Don’t put money on a cashless society in NZ
THERE HAS been talk for some time about a cashless society but how close is it really?
In some places, it seems to be growing momentum, with the Israeli Government recently proposing a three-phase plan to all but do away with cash transactions. In another example, cash was banned on all London buses earlier this month, and there’s an expectation physical currency in the UK will disappear within 20 years. The country that has gone the furthest down this path has been Sweden where it’s estimated only 3 per cent of all transactions now involve cash. In Sweden, public buses don’t accept cash, a growing number of businesses take only cards, and even some banks have stopped handling cash altogether.
But the trend is less obvious in the US and in New Zealand. In an article headlined ‘‘Cashless society? Not so fast’’, CNN reported consumers were using cash more frequently than any other type of payment, especially for small purchases such as food. A Federal Reserve Bank of San Francisco paper found cash accounted for 40 per cent of all payments the average American made in a typical month (14 per cent by value). Younger people and those with less money tended to use cash more often than others surveyed, the paper found.
In a speech this month on the evolution of the New Zealand currency, Reserve Bank deputy governor Geoff Bascand said there had long been predictions of the demise of cash in society. But consistent growth of notes in circulation at 4.6 per cent per year (by value) had ‘‘undone many such predictions of a fall in demand’’, he said. Currency issued had grown by more than 6 per cent in the past year and
In Sweden, some banks have stopped handling cash.
demand for cash grew in line with the nominal economy. Notes in circulation rose from 1.5 per cent of GDP in 1990 to 2 per cent in 2001 and have remained at that level. Bascand said the increased demand for cash was surprising given the growth of electronic payments in New Zealand to 280 debit- or credit-card transactions per person in 2013, exceeded only by Iceland and Norway. And the share of electronic retail transactions has gradually risen to a mean share of 69 per cent of all core retail spending (excluding GST) by the end of 2013.
Bascand said rapid growth in demand for larger denomination notes ($20, $50, and $100), tended to support arguments that the key drivers of increased use of cash were overseas residents storing NZ dollars either prior to travel or as a hedge against their own currency risk, Kiwis hoarding cash as a store of value or as a means of saving, and the shadow economy to avoid taxation or illegal transactions such as drug deals. Apparently, stashing cash under the mattress is yet to have its day.