New Report on The Importance of Cash in a Crisis

Professors Gerhard Rösl and Franz Seitz have written a paper in which they compare the handling of the 1929 depression, the 2008/9 recession, India’s demonetisation exercise and Greece’s experience in their sovereign debt crisis and financial challenges starting 2009 until today ¹. While the study is primarily about the provision of liquidity into the financial system, it also provides useful insights into the role and importance of cash.

The stock of money in an economy is made up for public money, cash and reserves, and private money, commercial bank money. Over the last few years there has been a focus on the effect of restricting cash use, how cash creates a bottom limit on negative interest rates, what happens to cash in a crisis and the cash paradox when there are fewer cash transactions but rising levels of cash in circulation.