Changing Cash in Circulation in Italy

The Banca d’Italia (BdI) issued a technical paper ¹ in July analysing 20 years of cash data to understand cash circulation, important to a central bank for planning cash production and its monetary policy implementation framework.

The paper focused on three key areas – the role of banknote flows from abroad, changes in institutional frameworks, and the domestic demand for cash for transactions compared with for other components, including liquidity hoarding.

The paper found that, at a time when the number of cash transactions was reducing, making cash less relevant, cash dynamics could be explained by legal limits on cash payments and money holdings for precautionary purposes. The pandemic has increased the size of precautionary holdings, driven by economic uncertainty and restrictions on mobility, but the reduction in lodgements at the central bank has been an important part of this increase.