The Cash ‘Paradox’

In its latest Quarterly Bulletin, the Bank of England published an article ‘Cash in the time of COVID’. The article seeks to explain what it referred to as the cash ‘paradox’, that cash in circulation is up while cash transaction volumes are down, which has been brought into sharp relief during the pandemic.

Demand for cash

In the ten years from 2009 payments in cash fell from around 60% of transactions to 23%, although this still represents about 9.3 billion transactions a year. Between 2005 and 2017 the value of notes in circulation doubled. Research shows a higher cash demand when interest rates and inflation are low, when exchange rates fall and there are concerns about the banks or the economy.