Vaultex Consulting Newsletter

An insight to the world of cash from the UK’s cash management experts.

A note from Emilia

Head of Marketing and Communication

In the last newsletter we looked at the state of cash in the UK and what the decline in usage means for many businesses. (To read the article, click here). The same changes seen in the UK can be seen across international markets as digital alternatives to cash take hold. Many economies are edging out of restrictions and hoping to open up over the coming months, and with this comes increased spending from consumers. With estimates that the UK has collectively saved over £100 billion during the Covid19 lockdowns, the potential for spending is considerable. But it is the medium these consumers will use that many central banks will be monitoring carefully.

As economies open up once again, we will hear the familiar claims that cash is dead and digital is the future, but Vaultex believes this is far from true. We are seeing renewed commitment to cash in the UK, with the introduction of the £50 polymer and calls for the Government to introduce legislation safeguarding cash. The European Central Bank reported growth in demand for cash during the pandemic with many countries within Europe still preferring cash over cashless.

The future of cash is of course a vitally important issue and one that many central banks, commercial banks and businesses will be monitoring carefully. Vaultex recently hosted a joint webinar with our partners The Royal Mint on ‘The Importance of Cash’, discussing the future of cash, and how businesses can keep cash management cost efficient.

Future Proofing Cash

While the volume of bank notes in circulation may be increasing (already up 14% this year), there is simultaneously a reduction in the use of cash in day-to-day life. We see a sharp contraction in Inflows and Outflows as many high cash user businesses have been the most impacted by lockdowns. As the economy releases from Lockdown we are seeing volumes increase and Vaultex forecasts a return to roughly 80% of pre COVID cash levels. This is compared to a 3% decline in cash transactions before the beginning of the pandemic. It seems that while cash has recovered somewhat, COVID-19 has certainly accelerated the overall decline in cash in the UK.

Here in the UK, the Bank of England estimates that the total value of banknotes in circulation will have increased year on year by 23% by the end of 2021, with analysts keen to understand whether consumers are spending currency or using it as a storage of wealth during uncertain times.

What is certain is that cash, remains vital to the UK economy, with an estimated 2.1 million people still using cash for their day-to day purchases. In order to support these people, and safeguard access to cash, a cost efficient, secure, sustainable and resilient infrastructure for cash remains a UK Government and Bank of England priority, and the rest of the cash industry must also play its part.

Investing in Cash for the Future

Against the now familiar calls of a digital payment revolution, it seems that in many countries, cash is holding strong.

The European Central Bank reported growth in demand for cash during the pandemic with the total value of Euro bank notes increasing from €1.3tn (US$1.5tn) at the end of 2019 to €1.4tn (US$1.7tn) at the end of 2020. According to the ECB’s findings one of the key reasons for this increase is consumers’ views that cash is useful for “precautionary purposes” and they have continued to hold and use it through the Covid19 pandemic. In the euro area, consumers made 109 billion cash payments worth €1,722 billion and 38 billion card payments with a value of €1,633 billion in a year.

Indeed the European Central Bank’s findings show that a significant proportion of European citizens still prefer cash – in Germany 43% prefer cash compared to 31% preferring cashless. In Austria 42% compared with 31%, in Cyprus 48% against 16% and Malta 37% compared to 33%.

In the UK specifically, the value of banknotes in circulation increased from £3.96 billion in 2020 to £4.54 billion in 2021. Vaultex is are also seeing a 13% increase in cash volumes since the start of 2021.  With the introduction of the new £50 polymer note, marking the last in the series of polymer upgrades in the UK, it shows the Bank of England’s continued faith in and support of cash.

Maintaining the balance between digital and cash

While the idea that cash is in decline is not a new narrative – especially in advanced economies – there are increased voices amongst sections of the payment industry that the landscape will be changing more rapidly. The biggest movement away from cash is happening in the Asia-Pacific region, followed by Europe and North America.

A recent study by WorldPay has tracked the usage of cash over the next five years across Europe. It claims that cash will account for 7% of purchases made in the UK by 2020, with the shift to digital payments accelerated by the COVID-19 pandemic. It predicts that a number of countries, including the UK will aim to be cashless by 2025.

Similar patterns can be seen in South East Asia. The Vietnamese Central Bank set up an electronic network for financial transactions aimed at promoting cashless payments in the country. In China cash payments are declining by three percentage points of GDP due to their model of a “cash-lite” society, and this trend looks to continue.

Even if the use of cash may have declined for the majority, its use has become essential to a certain sections of society. Indeed these groups reliance is now more entrenched in their daily habits than ever. Recently, Sweden was forced to back-track on previous legislation pledging a cashless society as it became clear this was failing to protect the most vulnerable in society.

Despite the fact that some of Sweden’s most senior bankers have claimed the country will move to a Central Bank Digital Currency (CBDC) within five years, new legislation is being implemented that requires banks to provide adequate cash services.

The Importance of Cash

Vaultex Consulting Services recently hosted a webinar with our partners The Royal Mint on ‘The Importance Of Cash’. Our team of experts spoke about why cash remains an important payment method, despite volume decreases and the increase in digital payments technologies. We discussed the options available for businesses to keep cash cost efficient as a payment method and ensure they are future-proofing their cash management solutions.

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