When fear spikes, Canadians still turn to physical cash

As the Bank of Canada and other central banks work on developing their own digital currencies, demand for cash remains undiminished, according to a new report from RBC Economics.

Even as households shifted to online shopping during the pandemic and retail payments are increasingly electronic, the demand for cash is at its highest level in 60 years, the report said.

“The pandemic didn’t kill cash. In fact, Canadians’ attachment to hard currency only grew stronger,” RBC said. “Cash withdrawals rose sharply early in the crisis, as notes in circulation increased by twice as much as would have been expected in 2020, and remained elevated through 2021.”

Yet, the use of cash in retail transactions declined during the pandemic, the report said: cash was used in 22% of transactions in 2020, down from 54% in 2009.

“Canadians appear to be driven by a desire to stash, not spend cash,” it said.

“Crises (or fears of crises) are often tied to a dash for cash,” the report said, noting that demand has risen in response to events such as the global financial crisis and in anticipation of Y2K.

While some of the appeal of hoarding cash as a form of savings will be diminished by rising interest rates, a shift to a digital loonie still “won’t be easy,” the report suggested.

Among other things, “growing concerns about cybersecurity that affect all forms of digital money could continue to give cash a leg up,” RBC said.

Central bank digital currencies may have to be built to live alongside cash rather than replacing it, the report said.