Cash use has been declining for years, but cash isn’t close to going away. In 2022, there were a staggering 70 billion cash transactions, making it the third-most-common payment method. But can cash compete in this digital age?

In this episode, Six Hundred Atlantic examines how the pandemic changed cash use and what the future of cash could look like. We’ll also learn how the Federal Reserve keeps high-quality flowing through our economy by talking to the people at the Federal Reserve who work behind the scenes to keep our money moving.

Allison Ross:

Walk into stores or restaurants everywhere and you’ll see people swiping or handing over a card to pay, or just tapping their phone. You rarely see people pulling out cold, hard cash. Cash usage has been on the decline for years, and it took a big hit during the pandemic. But how big?

We wanted to find out, “What do people think of cash?” So, we asked people walking near Federal Reserve Plaza in downtown Boston a simple question.

Allison Ross: Do you carry cash?

Man: I do not.

Man: I do not carry cash any cash on me.

Woman: I do not.

Allison Ross:

But wait, cash is still in plenty of people’s wallets.

Man: I do, yes. Roughly between 60 and 100 dollars. 

Woman: Right now, I have 40 on me.

Man: I am always traveling, and, you know, I don’t want to be without cash.

Allison Ross:

The reality is that cash use is down in the last several years, but it’s not close to out. Cash is the payment choice 20% of the time, making it the third-most common method of payment. And it’s the primary payment method for a portion of the population who are “unbanked,”—meaning they don’t have a checking, savings, or any other kinds of bank accounts. Cash is still moving at a healthy clip through our economy. And that means that it’s still moving through the Fed.

Many people don’t realize that millions of notes and coin are passing through each Federal Reserve Bank every single day, including right here in Boston. It’s not a secret—but the process is a bit of a mystery to many.

Meaghan Gsell:

I think it would surprise people like, “We’re doing what in the basement?”

Allison Ross:

I am Allison Ross, and this is Six Hundred Atlantic, a podcast produced by the Boston Fed. And we’re doing a mini season on a big topic: cash.

We’re looking at trends in cash usage. We’re asking about the Fed’s role in cash. And we’re looking at how we detect and dispose of money that’s fake or too dirty to use.

We know a big question for many is, “Is cash dead? Has cash been canceled?” We’ve already told you the answer is no. But what exactly does the future look like?

Let’s go back to 2020, and the start of a pandemic that really could have wiped out cash use forever.

Shaun O’Brien is the lead policy analyst for the Federal Reserve Financial Services. He says the pandemic was the perfect storm to eliminate cash. People were locked down in their homes and restaurants and stores were closed, and there were far fewer options to use cash.

Shaun O’Brien:

If you were to imagine a scenario where you would effectively eliminate cash, the pandemic is something that you might dream up in a pre-pandemic world. People stopped going out to stores, there was social distancing. Early on there was confusion about how the virus was spread. There was suspicions that it might even be spread through touch. And so, it would make sense that consumers would not want to use cash. And so, you kind of have this global shock to the payment system that should drive everyone away from cash use. But that didn’t happen.

Allison Ross:

O’Brien studies behavioral trends around cash and reports out that information in the Dairy of Consumer Payment Choice. That survey started in 2016, and it’s conducted every October. For three days, participants report on what type of payments they use when they shop.

Shaun O’Brien:

And that really provides us with insight, not just how consumers are making payments that year, but how the choices that consumers are making with respect to payments has been changing year over year.

Allison Ross:

So, let’s look at how those payment choices have been evolving.

In 2016, cash made up 31% of all payments, with credit cards accounting for 18%. But cash use started to decline well before the pandemic. In 2018, it fell to 26%, while credit cards increased to 23%.

And then the pandemic hit.

By the end of 2020, cash usage had dropped to 19% of all payments, while credit cards increased to 28%.

But just because people weren’t using their cash in stores, doesn’t mean they didn’t want it in their hands.

According to Lisa Perlini, the Boston Fed’s vice president of Cash Services, cash demand in the district skyrocketed by five times the normal amount in March of 2020.  And that trend was not unique to New England.

