Global cash use declines, ECB data shows digital payment surge

Recent data from the European Central Bank (ECB) and the International Monetary Fund (IMF) indicates a significant shift in payment behaviors, with a marked decline in cash usage and a rise in digital payment methods across the globe.

The IMF’s findings highlight that less than 20% of the value of point-of-sale transactions were conducted with cash in 2021, a trend that is expected to continue decreasing in the coming years.

The ECB’s data echoes this sentiment, revealing an 8% drop in cash use within the euro area over a span of two years. Notably, the Netherlands and Finland have seen a resurgence in cash use, attributed to the high penetration of online payment methods before 2022 and the lifting of Covid-19 restrictions.

This transition is not limited to card payments; instant payments and e-payment solutions, including wallets and mobile payment apps, are increasingly replacing traditional card transactions. This shift towards digital payments is prompting concerns among national regulators, as digital transactions currently rely on "private money" issued by commercial banks and payment service providers (PSPs), reducing the use of central bank-issued currencies.

"Although many aspects are still under discussion, banks could incur huge costs if proper safeguards aren’t implemented," ING analysts wrote in a note.

The decline in cash and the rise of digital payments have sparked a debate on the role of central bank money as a ’monetary anchor.’ Citizens’ trust in private money is largely based on its convertibility with central bank money, which is guaranteed in value.

Without this convertibility, there could be a loss of confidence in digital currencies and potentially in central banks themselves, affecting their ability to maintain financial stability.

In response to these developments, regulators worldwide are considering the introduction of Central Bank Digital Currencies (CBDCs).

The Bank for International Settlements (BIS) defines CBDCs as a digital form of central bank money that offers users a direct claim on the central bank, distinct from the credit and liquidity risks associated with commercial banks and PSPs. This initiative aims to modernize central bank money for the digital age, potentially transforming the financial landscape.

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