The Truth about Cash

by Jerry O’Driscoll*

For many years, pundits have been predicting the demise of cash for payments. Currency is bulky, dirty, subject to theft, etc. Making change at the point of payment is time consuming. The rise of e-commerce will surely bring about the demise of cash. Cash is passé.

Nothing could be further from the truth. Cash remains the dominant means of payment by volume at 40 percent.[1] Its share by value is much smaller, at 14 percent, as large transactions are generally settled by other means. Cash is the dominant means of payment for low-value payments.

Cash is the dominant means of payment for many expenditure categories, such as gifts and transfers to people (67 percent), and food and personal care supplies (51 percent). It even remains the largest single means of payment for medical, education and personal services (17 percent).

Surely Millennials will lead to the death of cash. They famously eschew cash and prefer electronic means of payment. They are big users of online shopping. They are also big users of cash. The 18-24 year-old group are the largest users of cash (40 percent of payments). They both use cash far more often than the over-65 group (25 percent).

Pundits have exaggerated cash’s demise. They were correct about the use of checks, however. Payments by check have been plunging. It appears that the inroads made by electronic payments have come largely at the expense of checks, not cash. As online shopping grows, e-payments will certainly rise as a share. For now, however, cash remains an important means of payment. Consumer choice dictates its use.

Perhaps frustrated by the failure of their predictions, some have advocated forcibly turning consumers away from cash. This has been termed the “war on cash.” It was given some intellectual justification by Kenneth Rogoff.[2] I am not going to review the book, but I will delve further into the reasons for large cash holdings.

Cash Around the World

Rogoff’s publisher summarizes his book, in part, as follows. “Even as people in advanced economies are using less paper money, there is more cash in circulation – a record $1.4 trillion in U.S. dollars alone, or $4,200 for every American, mostly in $100 bills. And the United States is hardly exceptional. So what is all that cash being used for? The answer is simple: a large part is feeding tax evasion, corruption, terrorism, the drug trade, human trafficking, and the rest of a massive global underground economy.”[3]

Every single declarative sentence in this blurb is either wrong or exaggerated. I will now proceed to establish that claim.

As we have seen, cash is very much in use for payments in America. There is more cash in circulation. “…U.S. currency in circulation has grown an average of about 6-7 percent annually over the past few decades, one to two percentage points more rapidly than U.S. nominal GDP.”[4] The growth has occurred in $100 bills. That denomination was 71 percent of U.S. currency in circulation by value. That compares to Canada, where the share by value of $100 bills was 51 percent.[5] The comparison is instructive because the two economies and their institutions are similar.

So are Canadians more law-abiding than Americans, and thus less likely to use large bills for shady dealings? Actually, the explanation lies elsewhere.

The U.S. Currency to Nominal GDP ratio was declining slowly from 1960 into the 1980s. It then began rising with the fall of the Berlin Wall, the collapse of the Soviet Union, and crises in several Latin American countries. Demand for dollars stabilized or declined with the introduction of the circulating Euro in 2002. The 2008 global financial crisis ignited renewed demand for the Greenback, however, and “that has shown no sign of abating.”[6]

In short, the U.S. dollar is not just a global means of payment, but its currency is in demand in times of political and economic upheaval. The global demand varies with ebb and flow of crises. In recent years, the Soviet Union and Argentina were the two leading markets for shipments of U.S. currency in the period covered.[7] More recently, turmoil in Venezuela has driven a demand for dollars there. The Canadian currency does not satisfy global risk demand.

So I return to publisher’s blurb and its factual claims. First, the claim about the decline in the use of cash is exaggerated for America. Half the cash in circulation is not circulating in America. Deflating total U.S. currency by the U.S. population is misleading. U.S. currency is exceptional for satisfying global risk demand. The growth in U.S. currency has been driven by foreign demand for legitimate purposes, and not by illegality of various kinds. U.S. currency continues to be used for legitimate purposes, both here and abroad.[8]

Suppressing the use of currency would frustrate consumer choice. It would also violate the liberties of citizens both here and abroad. A war on cash is an attack against individuals and their rights. It is time to end the war.




[1] Unless otherwise noted, for cash facts I draw on Barbara Bennet, et al., Cash Continues to Play a Key Role in Consumer Spending: Evidence from the Diary of Consumer Payment Choice. (Cash Product Office of the Federal Reserve System, 2014).

[2] Kenneth S. Rogoff, The Curse of Cash (Princeton” Princeton University Press, 2016).


[4] Ruth Judson, “Crisis and Calm: Demand for U.S. Currency at Home and Abroad from the Fall of the Berlin Wall to 2011.” Board of Governors of the Federal Reserve System. International Finance Discussion Papers IDF 1058 (November 2012): 8.

[5] Judson (2012): Appendix Figure 1.

[6] Judson (2012): 1-2.

[7] Judson (2012): 13.

[8] Judson (2012): 28 finds only one study indicating cash holdings by Americans large enough ($1,000 per person) to be consistent with cash use for underground activity (not necessarily illegal activity). Other studies find average cash holdings of under $100.


* Jerry O’Driscoll is a Senior Fellow at the Cato Institute in Washington.

4 thoughts on “The Truth about Cash

  1. Fascinating.

    I wonder if the use of cash in ordinary transactions in the US differs importantly by geographical area. In Manhattan, for example, I get the impression that people use cards for even the smallest transaction. Or maybe the real dividing line is income level.

  2. Fascinating tidbit about Dave Ramsey’s influence.

    Good question on geographic usage of cash, but I have no information.

  3. Interesting.

    Cash has been issued as a medium of exchange for centuries all around the world since it is a widely accepted form of payment that society is able to physically suppress in their hands compared to being paid via check or online nowadays. Generations have passed and technology has risen meaning the use of cash is less ideal to the consumers. People are carrying credit/debit cards at such a young age. However, there are places around the world that only accept cash because technology in that region have a limited amount of resources.

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