Steve Son, the senior vice president of FedCash Services, studied this on a national level.

Steve Son:

As you can imagine, at the very beginning of this pandemic, we saw pretty significant increases in cash demand. You probably yourself may have run out to your ATM just to have a little bit of extra cash on hand just as you started to hear that there was a pandemic at large. But during the initial part of that, because we were also locked down, cash wasn’t really being used regularly. We didn’t really have the same opportunities to purchase things in person. Well, as we sort of came back from that in the last couple of years, what was interesting, some suspected that cash usage would continue to fall lower, and in fact the actual number of cash transactions actually stabilized

Allison Ross:

Consumers were holding onto more bills, but it wasn’t just 5s, 10s, and 20s. No, for many it was 100-dollar-bills. O’Brien says holding bills that big is a real sign that you’re holding cash to have your money in your hands in case of an emergency, not necessarily to spend it on routine purchases.

Shaun O’Brien:

And that’s really been driven from an increase in people wanting to hold onto more cash as a store of value, really at their residence or at their home. People still mostly carry 20s in their pocket, purse, or wallet. But the demand for 100s as a store of value note, was significantly higher during the pandemic and post-pandemic than it was pre-pandemic. And so, the Fed volume of 100-dollar payments remained significantly higher during the pandemic.

Allison Ross:

More 100s in circulation wasn’t the only sign that people were holding cash for emergency use. Prior to the pandemic, O’Brien found that most people carried roughly $60 with them. After the pandemic, it increased and hasn’t really moved since.

Shaun O’Brien:

People are carrying more cash in their pocket, purse, or wallet, about $10 more on average. But at the same time, even though we’ve seen this increased demand for cash, we also see that people are spending it less often. And so really this is a bit of a paradox when it comes to cash. That there is this overall increased demand and yet at the same time, people are using it less often. So, it seems like there's been, not just this shift to use it less often, but a shift to use it less often but also to rely on it more as a backup payment instrument.

Allison Ross:

O’Brien thinks we may have hit a “floor” for cash, meaning usage won’t drop below this point, at least for a while.

Shaun O’Brien:

Before we had talked about the “floor to cash” and this idea that there is this underlying demand for cash that we haven’t gone below at this point, but we don’t know if that is going to persist into the future.

Allison Ross:

So, cash is sticking around, but people may be holding on to it for different reasons than they used to. Son says the Fed’s cash operations needs to keep evolving with demand.

Steve Son:

We have to continue to adapt ourselves to this changing cash demand landscape.

Allison Ross:

Some of that work is happening deep in the basement of Federal Reserve Plaza in Boston. Beneath fluorescent lights, an underground cash-sorting operation hums endlessly along. You can hear an echo of cash being processed in large machines, next to piles and piles of bills, and cases of coins -- more money than most will ever see in a lifetime.

All the currency in the U.S., eventually comes to be sorted in the basement of the Boston Fed and at 11 other Reserve Banks and in 28 other processing facilities. Sorted, not printed.

Meaghan Gsell:

And you know I think a misunderstanding about what the cash department does at the Boston Fed is that we print money in the building, I think that’s a misconception.

Allison Ross:

Meaghan Gsell is a business support manager at the Boston Fed. She notes that the Fed isn’t printing the money. That’s the job of the U.S. Bureau of Engraving and Printing.

Instead, in the basement of the Fed is a warehouse of sorts, containing large processing machines and a vault filled with currency, because the Fed is responsible for the distribution and supply of high-quality currency.

You might think working in cash consistently is like a dream come true. But Gsell says seeing money everywhere you look can become routine.

Meaghan Gsell:

Honestly, I think you get used to it. For me, it isn't really cash, it’s just like a widget. We don’t really see it like everyone else, it is not like, “Oh my gosh there is $20.” It is more of, this is just our processing. This is kind of just a widget that we work with every day. So, it doesn’t really stick out to me at all.

