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Extracts from a new RBA bulletin - The Future of Cash
Note that they point out the risk of outages with electronic payment systems, and risks associated with commercial bank viability during a financial crisis.
Demand for cash in the economy stems from its roles as a means of payment and a store of value.
As a means of payment, cash has a number of attributes that may be valued by end users.
It has near-universal acceptance, facilitates simultaneous exchange and instantaneous settlement,
is convenient for person-to-person payments and
can still be used at times when electronic payment methods are unavailable due to internet or electricity outages.
Cash transactions are also anonymous and, with low rates of counterfeiting in Australia, fraud may be less of a concern than when using alternative payments.
Cash can also be used as a store of value and, for this purpose, its attributes come to the fore in times of economic/financial uncertainty. In particular, in circumstances in which the viability of banks is under question – as was the case in many countries during the 2008–09 financial crisis – cash may be considered a superior store of value to money held in the form of bank deposits. That is, claims on the central bank are preferred to claims on a commercial bank.
Domestic store of value
Even though the share of cash transactions is declining, cash is still held as a store of wealth, including for precautionary purposes. In Australia, around three-quarters of respondents to the 2013 Consumer Use Survey reported that they held cash in places other than in their 'wallets', with the most important reason – other than for day-to-day transactions – being to fund emergency transactions. Other reasons related to the costs of accessing cash, including the time and cost of making withdrawals and access to ATMs (Graph 6).
It is difficult to predict how demand for cash as a store of value may evolve in the future, partly because 'hoarding' behaviour is probably influenced by personal preference, particularly for those holding large sums of cash. It is, however, possible that future technological advances could play a role. For example, at some point in the future, digital currencies might provide a viable alternative to cash holdings for some people, including those who value privacy and anonymity.
Last edited by SpacePete (2016-12-16 20:43:48)
Catus amat piscem, sed non vult tingere plantas
Good to see the RBA being realistic on this.
Everyone who thinks cash is going vanish is on a losing horse.