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Cash and COVID-19: The impact of the pandemic on demand for and use of cash

Consumer spending declined significantly during the recent COVID-19 pandemic. This negative shock likely reduced spending across all methods of payment (cash, debit, credit, etc.). The mix of payment methods consumers use could also be affected. We study how the pandemic has influenced the demand for and use of cash. We also offer insights into the use of other payment methods, such as debit and credit cards.

We analyze data from the Bank Note Distribution System. These data show that the value of notes in circulation grew sharply in March and April 2020. This increase was large in both dollar and percentage terms compared with previous years. Increased demand for cash was spread across the country, but the changes were greatest in Canada’s major economic and population centres, as would be expected.

We find that a few factors contributed to this increase:

  • precautionary steps by financial institutions to supplement their cash inventories
  • reduced cash deposits from merchants to financial institutions, which institutions compensated for by drawing cash from the Bank of Canada
  • increased consumer demand for cash

Working with Ipsos and Statistics Canada, we also surveyed Canadians in April 2020 to better understand demand for and use of cash during the pandemic. We find that Canadians continued to have good access to cash, were generally (but not universally) able to use cash at merchants and increased their cash holdings somewhat.

Further, a significant share (36%) of Canadians reported using cash for payments during the past week. This is comparable with those who used Interac e-Transfer (38%), but less than debit (52%) or credit use (62%). Finally, most people (74%) have no plans to go cashless.

We plan to conduct follow-up surveys later in 2020 and in the first half of 2021. This work will help us assess whether the effects on demand for cash or the mix of payment methods used by consumers will persist.