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Cash may still be king after all

Sep 28, 2018 Walt Wojciechowski

Cash may still be king after all

Since its inception, cash has been the undisputed sovereign of legal tender and the principal currency of the unbanked and underbanked. In recent years, however, indications have emerged suggesting its seemingly indomitable reign may be coming to an end. Polls suggest consumers are carrying it around less frequently than they used to and in 2016, 87 percent of respondents attested to paying with it on a regular basis, down from 93 percent compared to a year earlier.

So is cash on its way out? To paraphrase Mark Twain, its demise has been greatly overexaggerated.

"Cash circulation has increased at a 5% growth rate over the past 20 years."

Perhaps the best example is its availability. As reported by CNBC, cash circulation has increased at a 5 percent growth rate over the past 20 years. In fact, between 1996 and 2016, bank notes have approximately doubled, totaling 40 billion. Its annual growth rate is evident on an annual basis as well, matching that of euro notes, based on figures the business news network obtained from the European Central Bank.

Yet despite these convincing statistics indicating cash is still relevant, many Americans believe cash is yesterday's news - so much so that it may not always be around. In a 2016 survey conducted by Gallup, more than 60 percent of respondents said it wouldn't surprise them if society became cashless at some point in their lifetime. Thirty percent of people who felt this way believed its ouster was "very likely."

Dan Schulman, PayPal CEO, said he doesn't foresee this happening - and certainly not anytime soon.

"I would never predict the death of cash over the next decade or two," Schulman told The New York Times. "I think cash is going to be with us for a long time to come."

Nearly two-thirds of boomers always have cash on them
Cash is particularly common among baby boomers, specifically those who are 65 years of age and older. In the aforementioned Gallup survey, 62 percent of respondents in this generation said they kept cash on their person at all times. Less than one-third of boomers said they were comfortable with not having cash readily available.

Perhaps because cash isn't used as often by Generation Z and millennials, doubts about cash's staying power persist. But as CNBC referenced from Federal Reserve and Census data, cash usage is fairly consistent across most household income levels, particularly among those earning six-figure salaries. For example, it's used by 25 percent of households with inflows of between $100,000 and $124,999 per year and  24 percent of households making $125,000 annually or more. It's commonality rises, however, among households that fall in low-income brackets (used by 43 percent of homes making $25,000 or less, which accounts for 21 percent of the U.S. overall).

Unbanked account for large portion of America, world
Another manifestation of cash is its linkage to the unbanked and underbanked. Because these consumers don't necessarily have traditional banking tools - like a checking or savings account - cash is the primary way in which they pay for goods and services. And a substantial portion of the country is unbanked or underbanked, totaling 51 million adults in 2015, according to the Federal Deposit Insurance Corporation. That's the equivalent of 24.5 million households. The underbanked rate has remained fairly consistent as well, holding at 20 percent since 2013.

Michael Vaughan, chief operating officer at Venmo, told attendants at a conference earlier this year that cash, contrary to what's come to be popular belief, paper currency is not on death's door.

"It's still decades, and decades, and decades," Vaughan said at the Wharton Global Form in New York in June, CNBC reported. "It's going to take our lifetime and our kids' lifetime before you start to see this work itself out."

Plus, given that World Bank data shows the unbanked and underbanked number in the billions, paper currency is a main method for consumers all across the globe, and can be a lifeline when ATMs and electronics are unavailable due to weather-related events.

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