Early on in his 2016 book, The Curse of Cash, Harvard economist Ken Rogoff makes a startling statement: “Though most people are aware of the hygiene problems associated with handling cash, one can imagine paper currency being an agent of transmission in some future pandemic.” That is indeed some prescient thinking, given that we know little about the potential transmission risk of COVID-19 from handling paper currency around the world.
This analysis shows that although there is at best a weak correlation between the amount of paper currency in circulation per resident and the COVID-19 transmission rates, it varies widely between countries. This article then reviews emerging evidence on survival rates of COVID-19 on different surfaces and finds no difference between paper and plastic. This is not to discount the risks from digital methods of payments such as touchscreen phones or point-of-sale (PoS) machines, but to emphasize that central banks around the world must adapt to changes in payment methods in a post-COVID world. Indeed, in the latest Bulletin from the Bank for International Settlements (BIS), authors Raphael Auer, Giulio Cornelli, and Jon Frost find that the pandemic presents a significant challenge for central banks around the world to bolster trust in cash.
“There are two measures economists use to study currency demand, the currency to Gross Domestic Product (GDP) ratio and the currency in circulation per capita,” says Professor Pushpa L. Trivedi, a Professor of Economics at the Department of Humanities and Social Sciences, Indian Institute of Technology, Bombay (IITB). India, alongside countries such as Hong Kong and Japan, are more cash-reliant than other economies around the world by the former measure, but not necessarily by the latter owing to differences in exchange rates. India’s cash usage has also been linked to the size of its large informal sector, which contributes more than 50% to India’s national income.
To investigate the link between currency in circulation and the spread of COVID-19, we look at correlations across countries. The figure below plots the currency per capita (in terms of hundreds of US Dollars) to the average number of new cases per million persons in that country. Note that this does not permit any comment on causality, and is based heavily on reported infection rates which may be underestimated for lack of testing. Indeed, when we look at an alternate measure, the currency-to-GDP ratio, and total cases per million, the relationship suggests no correlation. It is also worth noting that in areas worst affected by the pandemic (such as the United States of America and the Eurozone), a large fraction of cash is actually held outside these countries and thus may not be associated with domestic infection rates.
Figure 1: Currency held per capita and COVID-19 spread (top); Currency-to-GDP ratio and COVID-19 spread (bottom)
Dr. Mehmet Özmen, Lecturer in Economics at the University of Melbourne’s Faculty of Business and Economics says that this (lack of) association could be because of differences in attitudes related to cash across countries. “Countries like the USA, Canada, Australia, and Britain regularly conduct detailed surveys on how their citizens use cash and other payment methods like debit and credit cards,” said Özmen. He continues, “There’s not much evidence on what drives the preferences for payments in India though,” sharing that in a recent ongoing project in Mumbai, a whopping 94% of nearly 15000 recorded transactions were carried out in cash, typically in transactions of less than Rs. 500 (Approx. USD 7.2). In examining some of the factors that affect the demand for cash in India, recent studies point toward the availability of alternate payment instruments as a key determinant. Thus advisories in COVID-19 times (even from the Government of India) suggesting avoidance of cash where digital alternatives are available may have good intentions but ultimately may be speculative.
Aggregate data on payment systems for May and June are yet to be released by the Reserve Bank of India, but data up till April 2020 suggests a sharp decline in digital payments, and a further reduction in cash withdrawals at automated teller machines (ATMs). Furthermore, recently released data from the National Payments Corporation of India (NPCI) suggests that there has also been a decline in overall mobile and digital payments in March 2020, compared to earlier months. Trivedi suggests that the former could be explained by an overall drop in economic activity since March 24 (when the nation-wide lockdown was announced by Prime Minister Narendra Modi), whereas the latter might more intuitively be due to mobility restrictions put in place during the lockdown. Cash withdrawals at ATMs (largely using debit cards) fell by more than half from Rs. 6569 lakh (approx. USD 9.2 million) in January 2020 to Rs. 2866 lakh (approx. USD 3.7 million) in April, 2020.
Figure 2: Change in digital transactions during the pandemic in India
Source: Reserve Bank of India Weekly Statistical Bulletin, 2020
What happens to cash in a post-COVID world? In the United States, for example, many credit card companies see an opportunity during the pandemic to make a more structural shift away from cash. But this is predicated on the assumption that the novel coronavirus lasts longer on paper currency notes than it does on credit/debit cards, or touchscreen surfaces. Although there is no information available on the newest strain of the coronavirus, scientific studies compiled by a team of medical researchers in Germany suggests that the time that the virus survives on paper, plastic, and glass surfaces is similar (between 4 and 5 days, depending on the type of strain). Thus, it remains entirely plausible that COVID-19 could transmit through card usage, or other touch-based payment methods (e.g., mobile applications) as well.
Indeed, communication around cash usage becomes a bigger problem when official advisories come from the World Health Organization (WHO) that suggest cash was a carrier for the virus. That was quickly clarified, while Mike Orcutt, in his article in the MIT Technology Review, actually says that you are more likely to contract the disease from others in the aisles at grocery markets rather than at the checkout counters.
Stray incidents aside, COVID-19 has some important implications for currency management policies in India. First, given the large share of the informal sector and low adoption of cashless payment methods (despite demonetization), restricting cash use may create more problems than solutions. This is especially true as recent reports suggest a substantial fraction of this workforce consists of migrants who face severe uncertainty around their livelihood in light of continuing lockdown restrictions.
Finally, as a counterpoint, studies suggest that ethanol is one of the most effective disinfectants for surfaces potentially affected by COVID-19. As India still uses paper-based currency notes, it may be difficult in practice to disinfect the large volumes of notes in circulation and with the public. What is easier, and therefore more likely to be preferred, is cashless modes of transactions that are easier to disinfect using alcohol-based sanitizers. Countries such as Canada, the United Kingdom, and Switzerland (and other European Union countries, but not the US) have polymer-based banknotes, that are perhaps easier to disinfect without affecting the longevity of the banknote. Although India has, in the past, explored this option, it will perhaps truly take a pandemic to test this idea out.
Anirudh Tagat is a PhD Scholar at the IITB-Monash Research Academy, Mumbai. The views expressed in this article do not represent that of IIT Bombay, Monash University, the Academy, or the sponsors of this research.
This article was published in the online data journalism portal, IndiaSpend- https://www.indiaspend.com/no-clear-link-to-currency-notes-and-covid-19-spread/
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- Indians are withdrawing less cash from ATMs and making fewer digital payments since January up to May, this is much lower than what it was during the same time last year. Part of this could be due to lower economic activity overall, but also on account of the lockdown imposed in various parts of India.
Early on in the battle against COVID-19, advisories from bodies like WHO and various Governments cautioned against the usage of cash, arguing they might be virus carriers. In this analysis, we examine whether COVID-19 spread is associated with cash held in that country. The claim finds little support in the data, but central bankers around the world need to be more careful about their policies on cash usage and promoting digital payments.