$600m cash hoard over Covid fear
The Covid-19 pandemic has prompted a $600 million surge in the amount of cash in the hands of the public, despite cash being used for fewer transactions.
Total cash in the hands of the public, under mattresses, in wall safes, in wallets, and in the tills of businesses, rose to $7.92 billion, Reserve Bank data to the last Wednesday in March shows.
At its peak last year, there was $800m more cash in the hands of the public. While New Zealand’s Reserve Bank has not commented on the rise, Australia’s Reserve Bank (RBA) has attributed its own surge in demand for cash to people hoarding banknotes at home.
‘‘Demand for banknotes was extraordinarily high over 2020, despite a sharp decline in the use of cash in day-to-day transactions,’’ the RBA said last month.
‘‘The pandemic has accelerated trends in banknote demand that had already been occurring for many years.
‘‘The relatively strong demand for high-value banknotes suggests a significant precautionary savings or store-of-wealth motive by households and businesses,’’ the RBA said.
As with the stockpiling of food, international researchers have linked the stockpiling of cash in the face of economic uncertainty as a means humans use to reduce their anxiety and to feel they are able to take action, even when stockpiling is condemned by politicians and in the media as immoral and anti-social.
‘‘One reason for this dramatic shift in payment preferences and behaviour is community concern about transmission of the virus via banknotes,’’ the RBA said.
‘‘Of those people who preferred not to use banknotes in transactions, 28 per cent said one reason was because they thought of cash as being unhygienic.’’
In New Zealand, it was more $20 and $50 bills that ended up in the hands of the public, while the total value of $100 banknotes in circulation fell marginally.
Between March 2020 and March this year, just over $600m more cash in the form of $50 bills ended up in the hands of the public, and just under $23m more in $20 notes.
In Australia, the financial ‘‘penalty’’ for households holding cash also fell as banks offered lower and lower interest rates, the RBA said. A similar trend has been seen in New Zealand, where deposit rates have sunk so low that many households have turned their backs on term deposits.
Instead, many were keeping their money in zero-interest transaction accounts to the delight of bank shareholders, who have witnessed an expansion of the gap between what banks borrow money at from their depositors, and what they lend it out at to borrowers.
Last year, the RBA found 56 per cent of Australians stored cash outside the banking system.