Will the coronavirus crisis finally spell the end of cash payments?

The increased demand for cash in 2020 can be fully attributed to the effect of the coronavirus pandemic. The volume of excess demand was not assessed by the Central Bank. The COVID-19 disease situation has added millions of dollars to cash demand, which is up to a third of revenues for 2020.

The pandemic, first, triggered an increase in the gray economy, an increase in cash payments. Second, people were more inclined to keep more liquidity on hand, and that’s exactly what cash is. Thirdly, there was a general decline of interest rates and deposit rates, which made it less attractive to keep savings on term deposits. Interest rates were falling before 2020, but during the crisis this trend intensified, and it affected the “feeling of profitability. However, I will say right away that if you decide to accept digital payments, American Express Confirm Card is absolutely right for you. First of all, you may find out all the details about the card here https://teuscherfifthavenue.com, and you will find instructions for activating the card and the benefits of using it. Secondly, you will be surprised as soon as you find out how many bonuses you can receive just by paying with this credit card. So, hurry up and read the detailed description of how to receive the card!

Sharp Change

Demand for cash from the population and businesses began to rise sharply in March and April amid the panic in the financial market and the introduction of the first sanitary restrictions due to the pandemic coronavirus. During the same period, banks faced a strong outflow of term deposits. Experts said that the high uncertainty and the initiative of the authorities to introduce the tax on interest income from large deposits influenced the behavior of customers.

By July, the demand for cash had returned to pre-crisis levels, and in November the inflow of banknotes was temporarily replaced with withdrawals. Banks predicted that the trend would intensify in December and cash would begin to return to banks. This did not happen, the end of 2020 was little different from the dynamics of previous years.

What Is the Risk of a Large “Overhang” of Cash?

Inflation accelerated at the end of 2020. The acceleration of inflation led the Ministry of Economic Development to propose the introduction of price regulation for socially important goods. “Canopy” of cash to a lesser extent creates inflation risks and the amount of money in the economy does not greatly increase, just money goes from savings to liquidity, to cash. Inflation in the coming year will not be driven by the growth of cash, but primarily by the dynamics of wages. As long as it remains steady, it doesn’t matter how we spend money – by card or in cash.

Will the Increased Demand for Cash Continue?

The Banks believe that sooner or later cash withdrawn in the pandemic will return to the system. Back in the fall, the Central Bank predicted the process would begin in late 2020; subsequent reviews by the regulator shifted the horizon to 2021.

In 2021, a reduction in cash in circulation is possible if the pandemic is suppressed relatively quickly. In 2021, I don’t see as important factors as in 2020 that would raise the demand for cash even more than it is now. The population and businesses will spend the excess cash that arose earlier. The other question is whether that cash overhang will go away [completely]. According to my expectations, more likely not.

A lot in 2021 will depend on what fiscal policy will be. A conservative approach aimed at curbing spending will result in no additional inflows through this channel that could go into cash. In 2021, we’ll probably still be in a mode of increased cash in the economy; I don’t expect a reduction in cash. But growth will gradually return to pre-crisis rates.

What Consequences Could Arise in The Global Economy Because Of COVID-19:

Reduced Economic Forecasts

Due to the pandemic, major banks and other financial institutions have lowered their forecasts for global economic growth. For example, GDP growth in China is believed to be 4.9%. This is 5.7 percentage points lower than the expectations of the previous year. The global economy is forecast to grow by 2.4% in 2020, down from 2.9% the year before.

Decline in Manufacturing Activity

China’s manufacturing sector was hit hard by the coronavirus. Manufacturing activity dropped to a record low of 40.3 (a figure below 50 indicates a contraction). Vietnam, Singapore and South Korea were similarly negatively affected by the pandemic.

Shrinking Service Sector

Because of the pandemic, people’s incomes decreased and some citizens lost their jobs altogether. Retail trade, aviation, and the restaurant business were negatively affected. The service sector was affected in most countries, including Russia and the United States.

The Decline in The Value of Oil

The decline in manufacturing activity could not help but affect the demand for oil. Demand declined and, accordingly, oil prices fell as well. The OPEC+ countries were unable to agree on a new agreement on production of this mineral, the price decline began before the pandemic and in the process the value became negative.

Problems in The Stock Market

The risks and fears associated with the coronavirus have negatively impacted investor sentiment, causing a sharp decline in stock prices in major markets.

The pandemic could also affect stock markets in three ways:

• a decline in business activity;
• lower activity in local markets;
• stress in financial markets.

Reduced Bond Yields

Fears over the spread of the virus have reduced bond yields. Treasuries in the U.S. are considered safe assets that investors prefer in times of volatility and uncertainty. In America, bond yields have fallen to less than 1% in seven days. That hasn’t happened before. The yield on 10-year securities reached 0.3%.

Thus, outside of China, the current crisis has not yet forced most countries to disinfect, destroy, and reprint cash. But Covid-19 could become a once-in-a-century pandemic. Bill Gates warned of this recently. Centennial solutions are needed to deal with a once-in-a-century pathogen. And there’s already an obvious starting point: accelerate the inevitable transition to digital payments. What’s more, as I mentioned earlier, you can take advantage of all the card benefits this site has to offer. Only here https://www.americanexpress.com/ you will find instructions on how to activate the card and all the answers to your questions.