Canadians turn to cash as a hedge against chaos

A Bank of Canada report suggests cash has become something to hoard, rather than spend

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Instead of killing cash, the pandemic might have saved it.

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Canadians used bills and coins to make only 22 per cent of payments in 2021, compared with 33 per cent in 2017 and 54 per cent in 2009, according to the Bank of Canada’s latest Methods of Payments Survey, a comprehensive analysis of the payments landscape that the central bank conducts every four years.

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That trajectory suggests Canada is on track to becoming a cashless society. Indeed, a quarter of respondents told the central bank that they had no cash in their wallets or at home, compared to 11 per cent who reported being cashless in 2017.

Except the survey found that the demand for cash had actually increased. Overall, Canadians reported having an average of $127 of cash “on hand,” compared with $106 in 2017, an increase that was greater than inflation over that period, the central bank observed. Canadians were holding significantly fewer $5 bills, while demand for $20, $50 and $100 bills increased from 2017, suggesting cash was becoming something to hoard rather than something to spend.

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Apocalypse now? Not exactly, but the demand for cash appears to relate to a desire among Canadians to establish a hedge against economic crisis, geopolitical uncertainty and maybe even technological failure, considering the degree to which the collapse of Rogers Communications Inc.’s systems crippled day- today’s commerce this summer.

“Uncertainty due to the pandemic drove increased demand for cash over and above the stable level of growth observed in past decades,” concluded the Bank of Canada report, which was published on Dec. 28.

Demand for cash matters for the Bank of Canada because it’s in charge of keeping enough bills in circulation. Canadians’ desire for cash is also relevant in discussions over whether the central bank should introduce a digital unit of exchange, as a sharp turn away from hard currency would argue in favor of creating a Central Bank Digital Currency. The central bank said it will produce the Methods of Payments report annually from now on, as “developments in the payments landscape in general are ongoing and fast-changing.”

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The Bank of Canada is in charge of keeping enough bills in circulation.
The Bank of Canada is in charge of keeping enough bills in circulation. Photo by Brent Lewin/Bloomberg

The Bank of Canada’s survey results were consistent with other counterintuitive findings that show cash in circulation has been increasing even as its use has been decreasing.

In May, a report from the Royal Bank of Canada noted that the demand for cash was at its highest level in 60 years during the pandemic, even as a shift to e-commerce and digital payments accelerated. Like the new Bank of Canada survey, the Royal’s economics team further observed that Canadians were holding onto cash rather than spending it.

“If Canadians aren’t using more cash for transactions, what explains its ongoing allure? Crises (or fears of crises) are often tied to a dash for cash,” wrote RBC economist Josh Nye. “Demand for both small and large denomination notes increased globally at the turn of the century amid fears that the Y2K bug would cripple ATM networks and cashless payment systems.”

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In July, the Rogers outage showed Canadians that digital payment networks are not infallible. The telecom network breakdown not only hit internet and cellphone services, but it also crippled the Interac debit payment network, leaving Canadians unable to pay with debit. Credit cards were also useless at retailers with Rogers’ internet. For a day, cash was truly king.

The episode prompted conversations about whether the shock would prompt Canadians to be more likely to keep cash on hand. Financial experts advised Canadians to keep some cash in their pockets just in case.

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Public safety authorities also say it’s a good idea to be prepared with cash on hand in case of an emergency, be it a pandemic, natural disaster or digital payment networks going haywire. The Utah Department of Public Safety recommends keeping a minimum of $200 in small bills in a disaster kit.

Canadian authorities aren’t that prescriptive, maybe because they can be reasonably confident that Canadians are already keeping a decent amount of cash around. The Bank of Canada’s survey found that 79 per cent of respondents have no plans to stop using cash in the future.

“Cash is still viewed quite positively in terms of acceptance, cost, ease of use and security,” the report said.

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