Last Updated on June 22, 2021 Posted by Colonial Acres Coins
When the COVID-19 outbreak forced more people to stay at home and turn to online sources for most purchases, many experts predicted that the pandemic would just accelerate the world’s march toward the death of cash. Surprisingly, however, Canada has seen a significant post-pandemic increase in the amount of paper money in circulation. In this blog, we’ll look at how this cash comeback occurred and why the demand for Canadian paper money has increased.
The Push for Paperless
For decades, people in Canada and much of the rest of the world have been moving away from using paper money as their primary means of completing financial transactions. The days when people, for example, paid their water bills by visiting the water utility in person with cash in hand are long gone. Even paper checks have become somewhat obsolete, with more and more people turning to alternatives such as debit cards, direct deposit, online banking and money-transfer apps, and other virtual payment services.
In light of this trend, experts and pundits predicted that the world was close to witnessing the demise of paper currency. In some countries, banks and businesses stopped accepting cash altogether. 2018 saw many citizens of Sweden start handling financial transactions through microchips implanted into their arms. In 2019, we even wrote a blog post about the global push for a cashless society and what that might mean for Canada and the value of Canadian bills.
The Pandemic’s Puzzling Effect
The COVID-19 pandemic caused an increase in online shopping, and consequently, higher use of alternative payment methods, and fewer paper money transactions. The death of cash seemed even more imminent. Instead, the pandemic resulted in a steady increase in demand for paper bills, in Canada and around the globe.
Although the volume of cash transactions declined sharply during the pandemic, the Bank of Canada reported that the amount of Canadian paper money in circulation rose from $83 billion before COVID-19 to more than $96 billion as of September 2020. The Bank estimated that the pandemic caused an approximately $8.4 billion increase in circulating paper bills and predicted that this heightened demand for paper money is likely to continue. What could be driving this paradoxical uptick in the need for tangible cash?
Possible Explanations for Canada’s Cash Comeback
On a global scale, the COVID-19 pandemic somehow caused a drop in cash-based transactions and, simultaneously, a rise in the demand for paper money. Economists have posited a range of theories as to why and how, though they agree on two of the primary driving forces:
1. Increased Cash Hoarding
The COVID-19 pandemic ushered in a period of major uncertainty, and a normal human response to uncertainty is to hoard resources to create a safety net. Many people, concerned about bank closures, lockdowns, potential medical bills, and possible job loss, withdrew as much cash as they could to protect themselves and their families. Since this paper money wasn’t being spent, it created a void in the economy. Banks and retailers suddenly needed more cash than they had on hand, triggering an increase in paper money printing.
2. Fewer Cash-Heavy Venues
Businesses where people tend to use paper money, such as bars and restaurants, were hit particularly hard by the pandemic and the resulting safety restrictions. Many cash-heavy venues either remained closed to the public or had to operate on a limited basis. Because these venues took in less cash, they also deposited less cash, and this reduced cash supply caused an increased demand.
The Future of Canadian Paper Money
The factors behind the push for a cashless economy still exist, but the COVID-19 pandemic substantially changed Canada’s economic landscape and people’s attitudes toward paper money. To learn more, or to add to your collection of valuable Canadian paper bills, check out our large selection of collectible and sought-after Canadian currency.