What makes the current dash for dollar and euro banknotes particularly interesting is that it is happening at the same time that the use of cash around the world is being heavily demonized for increasing the risk of Covid-19 infection. In early March, in response to a question about whether banknotes could spread the coronavirus, a WHO spokesperson
said: “Yes it’s possible and it’s a good question. We know that money changes hands frequently and can pick up all sorts of bacteria and viruses … when possible it’s a good idea to use contactless payments.”
Around the world, media outlets and long-standing enemies of cash such as credit card companies and fintech start-ups seized on the WHO’s comments and magnified them, sparking fears over the safety of cash.
The WHO has since walked back its comments, arguing that it was not advocating for people to abandon the use of cash but rather that they should wash their hands after handling it, especially before handling or eating food. Central banks have also come out in force to try to dampen public fears about using cash.
But the damage may have already been done. In a
report published last week, the Bank for International Settlements noted that “irrespective of whether concerns are justified or not, perceptions that cash could spread pathogens may change payment behaviour by users and firms.” Even in a
traditionally cash-loving country like Spain, many retailers are urging people to use other payment methods.
In the UK, where the use of cashless payment cards was already rampant long before the virus crisis began, cash withdrawals at ATMs have fallen sharply in recent weeks (chart via BIS):
Central banks in the U.S., China, South Korea, Hungary, Kuwait and other countries have even begun “quarantining” or sterilizing banknotes, to ensure that cash leaving central bank currency centers does not carry pathogens. All of this is happening despite the fact that many digital payment methods that are being touted as safer, healthier alternatives to cash are just as likely, if not more so, to spread infection.
As the BIS
notes, debit and credit card transactions generally require a signature or a PIN entry at a merchant-owned device for larger transactions. Given that the virus survives best on non-porous materials such as plastic or stainless steel, debit or credit card terminals or PIN pads could prove to be even worse vectors of the virus. To reduce that risk, authorities, banks and card networks in countries such as Austria, Germany, the Netherlands and the UK have set higher transaction limits for contactless payments.
The more that consumers get accustomed to the ease, convenience, and relative safety of contactless payment methods, the less likely they are to return to physical cash in the future. At least that’s what credit card companies, banks, tech giants and fintech startups are hoping. The BIS report concludes that the Covid-19 outbreak could lead to “both higher precautionary holdings” (i.e. hoarding) of cash by consumers and “a structural increase in the use of mobile, card and online payments.”
By Nick Corbishley, for WOLF STREET.
