COVID has changed our relationship with cash, as we are all using a lot less of it for day to day transactions. In the first two months of the pandemic, cash withdrawals from automatic teller machines halved. Even now, they are down 20%. So little-used were the main notes used for small transactions, such as $5 and $10 notes, that the Reserve Bank stopped issuing them in the first half of 2020.
Many Australians are no longer using cash for face-to-face purchases. Many have said they avoided using cash because it was unhygienic, while others said many businesses wouldn’t take it. However, despite this sharp decline in the use of cash in day-to-day transactions, Australians are amassing more cash than ever, with the demand for high-value banknotes being extraordinarily high throughout 2020.
The significant increase has likely been driven by hoarding behaviour. The relatively strong demand for high-value banknotes suggests significant precautionary savings or store-of-wealth motive by households and businesses. Since mid-March 2020, almost 90 per cent of the volume of banknotes issued were $50 and $100.
Historical experience suggests that precautionary motives tend to come to the fore during economic and financial stress periods. However, Australia was also not alone in seeing a substantial increase in demand for banknotes, with many other countries experiencing similar patterns of cash demand.
Many Australians are no longer using cash for face-to-face purchases. Many have said they avoided using cash because it was unhygienic, while others said many businesses wouldn’t take it. However, despite this sharp decline in the use of cash in day-to-day transactions, Australians are amassing more cash than ever, with the demand for high-value banknotes being extraordinarily high throughout 2020.
The significant increase has likely been driven by hoarding behaviour. The relatively strong demand for high-value banknotes suggests significant precautionary savings or store-of-wealth motive by households and businesses. Since mid-March 2020, almost 90 per cent of the volume of banknotes issued were $50 and $100.
Historical experience suggests that precautionary motives tend to come to the fore during economic and financial stress periods. However, Australia was also not alone in seeing a substantial increase in demand for banknotes, with many other countries experiencing similar patterns of cash demand.