Despite the rise of digital payments, cash remains a dominant force in economies worldwide. During periods of political uncertainty and in regions with high levels of informal economic activity, physical money is not an option, it’s essential. Recent data suggest that in some markets, the use of cash is not only persisting but growing.
The European Central Bank (ECB) reports that cash transactions accounted for 59% of all payments in the euro area in 2022, a slight decline from previous years but still representing a significant share. In the UK, however, cash withdrawals have risen for the first time in a decade: Link, the country’s largest ATM network, reported a 19% increase in cash usage between 2021 and 2023.
It can be early to predict, since there are still no available data on the past year and the current, but the trend deserves attention. Political instability appears to be a key factor in cash’s resilience. The ECB highlights that during moments of economic or political uncertainty, people tend to increase their cash holdings as a precautionary measure.
During the COVID-19 crisis, European consumers withdrew record amounts of cash despite a decrease in physical transactions. Similarly, in Argentina and Turkey, both experiencing economic crises and fluctuating government policies, demand for US dollars and physical cash surged as citizens were trying to pursue stability outside the banking system. Such cases can be perceived as an historical economic behavior.
Another major driver of cash usage is the informal economy. According to the International Monetary Fund (IMF), informality accounts for more than 35% of GDP in emerging markets and developing economies. Cash is the preferred medium in informal transactions because it is untraceable, reducing the risk of taxation and regulatory scrutiny. In countries like Mexico, Brazil, India, and parts of Africa, informal businesses and workers rely heavily on cash to avoid financial monitoring and to be able to sustain their families when in debt.
The relationship between cash usage and informality creates a feedback loop: the larger the informal sector, the more cash circulates, reinforcing its role in daily transactions. The IMF highlights that in regions where informal work is prevalent, such as Latin America, South Asia, and Sub-Saharan Africa, attempts to reduce cash dependency through digitalization are often met with resistance due to a lack of trust in banks and governments.
Interestingly, even in developed economies where digital payments dominate, cash remains a critical backup during systemic disruptions. The ECB highlights that Europeans still keep significant cash reserves at home, particularly in Germany and Austria, where financial conservatism is strong. In the US, cash circulation reached record highs during the 2008 financial crisis and again during the pandemic, reinforcing its status as a safe-haven asset.
The causal link between political instability, informality, and cash usage is clear: when trust in institutions declines, reliance on cash increases. This correlation underscores why nations with frequent government interventions in banking or unpredictable fiscal policies see greater cash hoarding and informal transactions.
However, governments and financial institutions are actively trying to reverse this trend through digital financial inclusion initiatives. Central bank digital currencies (CBDCs), stricter anti-money laundering regulations, and incentives for electronic transactions aim to reduce informality and increase traceability.
Yet, as the ECB notes, cash’s psychological and practical advantages, such as privacy, liquidity, and accessibility, make it unlikely to disappear in the foreseeable future. Ultimately, while digital payments continue to grow, cash remains resilient in times of economic turbulence and informal sector expansion. Cash is still king.
