BOK: "Post-COVID Currency Demand Growth Rates in Various Countries Increased 2 to 3 Times"

[Asia Economy Reporter Kim Eun-byeol] Since the outbreak of the novel coronavirus disease (COVID-19), the growth rate of currency demand in various countries has increased by 2 to 3 times compared to normal times. Although contactless consumption and payments increased during the COVID-19 crisis, cash demand showed a rising trend instead.

On the 27th, the Bank of Korea's Currency Issuance Department stated in the report "Impact of COVID-19 on Currency Demand in Major Countries and Implications" that "the increase in currency demand centered on high-denomination bills after COVID-19 is a common phenomenon not only in South Korea but also in the United States, Australia, and Europe," adding, "A review of eight countries showed that the growth rate of currency demand (currency issuance balance) increased by 2 to 3 times." The survey covered the United States, European Union (EU), Canada, Japan, China, Australia, New Zealand, and Switzerland.

In South Korea as well, the increase in currency issuance balance slowed down after peaking in early 2011 but expanded again after March this year. The issuance increase was mainly led by the 50,000 won bills, and the redemption rate from March to August also sharply dropped to 20.9% compared to 60.1% last year.

The Bank of Korea's investigation identified three main reasons for the rise in currency demand growth rates across countries: ▲response to concerns about restricted cash accessibility ▲securing cash for financial institutions' operations ▲securing reserve payment means due to increased uncertainty.

First, as concerns about restricted public access to cash increased due to COVID-19 spread and lockdown measures, demand arose to secure cash inventory in advance. In countries like the United States, Canada, and Russia, ATMs (Automated Teller Machines) were closed to prevent COVID-19 spread, which led to demand for stockpiling cash beforehand. In Europe, cash secured for daily transactions also increased significantly, with 50-euro notes accounting for 82% of the increase in currency issuance balance rather than high-denomination bills.

Financial institutions increased their cash holdings to prepare for possible disruptions in currency supply and demand caused by lockdown orders. Additionally, reduced cash deposits from retail and wholesale stores due to decreased economic activity made it difficult for financial institutions to secure cash, which was another cause.

In response to the unstable economic situation, economic agents preferred cash as a safe asset and safe payment method, increasing precautionary currency demand. Due to concerns about economic recession and rising anxiety about the financial system, there was a tendency to use high-denomination bills as a store of value driven by safe asset preference. Similar behavior of stockpiling high-denomination bills was observed during past events such as Y2K and the global financial crisis.

A Bank of Korea official said, "During crises, trust in cash surpasses that in non-cash payment methods, indicating that cash can safely complete payments under any circumstances and serves as a means to stably store value," adding, "The Bank of Korea is also fully committed to securing and maintaining issuance reserve funds in preparation for a significant increase in cash demand."

The Bank of Korea has increased the manufacturing order volume of 50,000 won bills more than threefold compared to the previous year and unusually placed an additional order of 2 trillion won in May. A Bank of Korea official emphasized, "We are closely monitoring the currency supply and demand situation in the market to ensure that supplied currency is distributed appropriately and are taking all necessary measures."

This content was produced with the assistance of AI translation services.