Cash Franc Closer to the Body

On March 8 of this year, during a referendum in Switzerland, the majority of residents voted to enshrine in the country's constitution the right of citizens to the mandatory presence of the national currency (the Swiss franc) in cash form in monetary circulation. At first glance, this decision may seem illogical given the global trend toward the active use of various types of non-cash electronic payments. For example, in the UK today, cash accounts for less than 4% of the country's total money supply, and in Sweden, just 1.5%.

Compared to cash payments, non-cash payments offer a whole range of advantages. These include convenience, speed, and transparency of transactions; no need to carry money or find change; elimination of the risk of loss or theft; and more. For businesses, non-cash payments simplify tax and financial accounting and help expand the customer base by attracting buyers who prefer to pay for goods and services using plastic cards or QR codes.

Despite this, not only in Switzerland but also in other countries around the world, cash continues to play a significant role. Moreover, according to the Bank for International Settlements, Switzerland's share of cash in the overall money supply structure (about 13%) is not a record high and is roughly on par with the US and Japan. As for the leaders, they include India and Brazil (59% and 53%, respectively).

In Russia, the share of cash is about 15% of the total money supply. At the same time, our country faces a paradoxical situation: as the share of cash payments in retail turnover decreases, the volume of cash in circulation increases. This means that cash is primarily used by the population not for current payments, but for savings purposes.

What explains the enduring popular love for banknotes and coins? Several key reasons can be listed.

In Switzerland, which ranks first in the world in per capita holdings of banknotes and coins (over $10,000 equivalent), cash is viewed as a reliable form of saving. According to the Bank of Russia, in our country, cash is perceived by citizens as an integral element of financial stability, since it can be used to pay at any retail outlet under any circumstances.

This is especially relevant for residents of regions with underdeveloped payment infrastructure, as well as for people with low digital literacy and socially vulnerable groups (pensioners, low-income individuals, disabled people, etc.).

In addition, as practice shows, demand for cash spikes noticeably during various crises, when people seek to hedge against unforeseen situations (technical internet failures, communication problems, etc.) and withdraw money from their bank accounts—for instance, as happened during the coronavirus pandemic.

Finally, one of the appealing features of cash is the anonymity of its use, which ensures confidentiality for buyers and sellers, but at the same time creates serious problems for government authorities by complicating oversight of money flows, tax evasion, and the growth of the shadow economy.

Thus, despite ongoing digitalization of financial operations and the rising share of non-cash payments, cash continues to play an important role in the global economy due to a range of objective reasons. Attempts to administratively restrict its use by citizens and businesses could lead to the opposite effect—the volume of cash in circulation would only grow.

Author: Igor Alekseevich Balyuk, Doctor of Economic Sciences, Professor of the Department of World Economy and World Finance at the Financial University under the Government of the Russian Federation