We’re using cash less than ever, but Canadians have more on hand than we have for 60 years — what’s going on?

Tap, beep. Tap, beep. Tap, beep…

The musical rings and dings of supermarket and cafe checkouts became the soundtrack of commerce during the pandemic, making transactions fast and virus-free as consumers avoided lingering in stores and handling filthy currency.

The future, it seemed, would be completely cashless. Or would it?

A new report by RBC Economics debunks the cashless society theory with Canadians’ demand for currency on hand hitting its highest level in 60 years, despite the push for e-commerce and shift to more virtual payments during COVID-19.

Experts point to using cash as savings for a ‘rainy day’ during a time of economic unease or making payments in the underground economy.

“What surprised me is the pandemic didn’t accelerate the trend to move away from cash as a payment,” said Josh Nye, senior economist and author of the report. “But cash was really used as a means to hold on to wealth or to have it on hand for a rainy day.”

The report, released May 9, said during the pandemic the use of cash in daily transactions continued to decline, but using cash as a savings vehicle — presumably stuffed into mattresses, sock drawers and safety deposit boxes — soared amid economic uncertainty. Cash withdrawals rose sharply in the early pandemic as notes in circulation increased to double the expected amount in 2020 and remained elevated in 2021.

The reason? Crises, or perceived crises, are often tied to people’s concerns over accessing cash at ATMs or banks during economic upheaval, Nye said.

Demand for bank notes increased during the year 2000 problem, or Y2K fears, as many thought ATM networks and cashless payment systems would crash, Nye said. And during the 2008 financial crisis more people stored their money in the form of hard cash. It’s a pattern that’s being seen again in the pandemic.

Notes worth $50 or more accounted for all of the increase in currency demand (as a share of GDP) since 2014. The $100 bill now accounts for 60 per cent of currency circulation, up from 50 per cent in 2010.

Philip Cross, a senior fellow at the Macdonald-Laurier Institute and former chief economist analyst at Statistics Canada, pointed to the underground economy — such as cash payments for renovations — as a strong reason why Canadians can’t seem to kick the cash habit.

“It’s a major oversight in the study,” he said. “If you’re doing a $2,000 renovation and paying for it in cash, you’re not paying for it in $20 notes.”

Recent rising interest rates and decades-high inflation will likely take some, but not all, of the shine off cash as a savings vehicle, the report said.

“Interest rates were basically zero in the pandemic and inflation was low, so you weren’t punished for holding cash,” said Douglas Porter, chief economist and managing director of BMO Financial Group.

But with record-high inflation in March, inflation is eating away at purchasing power — more cash is now needed to pay everyday bills.

“It’s possible in the next year we will see a small decline in cash holdings as it’s not necessary or even wise to do so,” he said.

Another surprising finding of the report, Nye said, is that while cash transactions overall are declining, a majority of Canadians still use cash.

As of August 2021, a Bank of Canada survey found 62 per cent of respondents made a cash payment in the previous week, while a similar share made a debit card payment, and 76 per cent used credit cards. Eighty-one per cent had no plans to go cashless.

Sheila Block, senior economist with the Canadian Center for Policy Alternatives, said while the statistics are surprising, it doesn’t provide detail on who uses cash more and for what reason.

Some reasons are access to broadband impacting people’s ability to use digital forms of payment, credit card processing costs for smaller businesses making them cash-only, and certain demographics such as age and economic status playing a role in who uses cash — older and lower- income individuals have more cash on-hand.

“For low-income individuals access to credit cards and banking is difficult,” she said. “And it’s unclear where the age cut-off is for (those) who use cash more.”

Block said it’s important to know these factors to understand why the majority of people in the study still make cash payments.

There is a downside to using cash too, the report said. It’s costly to maintain ATMs and securely handle, store, and transport hard currency. Plus, the tax gaps associated with underground economic activity is expensive. Moving to a cashless model would add one percentage point to the annual GDP of mature economies.

Canada has the second-highest number of ATMs per capita in the OECD (Organization for Economic Co-operation and Development) as the country’s low population density requires a larger network. Since 2017, the number of ATMs has decreased gradually with withdrawals falling faster.

“How do you optimize or streamline the ATM network while still serving certain groups that rely on cash?” Nye said.

BMO’s Porter said it will take much longer than people think to move toward a cashless future. Sweden is working towards it, but Canada is still decades away.

The amount of cash in circulation dropped in the early 1990s and it wasn’t until 2010 that the amount of cash in circulation began creeping upwards again.

There is $112 billion worth of physical money in circulation, averaging out to $3,000 a person, Porter said. That’s more cash drifting around than at any time since the 1960s.

“People think cash is a relic of the past but in fact, we’ve seen the opposite.”

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