The 10-Minute Take: Is Canada Poised for a Cashless Future?

Speaker 1 [00:00:02] Hi, it’s John here.

Speaker 2 [00:00:04] And as Theresa.

Speaker 1 [00:00:05] Theresa, great to be with you again.

Speaker 2 [00:00:07] Yeah, it’s been a long time.

Speaker 1 [00:00:08] Quick question off the top. When’s the last time you paid for something with cash?

Speaker 2 [00:00:13] Ooh, that would have to be at my favorite Vietnamese restaurant in Toronto. And only because they only accept cash. Otherwise, I never have cash on me. My mom would actually hate that because she has always warned me to carry cash in case of emergencies. But I know I have to pay. How about you, John?

Speaker 1 [00:00:29] I have a favorite Italian deli that has the same cash only, and they won’t even allow you to stay if you pull out a piece of plastic. But my kids always laugh at me when I pull out cash. And ironies of ironies. One of them comes home from university with $400 of cash in the form of coins. And you can only guess how a university student amasses $400 with coins, but then has to schlep off to a bank to roll it and exchange it for something digital. And I said, Hey, there’s the value of cash, it stays with us and it actually is staying with us. As we’re discovering on this episode, Cash is with us more than ever coming out of the pandemic, right?

Speaker 2 [00:01:17] Yeah. People have been crying the death of cash for years now. And that was the big message actually when I first started at RBC. But according to Monera, as a payments processor, by 2030, cash purchases are going to make up only 10% of money spent in Canada. And yet through the pandemic, the use of cash as a savings vehicle soared amid cybersecurity worries and low interest rates. And it’s crazy that demand for cash in Canada was actually at its highest point in 60 years.

Speaker 1 [00:01:45] This is Disruptors, the ten minute take where we dove into the latest innovation, tech and economic buzz.

Speaker 2 [00:01:52] This week’s take is on cash in Canada. Why are we still so attached to it as a society? And what does the future hold for paper currency?

Speaker 1 [00:02:00] Today we’re joined by Josh Knight, senior economist with RBC Economics, who just wrote a fascinating proof point piece called Canadians Can’t Kick Cash. Josh, welcome to the ten minute take.

Speaker 3 [00:02:12] Thanks for inviting me.

Speaker 1 [00:02:13] It’s a great report, Josh, and you get into how the pandemic hasn’t killed cash. In fact, it may have reacquainted us with cash in all sorts of ways. Our attachment to hard currency seems to be stronger than ever as we come out of this pandemic with literally cash in our hands. What are you seeing?

Speaker 3 [00:02:34] So during the pandemic, we saw an ongoing shift away from cash as a method of payment data from the Bank of Canada shows 22% of payments were made with cash in 2020, which is down from one third in 2017. What’s interesting is that the decline in cash payments didn’t seem to be accelerated by the pandemic. It was really just a part of an ongoing and longstanding shift away from cash and toward cashless options like credit cards. You might have thought that with concerns about virus transmission through hard currency and a rise in e-commerce during the pandemic, that we’d see an even greater move away from cash as a method of payment, that doesn’t seem to have been the case. Another interesting thing we saw during the pandemic was a sharp rise in demand for cash relative to the size of Canada’s economy. Cash in circulation rose to its highest level since the early 1960s. That might seem inconsistent with a decline in cash payments, but it really reflects the other way. We use cash, which is as a store of value. Most of the increase has been in larger denomination notes, like hundred dollar bills. Outstanding people tend to use those more for stuffing under their mattresses rather than for making payments.

Speaker 2 [00:03:36] Yeah, that actually brings very true for me and my family. My family comes from Vietnam and they still buy cash holding a hangover from colonial and war times. And my dad actually still doesn’t trust banks. Just hilarious. And so you mentioned some of the reasons why people hoard cash. Are there any others that that come to mind?

Speaker 3 [00:03:52] Yeah, certainly. We tend to see a spike in demand for cash during times of crisis or perceived crises. So in 1999, for instance, when there were concerns that the Y2K bug would disrupt the banking and payment system, people were withdrawing cash ahead of that. During the global financial crisis, you saw an increase in demand for cash as people worried about the health of the financial system. You saw that to a greater extent in the US and you did here in Canada. And then during the pandemic people might have worried about bank branches closing or access to ATMs being cut off. And then I think just the general talk of this potentially being the next Great Depression probably had people stashing cash for precautionary reasons in the background. I think you’ve also got growing concerns about cybersecurity. I’m like Y2K, which was a very discrete event. I think for some people there’s just an underlying concern about potential vulnerabilities or the risk of disruption to the digital payment system or the banking system. And that might be causing people to hoard cash, which is really the only mode of payment or store value that doesn’t have that cyber vulnerability.

Speaker 1 [00:04:51] Theresa, I love your story about your family, and it reminds me of some of the anecdotes I heard around the bank in the early weeks of. The pandemic, where people were showing up at branches literally with bags, saying, I’d like as many thousands of dollars as I can get out of my account, because they maybe had seen this movie before where crises hit and you want enough to survive on and willing to take the take the risks with you literally with your bag full of money in the basement or wherever you hide it or under that proverbial mattress. Josh I always wonder about why technology disrupts, but also why it doesn’t disrupt. You know, we see in all sorts of sectors great replacements for physical products, and yet we cling to some of those physical products like a book. But cash is another thing that has been disrupted by digital payments, by credit cards and all the things we use and rely on now. And yet people like me still like a bit of cash in their pockets. How do you figure this is going to evolve over the next few years as we see more and more technology all around us that may not make cash so necessary?

