Publication - Cash - tried and tested, and with a future - Fritz Zurbrügg, Vice Chairman of the Governing Board of the Swiss National Bank - World Banknote Summit, Basel, 27.02.2017
Ladies and Gentlemen - It is with great pleasure that I welcome you to Basel, and to the very first World Banknote Summit. It’s rather fitting that the summit is taking place in Switzerland, as the Swiss National Bank is currently in the middle of issuing a new banknote series. As a result, banknotes are currently receiving a lot of attention in this country. And an interest in banknotes is, after all, what unites all of the participants at this summit.
At international level too, the last few months and years have witnessed a growing debate on the subject of cash, although often with a negative overtone – the future of cash has been called into question. Its critics call for cash to be abolished; in their view, it restricts monetary policy and can be exploited for criminal purposes. Others argue that cashless payment methods will gradually render cash obsolete in any case.
I would like to take the opportunity, right at the outset of the summit, to bring you the SNB’s view on these questions. To start with my key message – and to paraphrase Mark Twain: Reports of the death of cash have been greatly exaggerated. I will back up this statement by, first, looking at the sustained demand for cash on the part of the general public. Then I will explore why, from a central bank perspective, too, there is no reason to get rid of cash.
Cash remains in demand, both as a store of value...
Let’s start with the demand side. The behaviour of the general public does not give any indication that cash’s days are numbered. On the contrary: there continues to be robust demand for cash. Chart 1 compares cash circulation in various countries with their GDP. This ratio has actually risen in many countries recently, prompted by the global financial crisis and its lingering after-effects.
On the one hand, the crisis led to episodes of heightened uncertainty about the stability of banks. In response, the public turned increasingly to cash as a way of storing some of their savings outside the banking system. Chart 2, which focuses on Switzerland, shows this in impressive fashion. It reflects the growth in circulation of Swiss franc banknotes since the onset of the global financial crisis. We can clearly see that demand for cash surged in phases of heightened uncertainty. This applies especially to autumn 2008, when various banks around the world got into difficulties, and to the period between end-2011 and mid-2012, when the euro area debt crisis resulted in uncertainty on the financial markets.
On the other hand, the increased demand for cash can be attributed to the fact that money held on a transaction account generates almost no interest at present, so the opportunity cost of holding cash is correspondingly low. In Switzerland, the situation was heightened by the introduction of negative interest in January 2015, which triggered a temporary hike in demand for cash. However, we did not see cash hoarding on any major scale.
Copyright:Swiss National Bank, Zurich (Switzerland) 2017
page source https://www.snb.ch/en/mmr/speeches/
