During the Covid-19 pandemic, the way people use cash has changed. Cash was being used less for transactions but the total value of banknotes in circulation increased as people appear to choose to hold more cash. These trends have persisted for a number of years, but have been magnified by the pandemic.
Cash remains an important part of the UK economy, with an estimated 9.3 billionOpens in a new window cash payments made in 2019 and 2.1 million people who mainly use cash for their day-to-day purchases. People use cash as a medium of exchange when buying or selling goods and services, and as a store of value. Cash’s use as a medium of exchange has fallen dramatically in recent years. Only 23% of all payments in 2019 were made using cash, down from close to 60% a decade earlier, as people increasingly turn to other methods to make transactions, such as debit cards and digital payments. While the transactional use of cash has declined, the value of notes in circulation (NIC) has increased (Chart 1). Between 2005 and 2017, the value of banknotes in circulation doubled. Even adjusting for rising economic activity and price levels, NIC has generally been trending upwards since the early 1990s. This fall in the use of cash for transactions, but continued growth in demand for notes, has been called the ‘paradox of banknotes’.footnote