Question
Read the following article from The Economist 29-05-2021 Money _ Cash is king. The pandemic has seen a puzzling surge in banknotes A decade of
Read the following article from The Economist 29-05-2021 "Money _ Cash is king. The pandemic has seen a puzzling surge in banknotes"
A decade of low inflation and extremely low interest rates explains some of the appeal of old-fashioned notes. The opportunity cost of keeping savings in a liquid but non-interest-bearing form has rarely been lower. But that cannot explain the jump in the amount of money in circulation since March 2020.
Graham Moody ofLink, the company that runs Britain'sATMnetwork, says that cash machines were busy in the days before the first national lockdown in March 2020. Panicked consumers stockpiled money at the same time as they emptied supermarkets of toilet paper and pasta. After that, he says, "usage fell like a stone". Total withdrawals from cash machines between April and December 2020 were 35% lower than the year before. But as the amount of cash entering circulation fell, the amount leaving circulation fell even faster.
It is likely that some of the extra notes are not actually changing hands. Saving rates have been historically high since the pandemic began, and some of that is probably in the form of physical money. Households and small businesses have made fewer trips to the bank, just as they have made fewer trips of all kinds. Some of the cash that would have normally been paid into bank accounts is probably sitting in wallets and tills.
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