'No More Market or Kono Visits, Contactless Payments Rise'... Small Cash Disappears Due to COVID-19

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[Asia Economy Reporter Kim Eun-byeol] The use of small-denomination banknotes such as 1,000 won and 5,000 won bills has sharply declined this year amid the continued spread of the novel coronavirus infection (COVID-19). Although the use of small denominations had already been decreasing due to increased card usage, cash usage has significantly dropped following the activation of contactless transactions after COVID-19. This is also interpreted as reflecting the difficulties faced by self-employed workers who handle many small bills.

According to the Bank of Korea on the 31st, the issuance amount of 1,000 won bills from January to November this year was 278.14 billion won, down about 61.7 billion won compared to the same period last year (339.89 billion won). Including December, the estimated annual issuance amount of 1,000 won bills this year is about 298.95 billion won, which is 17.1% lower than last year's annual issuance amount of 360.7 billion won. Considering that the issuance amount decreased by about 7% the previous year, the decline has more than doubled.

The issuance amount of 5,000 won bills also decreased by 94.2 billion won to 221.72 billion won from January to November this year compared to the same period last year. The estimated annual issuance amount of 5,000 won bills (about 236.7 billion won) is also significantly lower than last year's annual issuance scale of 330.89 billion won. Accordingly, the issuance scale this year is expected to decrease by 28% compared to last year, far exceeding the previous year's decline of 0.6%.

The decrease in issuance reflects a drop in demand. While active card usage is a factor, it is also interpreted as directly showing the contraction of the real economy. Markets, where cash transactions frequently occur, have seen a significant decline in visits due to COVID-19. Even in markets, many now purchase Onnuri gift certificates or local currency gift certificates via card or online before using them. Another reason is the sharp drop in visits to small restaurants where cash usage is common. Places considered vulnerable to COVID-19 spread, such as coin karaoke rooms and coin laundries, have also seen a strong trend of reduced visits this year. Lee Jung-wook, Director of the Bank of Korea's Currency Issuance Department, explained, "With the sharp decline in face-to-face transactions, the use of small-denomination currency has greatly decreased."

However, no major side effects from the decrease in small-denomination currency usage have appeared so far. Of the 3,000 trillion won in the money supply (M2), about 150 trillion won is cash currency, so there is no significant problem for the transmission of monetary policy. Nevertheless, if the use and issuance of small-denomination currency continue to decline and shortages occur, low-income and elderly groups may be adversely affected. If small-denomination currency is gradually phased out, the elimination of small units could lead to price increases. Director Lee stated, "The Bank of Korea will continue to supply small-denomination currency to ensure that financially marginalized groups do not experience inconvenience."

On the other hand, demand for high-denomination bills of 10,000 won or more appears to be increasing. This year, over 9 trillion won worth of 10,000 won bills were issued from January to November, surpassing last year's annual issuance level of 8.4 trillion won. The 50,000 won bills were issued at about 23 trillion won during the same period, expected to be similar to last year's issuance. This is interpreted as stockpiling high-denomination bills of 10,000 won or more to respond to crises after COVID-19. The redemption rate of high-denomination bills has sharply declined. From January to November, the redemption rate for 50,000 won bills was 25.30% (compared to 60% last year), and for 10,000 won bills, it was 75% (compared to 105% last year).

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