Considering that the majority of all transactions are electronic where is all this idle cash being stashed?
Background: High-level Trends Suggest Cash Use is Evolving
Despite innovations in smartphone technology and mobile payment apps, Fed data on the amount of currency in circulation suggest
that demand for cash is strong. Figure 1 shows currency in circulation from January 1980 to August 2016 and includes notes held by merchants, financial institutions, and consumers. The amount of currency in circulation has increased steadily over time, and demand for higher denominations has accelerated in the years since the 2008 financial crisis.
Figure 1: Currency in Circulation
This steady growth in cash demand contrasts with the moderation the Federal Reserve is seeing in its payments to and receipts from depository institutions (Figure 2). Fed payments and receipts grew modestly after the implementation of the 2006 Recirculation Policy and have declined slightly since 2014. Concurrently, the gap between payments and receipts has grown since 2009, contributing to the more rapid growth in currency in circulation over this period.
Figure 2: Annual Total Reserve Bank Payments and Receipts
Taken together, these two perspectives suggest a potential change in how consumers, businesses, and financial institutions are using and handling cash. The moderation and slight decline in Fed receipts could mean, among other explanations, that consumers are using cash less frequently to pay for purchases. At the same time, continued growth in currency in circulation may mean that, in a low-interest rate environment, consumers and merchants are comfortable holding more cash, possibly for contingency purposes.
The Diary data offer more detailed insights into how consumers are using cash and how their behavior may contribute to the trends discussed above.
The State of Cash: Preliminary Findings from the 2015 Diary of Consumer Payment Choice
