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In
economics Economics () is a behavioral science that studies the Production (economics), production, distribution (economics), distribution, and Consumption (economics), consumption of goods and services. Economics focuses on the behaviour and interac ...
, cash is money in the physical form of
currency A currency is a standardization of money in any form, in use or circulation as a medium of exchange, for example banknotes and coins. A more general definition is that a currency is a ''system of money'' in common use within a specific envi ...
, such as
banknote A banknote or bank notealso called a bill (North American English) or simply a noteis a type of paper money that is made and distributed ("issued") by a bank of issue, payable to the bearer on demand. Banknotes were originally issued by commerc ...
s and
coin A coin is a small object, usually round and flat, used primarily as a medium of exchange or legal tender. They are standardized in weight, and produced in large quantities at a mint in order to facilitate trade. They are most often issued by ...
s. In book-keeping and
financial accounting Financial accounting is a branch of accounting concerned with the summary, analysis and reporting of financial transactions related to a business. This involves the preparation of Financial statement audit, financial statements available for pu ...
, cash is current assets comprising currency or currency equivalents that can be accessed immediately or near-immediately (as in the case of money market accounts). Cash is seen either as a reserve for payments, in case of a structural or incidental negative cash flow or as a way to avoid a downturn on financial markets.


Etymology

The English word ''cash'' originally meant , and later came to have a secondary meaning . This secondary usage became the sole meaning in the 18th century. The word ''cash'' comes from the
Middle French Middle French () is a historical division of the French language that covers the period from the mid-14th to the early 17th centuries. It is a period of transition during which: * the French language became clearly distinguished from the other co ...
, which comes from the Old Italian , and ultimately from the
Latin Latin ( or ) is a classical language belonging to the Italic languages, Italic branch of the Indo-European languages. Latin was originally spoken by the Latins (Italic tribe), Latins in Latium (now known as Lazio), the lower Tiber area aroun ...
.


