Cash Is Dead! Long Live Cash!
An Essay by President and CEO John C. Williams FEDERAL RESERVE BANK OF SAN FRANCISCO
It is often said that cash is king. But a quick glance at the register in stores and restaurants might make you think the king is on his
deathbed. Increasingly, customers are finding other ways to pay for things, whether it’s credit, debit, or gift cards, or even mobile
phones. At home, they use their computers to make payments from their bank or credit accounts, or turn to popular services such
as PayPal. So it’s easy to find commentators who blithely declare that we are on the cusp of a cashless society in which everything is
paid for with the swipe of a card or the tap of a phone. Cash, they tell us, is doomed to go the way of the dinosaurs.
Yet, to paraphrase Mark Twain, reports of the demise of cash are greatly exaggerated.
In fact, they are plain wrong. It’s undeniable, of course, that alternative payment
methods are growing rapidly and significantly increasing their market share. But cash
lives on. The quantity of currency in the economy keeps growing. As Figure 1 shows,
since the start of the recession in December 2007 and throughout the recovery, the
value of U. S. currency in circulation has risen dramatically. It is now fully 42% higher
than it was five years ago.
What explains the rapid rise in currency holdings at the same time other methods of payment are displacing the greenback? And
what is the future of cash? Are we truly becoming a society in which paper currency is obsolete? Or will the supply of currency
continue to grow? It’s useful to approach these questions and explain recent trends in the use of cash by considering the key
economic and social factors behind what’s happening in the payment market.
We are all affected by changes in payment technologies. These innovations are critically important to organizations and businesses
in managing cash flow and making sure that transactions are convenient for customers. They are also of great importance to the
Federal Reserve. Our nation’s central bank is responsible for overseeing key parts of our payment system. A vital part of that
responsibility is processing and distributing currency and coin. The Fed supplies them to the banking system so that they are
available for use by the general public. Last year, the Federal Reserve processed 31.7 billion notes at our 28 processing centers
across the country.