Allison Ross:

That is until Meaghan steps outside of the Fed.

Meaghan Gsell:

And the crazy thing is that if I were to see $20 on the street, I'd be so excited.

Allison Ross:

So, how does cash make its way off the streets and into the Boston Fed? Here’s Perlini to break it down.

Lisa Perlini:

When a depository institution has more currency on hand than they either need for demand or their insurance allows for, they hire an armored carrier who brings that deposit to us. We do an initial verification, and then we also process it through our bank note processing machines, which are these high-speed currency machines that ensure that it’s the right denomination. It counts how much the depository institution gave us, but it is also checking for quality. And if the machine determines it is what we call, “fit enough to go out to commerce,” it’s going to repackage it in our standard increments. And if it is not, it is actually going to shred it for us.

Allison Ross:

That money that meets Fed standards is then shipped in armored carriers and delivered.

It’s no shock that the Boston Fed processes a lot of cash. But it is probably more than you think.

Meaghan Gsell:

On average, as of September 2023, we received over 4,800 bundles which is currency, and we pay out 5,200 bundles every single day. What this really means is that we received over 4.8 million notes, each day on average, and paid out over 5.2 million notes.

Allison Ross:

And that is just in Boston. Steve Son has the number for all Fed facilities.

Steve Son:

So last year, we processed just under 30 billion notes.

Allison Ross:

30 billion. So, cash is not quite dead yet.

Lisa Perlini:

Well, Ally, the demise of cash has really been overrated.

People might be surprised that last year 70 billion transactions were made with cash.

Allison Ross:

Perlini notes that for the “unbanked” people we mentioned earlier—including many lower-income individuals—cash is really the only payments option. That’s because they don’t have bank-issued credit cards or debit cards.

Lisa Perlini:

Cash is the primary payment mechanism for approximately 20 million U.S. households that are either unbanked or underbanked, as well as the primary payment instrument for those who make under $25,000.

Allison Ross:

Perlini adds that cash has other characteristics that are tough for digital payment options to match. One is that transactions are settled instantly—bills exchange hands, and it’s over. Another is that the transactions can be completely anonymous.

Lisa Perlini:

I think it stood the test of time because it’s essentially untraceable, it’s easy to carry, it’s widely accepted, and it’s very reliable.

You know, for example, if the power goes out, and you can’t swipe your card, you can't purchase whatever is there that you need. So, cash is really important in that situation.

Allison Ross:

No one at the Fed, though, denies that even the hard-to-imagine amount of bills in circulation is far less than what they were just a few years ago. But Steve Son says as long as there is a need for cash, the Fed will provide it.

Steve Son:

Again, our role is not to encourage the use of cash or to discourage it, it’s really to provide it as long as there is a desire for the public to want to use it.

Allison Ross:

We’ve talked in this episode about the almost unimaginable amount of currency in circulation. But how does the Fed keep so much money “fit for commerce.” What happens when money in circulation is dirty, ripped, or even counterfeit? How do we spot fake bills?

Arian Panariti:

After you work with currency for a long time and you are exposed to currency every day, you get almost like a sixth sense.

Allison Ross:

So, Fed cash personnel do rely on a sixth sense—and a whole lot of technology. But what separates the fake notes from the real, the usable bills from the ones that are headed to the shredder? And is it true that shredded bills can literally help power a region? We’ll talk about all of that and more in the second and final episode of our mini-season on Six Hundred Atlantic.

You can find more information on everything discussed today on our website. Don't forget to check out BostonFed.org/SixHundredAtlantic, where you can listen to interviews, as well as our podcast seasons. You can also subscribe to our email list to stay up to date on new episodes. And don't forget to rate, review, share, and subscribe to Six Hundred Atlantic on your favorite podcast app.

The producers would like to thank our contributors for their time and insights. They are Meaghan Gsell, Shaun O’Brien, Lisa Perlini, and Steve Son.

I'm Allison Ross, signing off for another episode of Six Hundred Atlantic. Thanks for listening.