History

In Western Europe, after the
fall of the Western Roman Empire The fall of the Western Roman Empire, also called the fall of the Roman Empire or the fall of Rome, was the loss of central political control in the Western Roman Empire, a process in which the Empire failed to enforce its rule, and its vast ...
, coins, silver jewelry and hacksilver (silver objects hacked into pieces) were for centuries the only form of money, until Venetian merchants started using silver bars for large transactions in the
early Middle Ages The Early Middle Ages (or early medieval period), sometimes controversially referred to as the Dark Ages (historiography), Dark Ages, is typically regarded by historians as lasting from the late 5th to the 10th century. They marked the start o ...
. In a separate development, Venetian merchants started using paper bills, instructing their
bank A bank is a financial institution that accepts Deposit account, deposits from the public and creates a demand deposit while simultaneously making loans. Lending activities can be directly performed by the bank or indirectly through capital m ...
er to make payments. Similar marked silver bars were in use in lands where the Venetian merchants had established representative offices. The
Byzantine Empire The Byzantine Empire, also known as the Eastern Roman Empire, was the continuation of the Roman Empire centred on Constantinople during late antiquity and the Middle Ages. Having survived History of the Roman Empire, the events that caused the ...
and several states in the Balkan area and Kievan Rus also used marked silver bars for large payments. As the world economy developed and silver supplies increased, in particular after the colonization of South America, coins became larger and a standard coin for international payment developed from the 15th century: the Spanish and Spanish colonial coin of 8 reales. Its counterpart in gold was the Venetian ducat. Coin types would compete for markets. By conquering foreign markets, the issuing rulers would enjoy extra income from seigniorage (the difference between the value of the coin and the value of the metal the coin was made of). Successful coin types of high nobility would be copied by lower nobility for seigniorage. Imitations were usually of a lower weight, undermining the popularity of the original. As feudal states coalesced into kingdoms, imitation of silver types abated, but gold coins, in particular, the gold ducat and the gold florin were still issued as trade coins: coins without a fixed value, going by weight. Colonial powers also sought to take away market share from Spain by issuing trade coin equivalents of silver Spanish coins, without much success. In the early part of the 17th century, English East India Company coins were minted in England and shipped to the East. In England, over time the word ''cash'' was adopted from
Sanskrit Sanskrit (; stem form ; nominal singular , ,) is a classical language belonging to the Indo-Aryan languages, Indo-Aryan branch of the Indo-European languages. It arose in northwest South Asia after its predecessor languages had Trans-cultural ...
कर्ष karsa, a weight of gold or silver but akin to the Old Persian 𐎣𐎼𐏁 karsha, unit of weight (83.30 grams). East India Company coinage had both
Urdu Urdu (; , , ) is an Indo-Aryan languages, Indo-Aryan language spoken chiefly in South Asia. It is the Languages of Pakistan, national language and ''lingua franca'' of Pakistan. In India, it is an Eighth Schedule to the Constitution of Indi ...
and English writing on it, to facilitate its use within the trade. In 1671, the directors of the East India Company ordered a mint to be established at
Bombay Mumbai ( ; ), also known as Bombay ( ; its official name until 1995), is the capital city of the Indian States and union territories of India, state of Maharashtra. Mumbai is the financial centre, financial capital and the list of cities i ...
, known as Bombaim. In 1677 this was sanctioned by the Crown, the coins, having received royal sanction, were struck as silver rupees; the inscription runs "The rupee of Bombaim", by the authority of Charles II. Around that time, coins were also being produced for the East India Company at the Madras mint. The Tamil the word for money is kaasu, which may have been modified into 'cash'. Both words, 'kaasu' and 'cash', have the same meaning, unlike money box. The currency at the company's Bombay and Bengal administrative regions was the rupee. At Madras, however, the company's accounts were reckoned in ''pagodas'', ''fractions'', ''fanams'', ''faluce'' and ''cash''. This system was maintained until 1818 when the rupee was adopted as the unit of currency for the company's operations. Paper money was first used in China during the
Tang dynasty The Tang dynasty (, ; zh, c=唐朝), or the Tang Empire, was an Dynasties of China, imperial dynasty of China that ruled from 618 to 907, with an Wu Zhou, interregnum between 690 and 705. It was preceded by the Sui dynasty and followed ...
500 years prior to it catching on in Europe. During his visit to China in the 13th century, Marco Polo was amazed to find that people traded paper money for goods rather than valuable coins made of silver or gold. He wrote extensively about how the Great Kaan used a part of the Mulberry Tree to create the paper money as well as the process with which a seal was used to impress on the paper to authenticate it. Marco Polo also talks about the chance of forgery and states that someone caught forging money would be punished with death. In the 17th century, European countries started to use paper money in part due to a shortage of precious metals, leading to fewer coins being produced and put into circulation. At first, it was most popular in the colonies of European powers. In the 18th century, important paper issues were made in colonies such as Ceylon and the bordering colonies of Essequibo, Demerara and Berbice. John Law did pioneering work on banknotes with the ''Banque Royale''. The relation between money supply and inflation was still imperfectly understood and the bank went under rendering its notes worthless, because they had been over-issued. The lessons learned were applied to the
Bank of England The Bank of England is the central bank of the United Kingdom and the model on which most modern central banks have been based. Established in 1694 to act as the Kingdom of England, English Government's banker and debt manager, and still one ...
, which played a crucial role in financing the
Peninsular War The Peninsular War (1808–1814) was fought in the Iberian Peninsula by Kingdom of Portugal, Portugal, Spain and the United Kingdom of Great Britain and Ireland, United Kingdom against the invading and occupying forces of the First French ...
against French troops, hamstrung by a metallic Franc de Germinal. The ability to create paper money made nation-states responsible for the management of inflation, through control of the money supply. It also made a direct relation between the metal of the coin and its denomination superfluous. From 1816, coins generally became token money, though some large silver and gold coins remained standard coins until 1927. The
World War I World War I or the First World War (28 July 1914 – 11 November 1918), also known as the Great War, was a World war, global conflict between two coalitions: the Allies of World War I, Allies (or Entente) and the Central Powers. Fighting to ...
saw standard coins disappear to a very large extent. Afterward, standard gold coins, mainly British sovereigns, would still be used in colonies and less developed economies and silver Maria Theresa thalers dated 1780 would be struck as trade coins for countries in East Asia until 1946 and possibly later locally. Cash has now become a very small part of the money supply. Its remaining role is to provide a form of currency storage and payment for those who do not wish to take part in other systems, and make small payments conveniently and promptly, though this latter role is being replaced more and more frequently by electronic payment systems. Research has found that the demand for cash decreases as debit card usage increases because merchants need to make less change for customer purchases. Cash is increasing in circulation. The amount of the
United States dollar The United States dollar (Currency symbol, symbol: Dollar sign, $; ISO 4217, currency code: USD) is the official currency of the United States and International use of the U.S. dollar, several other countries. The Coinage Act of 1792 introdu ...
in circulation increased by 42% from 2007 to 2012. The amount of pound sterling banknotes in circulation increased by 29% from 2008 to 2013. The amount of euro in circulation increased by 34% from August 2008 to August 2013 (2% of the increase was due to the adoption of euro in
Slovakia Slovakia, officially the Slovak Republic, is a landlocked country in Central Europe. It is bordered by Poland to the north, Ukraine to the east, Hungary to the south, Austria to the west, and the Czech Republic to the northwest. Slovakia's m ...
2009 and in
Estonia Estonia, officially the Republic of Estonia, is a country in Northern Europe. It is bordered to the north by the Gulf of Finland across from Finland, to the west by the Baltic Sea across from Sweden, to the south by Latvia, and to the east by Ru ...
2011).


