Is cash no longer king?
With the trend of using debit or credit cards globally and even in the wider Gulf countries growing quickly, how close are we to a fully cashless society?
Customers have discovered the wonder and ease in using modern payment cashless methods and can order an Uber, a cup of coffee or food using a card or phone, making coins and notes almost unnecessary.
Some continue to visit the ATM for cash withdrawals, especially in rural areas where cash is still preferred, but this is becoming a less common practice. Most utility bills are also paid automatically through direct debits, or a with credit card.
Many economists have speculated about a future cashless society. And yet the amount of cash in circulation continues to remain stable. In September 2021, the total amount of currency held by the Saudi public outside the banking system was SR204.4 billion ($54 billion), compared with SR170.3 billion in 2016. This represents 9.04 percent of the total money supply in 2021, slightly lower than the 9.46 percent of 2016.
Of more interest are the type of bank notes in circulation by denomination, excluding coins. The SR500 note is the most popular, with about SR135 billion in circulation in September 2021, significantly up over the SR16.9 billion in 2016. It is followed by the SR100 denomination at SR23.8 billion, SR5.3 billion for the SR50 note and equal amounts for the SR10 and SR5 denominations at around SR1.4 billion each for September 2021. Total coins in circulation were around SR780 million in September 2021 compared with SR37.6 million in 2016. The above indicates that, at least for Saudi Arabia, for the time being, cash is still somewhat king.
However, globally there has been a crackdown on cash held by the public with some good reason. Holding currency is now largely the province of hoarders, participants in the black economy, drug dealers and money launderers. Recognizing this, some regulators like the Monetary Authority of Singapore have begun to withdraw and print less of their high-value denomination notes. Both the Bank of England and the US Treasury have restricted access to high denomination notes and, more reluctantly, the European Central Bank has followed suit by discontinuing the €500 ($566) issue.
The more interesting case for a cashless society is the degree to which it would reduce opportunities for crime and corruption. Imagine a world that no longer needs helmeted men to transport cash in vans built like tanks; bank branches that need no security screens because there is nothing to rob; or drug lords and kleptomaniac dictators who know that there is an electronic record of their every transaction.
In the Gulf, travelers are advised not to carry large amount of cash above certain limits to discourage money laundering or other illegal activities. Paying cash for large ticket consumer items, let alone real estate, will alert sellers and sometimes authorities.
The reason why cash is still prevalent in some societies is a combination of habit, especially for older generations, as well as social customs, traditions and sometimes distrust of financial institutions. Who would argue with the long queues of frustrated bank customers trying to withdraw their cash deposits in times of financial panic and bank closures as seen in both the developed economies during the 2018 global financial crisis, and recently in countries like Lebanon?
Many grandparents and parents in the Middle East still like to give their children and grandchildren cash gifts during Eid and other celebrations, and it would seem far fetched to ask these young ones for their credit card details to give them the gifts. But maybe one day in the not too distant future a young generation of toddlers from the age of three will become owners of digital e-cash wallets.
• Dr. Mohamed Ramady is a former senior banker and professor of finance and economics, King Fahd University of Petroleum and Minerals, Dhahran.