Resilience of Cash in Crises

Let us start with a frighteningly long list of disasters and crises in 2022 and the start of 2023. In no particular order, they include war in Ukraine, flooding in Pakistan and Australia, fires in Chile, earthquakes in Turkey and Syria and Ebola in Uganda and Congo. So often the result is economic and social dislocation.

A different type of crisis is what happened in Lebanon in 2020, the Nigerian monetary exchange going on currently, power outages and other systemic failures of infrastructure and disruptions to normal life.

These events are random, often unexpected and usually large scale. What connects them all is the disruption of the ability to use digital payments. The knee jerk answer historically is to turn to cash.

Resilience is one of the major advantages of cash and this is always included in arguments for the maintenance of cash. But is that right?

The answer appears to be, ‘it depends’.

Payments during war

This edition includes a report from Ukraine about what had to be done to enable payments during war. Digital payments have worked as a method of payment, allowing life and the economy to go on in Ukraine. But alongside cash.

The National Bank of Ukraine (NBU) has innovated to enable cash to continue to be an everyday payment method. Agile and flexible thinking and working has been needed, resulting in the cash cycle continuing to work with very few compromises.

A key element has been maintaining the exchange rate. The National Bank of Poland (NBP) worked with the NBU to ensure that the 9.27 million refugees who entered Poland could change cash. Both central banks were clear that the acceptance and exchange of the Ukrainian currency was important to the belief in the Ukraine being a country.

Payments during economic collapse

The Lebanese story is also about a country which experienced a series of devastating shocks that turned it almost overnight back to being an entirely cash based economy.

Digital payments were not viable, primarily because of issues of trust. Only cash maintained confidence and then only because the central bank took drastic, but necessary, steps.

At the heart of the solution was maintaining the value of the currency so that people would return cash to the cash cycle.

Cash in a systems outage

In March 2019, the Dutch National Bank’s Igo Boerrigter published his Masters’ thesis ‘Designing for the Continued Support of Cash’. In it he covered what happens in the event of a failure of digital communications due to a communication outage, however caused.

He showed that, as the digital payment communication down time extends, the response of individuals, small groups, large groups and society changes. The length of time cash can usefully bridge the gap until digital payments returns is really very short given the limited resupply ability of the cash infrastructure, assuming the outage even allows cash issuance and movement.

Payments and refugees

Currency News™ ran the article the ‘Role of Next-Gen ATMs in Disaster Recovery’ last month by James Shepherd-Barron, a disaster recovery consultant, who makes the case for cash being given to refugees rather than aid in kind, vouchers or digital payments.

His argument is that cash gives social protection to individuals. People have dignity, choice and the ability to make decisions. It allows them to take charge of their lives again in a way that other forms don’t.

Preparing for the unexpected

Germany is famous for its love of cash. It is, therefore, perhaps no surprise that the Bundesbank has run a ‘Cash in Crisis’ event dedicated to updating Germany’s ability to respond to a crisis. This month’s edition covers Germany’s BASIC and CARE projects, which aim to ensure stakeholders in Germany’s cash cycle have robust, joined-up plans ready for future emergencies.

It is striking both how ‘obvious’ many of the actions are, and that they aren’t currently in place. Clearly the messages from Ukraine are driving much needed thinking and action.

Final word

The frequency and range of crises seem to be increasing and no society is immune to possible disruption to their payments systems. In many scenarios the digital payment system is not the answer, but perhaps the war in Ukraine demonstrates that it is unlikely to be a binary choice between cash and digital options.

Where trust is lost, cash is the only answer. Where trust is needed, perhaps cash is the starting point and digital has a role to play. It all depends…