, 51 per cent experienced outages of four hours or more during the review period, while 26 per cent of facilities experienced outages of less than four hours.
• The average length of outage incidents was 3.5 days and the median was 1.6 days,

Source: ACMA – Impacts of the 2019-20 bushfires on the telecommunications network. To read click here.

Covid-19 has embedded & enhanced the fear of the unknown

Circling back to where we started with cash holdings and Covid-19, the RBA’s report showed the same fear of digitally leveraged systems potentially dictated behaviour during the pandemic. During 2020 cash holdings outpaced cash deposits and the RBA’s report notes that in addition to the generalised uncertainty the accompanied Covid-19, a specific fear was the potential for disrupted electronic payment systems. This was highlighted by the fact that in March 2020 there was a spike in cash withdrawals as the turbulent year started to take shape. While reality looked a little different in the form of businesses declining cash as a protective measure for their workers and digital systems staying online, the concern was valid.

There is a general consensus that Covid-19 has left the global population with an underlying feeling of uncertainty. If someone had told us at Christmas in 2019 that for the next 12 months (and when all is said and none maybe the next 2-3 years), we will experience a catastrophic disruption to life as we know it. Flights would be grounded, masks would be mandatory, and one could only leave the house during a short window to run or buy groceries we would have thought them paranoid – But yet, here we are. This event will leave psychological scars for the world at large while the environment around us continues to become more and more volatile. When you combine the now embedded & enhanced fear of the unknown with the understanding that future disasters may be of the natural variety which destroy the physical infrastructure needed for our digital systems, the concept of cash is likely to feel like more of a safe haven than ever before.

What all this means is that in a world of technological advancement and digital reliance, cash remains a reliable and important part of our economic infrastructure. As the vaccines are rolled out across the globe and sun slowly begins to rise on a post covid world, we must remember this period as a lesson in economic uncertainty… and the ways we must prepare for the unexpected.

Sources

• https://www.rba.gov.au/publications/bulletin/2021/mar/cash-demand-during-covid-19.html
• https://www.acma.gov.au/publications/2020-04/report/impacts-2019-20-bushfires-telecommunications-network