[Dave Birch] Spurred on by recent discussions about whether the use of cash is actually falling, whether it might stabilise at a plateau or continue to fall (if it is, indeed, still falling) I decided to take a look at the U.S. figures in more detail. Now, the “headline” figures certainly seem to support the theory that cash is losing market share:

Last year the number of ATMs in the United States fell 9 percent, the first big drop since the devices were introduced in the 1970s. The percentage of cash-payment transactions in the United States also is falling.

[From Withdrawing from the ATM habit – The Boston Globe]

Although the percentage of cash transactions is falling, U.S. currency in circulation is still going up. U.S. currency in circulation was $784 billion in 2006. Mind you, at least half of that is held outside the U.S. (mostly under mattresses). That suggests that less than $400 billion in currency supports a $13 trillion economy. In 1970, the economy’s relative need for cash was almost twice as high. As Robert Samuelson says…

We have crossed a cultural as well as an economic threshold when plastic and money are synonyms and the crime of choice is identity theft, not bank robbery.

[From Robert J. Samuelson – A Quiet Revolution In Money – washingtonpost.com]

But as Samuelson also notes in that article, almost all of the bills printed by the Feds last year were to replace worn notes, not to expand the stock. So what is the actual situation with regard to cash usage? Since in the U.S., as in Europe, the volume of notes in circulation is climbing but a large portion of the note stock is being used as a store of value rather than as a means of exchange, we probably cannot use M0 as a measure. A useful contribution to the debate comes from a research paper from the Federal Reserve Bank, Cleveland, which looks at some proxy measures to determine whether cash usage is falling or not. One measure, which strikes me as being potentially very accurate, is the number of worn banknotes being take out of circulation and destroyed. If notes are being stuffed into mattresses, this figure will fall. If notes are being used in transactions, this figure will rise. Well, according to the Feds this proxy provides evidence consistent with other estimates that the use of cash in the U.S. actually peaked more than a decade ago, in the mid-1990s, and has been falling since. In fact, using this proxy across 16 developed countries, they found that cash use was falling in 13 of them. This is why I said previously that the amount of notes and coins in circulation may not be a reasonable measure of cash usage.

Does the fall in the number of ATMs in the U.S. foretell the end of ATMs or does it mean that inventive manufacturers and service providers will have to work harder to make ATMs do some new things? If you want to hear more about this kind of thing, why not come along to SMi’s conference on Self Service: Kiosks and ATMs in London on 14th/15th May. The wonderful people at SMi have given me a delegate place worth an amazing ONE THOUSAND TWO HUNDRED AND NINETY NINE POUNDS to give to the first person to reply on this thread with the name of the noted “On the Buses” star who was the first person to use an ATM in Britain. So if you’re going to be in London on 14th/15th May and want to learn about where the world of ATMs and kiosks is headed, get googling now! In the now traditional fashion, this competition is open to all except for employees of Consult Hyperion and members of my immediate family. Oh, and no-one can win more than one of the Digital Money Blog prizes per calendar year.

These opinions are my own (I think) and presented solely in my capacity as an interested member of the general public [posted with ecto]

5 comments

  1. There is another effect to correct for: the shift in USD as international base currency. Since around 2000, the Euro, various geopolitical manipulations including ad hoc invasions and sabres a-rattling, and shift in energy markets … have all moved to put downward pressure on the USD as the currency of choice.
    Around 2003, Alan Greenspan started the work to absorb the flow of USD back into the US. It’s an ongoing process, but of course, nobody is reporting it because it is an uncomfortable issue. Although most of the action is in big pots, the cash stock will follow the same path (by shifting some areas to Euros, and other local units).

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