Working Paper: CEPR ID: DP16618
Authors: Jonathan Ashworth; Charles A. Goodhart
Abstract: The pandemic fuelled a remarkable surge in currency in circulation across most countries, with cash once again defying premature obituaries of its demise. The somewhat enforced intensification of the digitalisation of economies clearly appears to have further diminished cash’s role as a medium of exchange. However, other important aspects of digitalisation, such as the growth in private digital currencies, haven’t weakened cash’s role as a store of value. The recent experience shows that in a major crisis people still want to retreat to the security and safety of holding bank notes, especially large denomination notes, to provide reassurance. When in trouble, people want to go back to the tried and true; in this respect holding paper money in their wallets.
Keywords: cash; banknote issue and withdrawal; covid 19; panic response
JEL Codes: E40; E41; E49; N10; N20
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Pandemic (H12) | Increased panic-driven demand for cash (E41) |
| Lockdown measures (F38) | Increased cash hoarding (E41) |
| Pandemic (H12) | Surge in currency in circulation (E41) |
| Economic uncertainty (D89) | Demand for cash (E41) |
| Panic (H12) | Cash demand (E41) |
| Lack of cash returned (E41) | Increased demand for cash (E41) |