The increasing use of non-cash-based payment methods has raised concerns that the number of banknotes in circulation may start to decline. However, even in advanced economies the opposite has been the case. For instance, the estimated number of banknotes in circulation increased by 12 per cent for the US Federal Reserve and 14 per cent for the Bank of England in 2020/21.
Furthermore, there has been relative growth in high-denomination notes (that contain covert security features) as part of the mix – these are more likely to be held outside standard banking systems – highlighting the importance of central bank currencies as stores of value when backed by reserve banks. At the same time the war in Ukraine and global geopolitical uncertainty is creating further demand for hard currencies given their perception as a store of value. That’s certainly not the case with digital currencies as the collapse in their value highlights that that vast majority do not act as a store of value, nor for that matter a medium of exchange given the difficulty in carrying out transactions. They lack the security offered by fiat currencies, too, as the spate of cryptocurrency thefts from digital exchanges shows.
Of course, the growth in new digital payment mechanisms has changed the landscape, but there is a recognition that future cash usage will, for many central banks (and specifically reserve banks), be measured in decades (Federal Reserve suggests 50 years, and Pakistan even longer than that). So, whilst the volume of notes and coins may gradually decrease in volume over time, the complete replacement of cash is a long way off. Indeed, over 150bn banknotes are manufactured each year and banknotes are still used in 85 per cent of all transactions.