Canadians stash cash as emergency precaution: RBC report
The pandemic has not spelled the death of cash as many suspected it would. In fact, demand for hard currencies as a savings vehicle has gone in the opposite direction as demand reached its highest level in 60 years.
Cash withdrawals surged at the onset of the pandemic as circulating notes increased twice as much as expected in 2020 and remained elevated in the following year, according to a recent Bank of Canada report.
The Royal Bank of Canada noted in a report on Monday that cash was used more as a savings vehicle rather than for transactions. The Bank of Canada’s data tracking transactions found that the volume of cash purchases dropped precipitously from 54 per cent in 2009 to just 22 per cent in 2020.
RBC analyst Josh Nye has a few reasons why Canadians are clutching onto cash: for one, there is an overall correlation with crises and the need to have hard cash on hand. Nye wrote that the demand for cash was pronounced over 20 years ago amid fears that the Y2K programming bug would wipe out the worldwide network of ATMS and digital payment systems. This “dash for cash” also resurfaced during the global financial crisis in 2008 when consumers were unsure of whether banks could stay afloat.
“On that basis, Canadians appear to be driven by a desire to stash, not spend cash,” Nye wrote.
Nye added that low interest rates, which have been in play during the pandemic, also motivated the demand for larger notes as a store of value. Since 2014, most of the currency demand (as a share of GDP) were taken up by $50 notes.
The report added the $100 bill now account for 60 per cent of all currency in circulation, rising from 50 per cent back in 2010.
While Canada has the second-most ATMS among the countries in the Organization for Economic Co-operation and Development, this number has been steadily declining since 2017 with deposits and withdrawals falling even faster, according to RBC.
As Canadians flocked online during the pandemic for everything from banking, to shopping, and everything in between — cybercrime had also become a stronger concern.