Motives of cash holding

In economic theory (according
Keynesian economics Keynesian economics ( ; sometimes Keynesianism, named after British economist John Maynard Keynes) are the various macroeconomics, macroeconomic theories and Economic model, models of how aggregate demand (total spending in the economy) strongl ...
), the cash holding of cash (especially sight deposits) is roughly attributed to three motives: * Transactions motive * Precautionary motive * Speculative motive. The transactions motive covers the business needs of economic subjects, the precautionary motive serves to hold money for liquidity purposes and to provide for crisis situations, and the speculation motive, according to John Maynard Keynes, results from the uncertainty about future interest rate developments and relates to financial investments. In addition to this purely economic importance, there are other aspects of cash use: * Anonymous payment without disclosing personal data * Trust to the central bank (control and publication of money creation) * Activation of a reward center in the brain (anticipation of reaching a specific goal) * Expenditure control (immediate physical payment) * Tradition (haptic experience, e.g. monetary donation; long-term reliability of value retention) * Inclusion (equal participation in economic life for all) * Identification (symbolic character, solidarity and group membership) * Educational tool for children (objective handling of assets and expenses) * Paying a tip as immediate recognition of good service. In practice, there may be a combination of such motives, with the precautionary motive of preserving value and anonymous payment being decisive. Due to its unique characteristics, there is no perfect substitute for cash. Demonetisation or capital control can destabilize the economy if electronic means of payment are not readily available (e.g. 2016 Indian banknote demonetisation).


