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Canadians cling to cash as a savings strategy during pandemic: RBC

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‘Canadians seem to be driven by a desire to hide money, not spend it’

Most Canadians plan to keep cash on hand. Photo by Francis Racine/Standard-Freehold/Postmedia Network files

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The pandemic has not meant the death of cash, as many suspected. In fact, the demand for hard currencies as a means of savings has moved in the opposite direction as demand hit its highest level in 60 years.

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Cash withdrawals rose at the start of the pandemic, as circulating notes rose twice as much in 2020 as expected and remained high the following year, according to an April 14 report from the Bank of Canada.

The Royal Bank of Canada noted in a May 9 report that cash was used more as a means of savings than for transactions. The Bank of Canada’s data tracking transactions showed that the volume of cash purchases fell sharply from 54 percent in 2009 to just 22 percent in 2020.

RBC analyst Josh Nye has a few reasons why Canadians cling to cash: First, there’s a general correlation with crises and the need to have hard cash on hand. Nye wrote that the demand for cash was voiced more than 20 years ago for fear that the Y2K programming bug would destroy the global network of ATMs and digital payment systems. This “dash for cash” resurfaced during the global financial crisis in 2008 when consumers were unsure whether banks could survive.

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“On that basis, Canadians seem driven by a desire to hide money, not spend money,” Nye wrote.

Nye added that the low interest rates, which were in play during the pandemic, also motivated the demand for larger notes as a store of value. Since 2014, most of the demand for currency (as a share of gross domestic product) has been occupied by $50 notes. The report added that the $100 note now accounts for 60 percent of all currency in circulation, an increase of 50 percent in 2010.

While Canada has the second most ATMs among the countries in the Organization for Economic Co-operation and Development, this number has steadily declined since 2017, with deposits and withdrawals falling even faster, RBC said.

No consumer should be denied the right to pay with cash

Steven Meitin

As Canadians flocked online during the pandemic for everything from banking to shopping and everything in between, cybercrime had also become a bigger concern. For some Canadians, stockpiling cash was a form of cybersecurity in its own right.

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Rising interest rates and decades of inflation could take away some of the demand for cash as a savings resource, but it won’t take away all of the demand anytime soon.

Canadians who increasingly relied on e-commerce as the world came to a standstill sparked many concerns that Canada would go cashless. This was of particular concern to money-dependent organizations such as the Canadian Association of Secured Transportation. In December 2020, CAST called on retailers to continue to accept cash as a method of payment.

Banknotes are legal tender in Canada, and many citizens rely on cash to obtain essential goods and services, which has become more important than ever in the context of the COVID-19 pandemic and its ongoing social and economic impacts. CAST president. Steven Meitin in a press release at the time. “No consumer should be denied the right to pay with cash.”

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However, most Canadians plan to keep cash on hand: 62 percent of Bank of Canada survey respondents said they had made a cash transaction in the previous week, and 81 percent said they had no intention of to go cashless.

The US dollar hit a 20-year high against a basket of rival currencies this week.

Rising US dollar sparks fears of ‘reverse currency wars’

The federal government decided to withdraw the cent from circulation in the 2012 federal budget.

What the death of the penny teaches us about the future of money

An Interac sign on a storefront in North Vancouver, BC

How Pressure to Modernize Canada’s Payment Systems Derailed

Canada’s commitment to cash has economic implications: A 2019 report from the Boston Consulting Group found that moving to a cashless model could add about one percentage point to annual GDP for mature economies like Canada. While an advantage, Nye noted that for Canada, this figure may be an overestimation, given its lower cash-to-GDP ratio compared to other countries in the OECD.

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An increasingly digital economy raises questions about what role the Canadian central bank could play in public money. This conversation about the digitization of money comes as the Bank of Canada examines its own central bank digital currency (CBDC), a digital currency issued by a central bank rather than a private company.

Most recently, Timothy Lane, deputy governor of the Bank of Canada, told a Financial Times panel in late April that he sees the bank establishing a basic formula before the private sector adds innovations to the product.

Nye noted that the preference to use cash as a savings vehicle could strengthen the case for a hybrid of a cash and CBDC future, while accounting for this decline in cash as a payment method.

“As hard currency becomes less relevant as a payment method, the Bank of Canada risks losing its role as a payment provider – a role that could prove valuable if private players come to dominate the digital payments market.”

• Email: shughes@postmedia.com | Twitter:

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This post Canadians cling to cash as a savings strategy during pandemic: RBC was original published at “https://financialpost.com/fp-finance/canadians-are-clinging-to-cash-as-a-savings-strategy-during-the-pandemic-rbc”

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