JABULANI SIKHAKHANE: Don’t write off cash yet

Cash continues to live, not necessarily in the wallets and pockets of most citizens globally, but at least in their hearts and minds. That’s what research by the developed world’s central banks shows.

The research also shows that the preference for, or a move away from, cash can be influenced by shock factors such as the threat of war, pandemics, or fears that electronic payments may, for some reason, be unavailable. During the Covid-19 pandemic Americans switched from cash as online shopping increased. The Swedish withdrew more cash after Russia’s 2022 invasion of Ukraine. 

In SA cash “remains the most popular payment method”, with debit and credit cards notching second and third positions respectively. That’s according to Reserve Bank deputy governor Rashid Cassim, who was speaking at the launch of the Bank’s survey of South Africans and their choice of payment methods. 

In Sweden, which has historically led the world in ditching cash in favour of noncash methods, more citizens are expressing a “negative attitude” to the decline in cash usage — 44% said so in 2023 versus 36% in 2022. 

“The proportion of respondents stating that they would not be able to cope without cash in today’s society has also increased compared to 2022,” according to the Swedish central bank’s 2024 payments report. 

The bank says this development may be explained by the increased “crisis awareness” after Russia’s invasion of Ukraine in 2022. “The function of cash as a backup solution when cards and digital payment methods do not work is cited as an important reason people would not manage without cash.” 

Cash is also a preferred payment method in Swedish association meetings, small stores and flea markets. Another reason given by the Swedish respondents is that paying in cash made it easier to keep track of their finances.

The French said the same, according to their central bank, highlighting two advantages of cash: better awareness of spending and that cash payments leave no prints (privacy).

Financial vulnerability was a key explanatory variable for differences in cash usage. The French in financially vulnerable situation were 18% more likely to use cash to pay than those in stable financial positions.

“The various vulnerable groups all share the same main reason for using cash, that is ease or habit, better awareness of spending and, to a lesser extent, the fact . that they have no other means of payment.” 

The US Federal Reserve notes the same. It says demand for cash may, at least partly, “stem from cash’s unique characteristics, including anonymity, ubiquity and zero transaction costs, features that are not completely replicated in the suite of other payment options”. The percentage of Americans who prefer cash has been stable at 19% since 2021 — despite the shock of the Covid-19 pandemic in 2020. 

Australians also worry about the privacy and security concerns of electronic payments, even though they reduced their share of cash payments from 32% to 16% in the three years to 2022. 

The legitimate fear of a digital print — privacy — is best illustrated by the behaviour of the SA government. Soon after the introduction of the R350 social distress grant during the pandemic, some of the recipients were cut off after their bank accounts had “other deposits” from either friends or relatives. So, recipients of this grant changed tack, requesting family members to use alternative ways, such as mobile payments, to send them money. 

An interesting feature of Australian payments is that the decline in cash usage was most pronounced in payments of less than A$10 during the same period. In the US, debit cards were used as often as cash for payments of less than $25 made in person in 2023, the first time cash was not the most-used instrument for small-value payments. 

In contrast to the US experience, Australia’s low-income households and the aged have been switching from cash to other payment methods in large numbers. Cash use is now similar across age, location (the rural-urban split) and household income. 

Another interesting consumer behavioural feature is that preference for one form of payment doesn’t mean a complete ditching of others.

“Given the size of the population who preferred cards, most cash payments were conducted by people who preferred cards rather than cash. Nearly three-quarters of cash payments in the US are made by people who prefer cards,” the Federal Reserve’s 2024 study says.

So don’t write off cash yet. There’s still life in the old dog.   

• Sikhakhane, a former spokesperson for the finance minister, National Treasury and SA Reserve Bank, is editor of The Conversation Africa. He writes in his personal capacity.