Measurement and use of cash for payments by half the world’s population

Abstract

The use of cash for payments is not well measured. This paper argues that the value of cash withdrawn from automated teller machines (ATMs), or as a share of all payments, provides a more accurate and timely measure of the cash used for payments compared with the standard measure of the value of currency in circulation (CIC), or as a ratio to gross domestic product (GDP). CIC is a stock of cash used for legal payments, hoarding and illegal activities, but lacks a corresponding measure of the velocity or turnover of that cash used for payments. Cash from ATMs is a flow. It reflects both a stock of cash and its velocity and is primarily used for legal transactions. This paper compares these two measures for 14 advanced and emerging market economies, which together account for one-half of the world’s population and two-thirds of world GDP. The time pattern of both measures over 2005–2020 is illustrated graphically. Often, one measure rises while the other falls, or one is stable while the other is not, or both are rising or falling but at different rates. After reaching a peak in cash use between 2005 and 2018, the per capita share of cash withdrawn from ATMs in almost all of our countries begins to fall, consistent with what some merchants report, while CIC keeps rising. A measure of cash from ATMs may better inform monetary policy (demand for money) and regulatory decisions concerning access to and use of cash in a country.