The Flight to Cash in a Crisis

Gerhard Rösel and Franz Seitz have published a paper, ‘Cash and Crises: No Surprises by the Virus’, as a working paper for the Institute for Monetary and Financial Stability*.

This paper looks at cash usage across a number of key economies since the 1990s.

It notes the trend towards cash being hoarded as a store of value, reflected an increasing proportion of cash in circulation being high value notes, but looks, in particular, at what happens to cash when there is crisis.

Irrespective of what underlies the crisis, the response is similar, people withdraw and hold more cash.

Defying apparent logic and the huge growth in the use of electronic payments, cash in circulation as a percentage of GDP has consistently risen faster than GDP in major advanced economies, eg. the US, Europe, Switzerland, the UK and Japan.