Speaker 3 [00:06:00] Yeah, I mean, it’s interesting to see the ongoing appeal of cash as a store of value. At the same time, you’re seeing growing interest in crypto and particularly Bitcoin, which some see as a store of value. Some people like the decentralized aspect of crypto, but it seems there’s also a big group of people that takes comfort in the centralization of cash and the safety and security that comes from government backing. Then there’s also the disintermediated aspect of cryptocurrencies and cash is the original disintermediated payment system and store of value. You don’t need a bank account to store it. You don’t need a debit or credit card to use it to pay for something. So perhaps some of that desire for disintermediation is what people are. What appeals to people about cash? If we’re talking about the future and potentially a cashless world, I think you have to ask what’s going to replace cash and think about that beyond just, you know, digital forms of payment and store value, because cash plays a pretty unique role in the economy and society. Cash is what we call public money, as opposed to bank deposits, which are private money. Cash has a direct claim on the central bank, and that brings that safety and security I mentioned. It’s also the most universally accepted form of payment. It doesn’t require any intermediaries. As I said, you don’t need a bank account or a credit card to transact with it. So there’s some public utility that comes from cash. And central banks are evaluating how they can continue to provide that utility in an increasingly digital world.

Speaker 2 [00:07:23] And with that public debate happening about central bank digital currencies or cbdcs, as they’re as they’re often called in shorthand, what benefits do you see if Canada does move to a cashless society?

Speaker 3 [00:07:34] So I think it’s probably more significant on the payments side where cash continues to make up a smaller and smaller share of payments. And as that share declines, the central bank’s role as a facilitator of payments also shrinks. And there might be some value to having that public provision of a means of payment, particularly if we end up in a market that is dominated by one or a few digital payment providers. That seems to be where the Bank of Canada sees real value in offering a central bank digital currency. But it is also said that it will continue to provide cash as long as there is demand for it. So if we do see a cbdc in the future, I think it’s likely to coexist with cash, at least for the foreseeable future.

Speaker 1 [00:08:13] Josh if people want to read your report, they should go to RBC dot com slash economics or RBC dot com slash thought leadership or check us out on social media. Thanks so much for being on the ten minute take.

Speaker 3 [00:08:26] Thank you.

Speaker 2 [00:08:27] So, John, this conversation reminds me of the first time I traveled to Japan, actually, and my perception of the third biggest economy in the world at the time and what I knew of their advanced robotics technology left me so unprepared for the fact that most places I went to only accepted cash, not card, and then I learned it was a cultural thing. So John, how are you thinking about the post-pandemic future for payments technologies when cash is still also such a thing with a lot of Canadians?

Speaker 1 [00:08:54] I think we always need to remind ourselves that people like options, even when they’re not always rational or fully rational options. You know, sometimes I’m getting a cup of coffee and the easy thing to do would be just tap my card. But sometimes I don’t want the system to know that I’m getting a cup of coffee. I don’t know why that is. I just feel like this is my cup of coffee. I’m going to pay cash and there’s no real record of that. Maybe that’s something I need to get over. Maybe that’s the sort of optionality that people want. And that’s one of the reasons, as we’ve heard, that cash is enduring. But we also have to think about all of society whenever we look at disruptive technologies, and that includes in the payments world, we can never fully, nor should we perhaps want to move to a fully cashless society because there are all sorts of people in society who would be more vulnerable. Think of the million unbanked Canadians who rely on cash for daily essentials. Think about all the times we all use cash in our daily lives and how that might be more difficult for. People coming from different backgrounds, so going cashless could marginalize many Canadians further. And as with all technologies, we shouldn’t rush full steam into the brave new world without thinking about how all people will get through the disruptive transition. A hybrid model might be more enduring than we think and might be better than we think.

Speaker 2 [00:10:21] I know that I would prefer a nice crisp but $100 bill in a card for my birthday than a $100 e-transfer personally speaking.

Speaker 1 [00:10:29] I’m glad you mentioned the c note, because as we’ve learned from Josh’s research, 60% of the bills issued in Canada are hundred dollar bills. And fun fact, because most of us don’t know the answer instantly to this. Who’s on the hundred dollar bill? It’s Robert Borden, Sir. Robert Laird Borden, the eighth prime minister of Canada. 1911 to 1920 helped get us through World War One.

Speaker 2 [00:10:57] And that is your bit of trivia for today’s episode. That’s it for this week’s ten minute take. Join us again next week for our conversation with one of Canada’s most notable musicians, Raine Maida, from Our Lady Peace, who’s working on redefining the power of creators using blockchain technology. Until then, I’m Teresa Do.

Speaker 1 [00:11:16] And I’m John Stackhouse. Talk to you soon.

Speaker 4 [00:11:21] Disruptors, The ten minute take is created by the RBC Thought Leadership Group and does not constitute a recommendation for any organization, product or service. It’s produced and recorded by our audio. For more disruptors content like or subscribe wherever you get your podcasts and visit rbc dot com, slash disruptors.

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