Canadians are turning to cash to protect themselves from chaos

Bank of Canada report suggests money has become something to hoard rather than spend

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Instead of killing money, the pandemic could have saved it.

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According to the latest Bank of Canada Payment Methods Survey, a comprehensive analysis of the payments landscape that the central bank conducts every four years.

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This trajectory suggests that Canada is on the way to becoming a cashless society. Indeed, a quarter of respondents told the central bank they had no cash in their wallet or at home, compared to 11% who said they had no cash in 2017.

Except that the investigation revealed that the demand for cash had in fact increased. Overall, Canadians reported having an average of $127 in cash « on hand, » up from $106 in 2017, an increase above inflation over that period, the central bank observed. Canadians were holding considerably fewer $5 bills, while demand for $20, $50 and $100 bills increased from 2017, suggesting cash was becoming something to hoard rather than hoard. spend.

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Revelation now? Not exactly, but the demand for silver seems tied to Canadians’ desire to establish a hedge against economic crisis, geopolitical uncertainty and perhaps even technological failure, given the extent to which the collapse of Rogers Communications Inc. systems crippled the day-to-day trade this summer.

“Uncertainty due to the pandemic has led to increased demand for cash beyond the level of steady growth seen over the past few decades,” concluded the Bank of Canada report, which was released Dec. 28.

The demand for cash is important to the Bank of Canada, as it is responsible for keeping enough notes in circulation. Canadians’ desire for cash is also relevant in discussions of whether the central bank should introduce a digital unit of exchange, as a radical move away from hard currencies would make the case for the creation of a digital currency. of the central bank. The central bank said it would now produce the annual Payments Methods Report, as « the evolution of the payments landscape in general is continuous and rapidly changing. »

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The Bank of Canada is responsible for keeping enough notes in circulation.
The Bank of Canada is responsible for keeping enough notes in circulation. Photo by Brent Lewin/Bloomberg

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

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

“If Canadians aren’t using more cash for transactions, what explains its continued appeal? Crises (or fears of crises) are often linked to a rush for money,” wrote RBC economist Josh Nye. “Demand for banknotes of small and large denominations surged globally around the turn of the century amid fears that the Year 2000 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 telecommunications network outage not only affected internet and cell phone services, it also crippled the Interac debit payment network, preventing Canadians from paying by debit. Credit cards were also useless at retailers with Rogers Internet. For a day, cash really was king.

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The episode sparked conversations about whether the shock would make Canadians more likely to keep cash. Financial experts have advised Canadians to keep cash in their pockets just in case.

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

Canadian authorities aren’t as prescriptive, perhaps because they can be reasonably confident that Canadians are already keeping a decent amount of cash. The Bank of Canada poll found that 79% of respondents have no intention of stopping using cash in the future.

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

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