Cash in circulation

Cash in circulation is characterized by strong seasonal fluctuations. Wage and salary payment dates, tax payment dates or holidays lead to statistically perceptible increases in cash in circulation, for which the credit institutions are preparing. Since cash holdings at banks do not earn interest and can also lead to security problems (
bank robbery Bank robbery is the criminal act of stealing from a bank, specifically while bank employees and customers are subjected to force, violence, or a threat of violence. This refers to robbery of a bank Branch (banking), branch or Bank teller, tel ...
), banks usually only hold very small amounts of cash. They are therefore forced to involve the central bank in times of higher cash requirements. Therefore, the cash in circulation only remains unchanged if the banks hand over cash from their own cash holdings to their bank customers or take cash deposits from their customers into their own holdings. The ratio of the cash in circulation in relation to the
gross domestic product Gross domestic product (GDP) is a monetary measure of the total market value of all the final goods and services produced and rendered in a specific time period by a country or countries. GDP is often used to measure the economic performanc ...
(cash to GDP ratio) is a good indicator of cash usage and payment behavior in an economy. In countries like the United States, increased use of debit and credit cards is increasing the amount of cash in circulation at a slower rate than in countries with a high amount of cash payments. In 2018, it ranged from 1.3% (in
Sweden Sweden, formally the Kingdom of Sweden, is a Nordic countries, Nordic country located on the Scandinavian Peninsula in Northern Europe. It borders Norway to the west and north, and Finland to the east. At , Sweden is the largest Nordic count ...
) to more than 21% (in Japan), 10.5% in Switzerland and 10.7% in the eurozone. Since around 2018, exacerbated by the COVID-19 pandemic, cash in circulation in the eurozone has increased significantly while the share of cash payments (i.e. transactions) has decreased, known as the ''paradox of banknotes''. Analyzes show that private households are increasingly keeping cash as a precaution against crises and that negative interest rates also play a role. This effect is also observed in many other currency areas, e.g. in the
United States The United States of America (USA), also known as the United States (U.S.) or America, is a country primarily located in North America. It is a federal republic of 50 U.S. state, states and a federal capital district, Washington, D.C. The 48 ...
and
Japan Japan is an island country in East Asia. Located in the Pacific Ocean off the northeast coast of the Asia, Asian mainland, it is bordered on the west by the Sea of Japan and extends from the Sea of Okhotsk in the north to the East China Sea ...
.


Banknote tracking

In most jurisdictions, banknotes are not routinely tracked by serial number. There are the following exceptions in cash applications: * Registration of ransom money for blackmail (e.g. for the Oetker kidnapping) * Macroeconomic studies of cash flows through the central bank * Statistical recording of the lifespan of banknotes by the central bank * Tracking the (location-based) migration of individual banknotes using EuroBillTracker for euro banknotes, Where's George? for US dollars and Where's Willy? for Canadian dollars as a
hobby A hobby is considered to be a regular activity that is done for enjoyment, typically during one's leisure time. Hobbies include collecting themed items and objects, engaging in creative and artistic pursuits, playing sports, or pursuing other ...
* Use of individual banknotes for sharing messages with recipients using the mobile app '' smill''. Since 2016, the People's Bank of China has requested the recording of banknotes issued and deposited at ATMs and bank counters, arguing that counterfeit money will be prosecuted. With Directive ECB/2010/14, the European Central Bank (ECB) requires banks to check the authenticity of deposited and withdrawn banknotes at bank counters and ATMs using tested devices. They are required to trace the origin of suspected counterfeit banknotes to the depositing account holder. They must also physically seize any counterfeit notes and coins.


Competition of cash


Cashless payments

Cashless society can be defined as one in which all financial transactions are handled through "digital" forms (debit and credit cards) in preference to cash (physical banknotes and coins). Cashless societies have been a part of history from the very beginning of human existence. Barter and other methods of exchange were used to conduct a wide variety of trade transactions during this time period. Since the 1980s, the use of banknotes has increasingly been displaced by credit and debit cards, electronic money transfers and mobile payments, but much slower than expected. The cashless society has been predicted for more than forty years, but cash remains the most widely used payment instrument in the world and on all continents. In 17 out of 24 studied countries, cash represents more than 50% of all payment transactions, with Austria at 85%, Germany at 80%, France at 68%. The United Kingdom at 42%, Australia at 37%, United States at 32%, Sweden at 20%, and South Korea at 14% are among the countries with lower cash usage. By the 2010s, cash was no longer the preferred method of payment in the United States. In 2016, the United States User Consumer Survey Study reported that three out of four of the participants preferred a debit or credit card payment instead of cash. Some nations have contributed to this trend, by regulating what type of transactions can be conducted with cash and setting limits on the amount of cash that can be used in a single transaction. Cash is still the primary means of payment (and store of value) for unbanked people with a low income and helps avoiding debt traps due to uncontrolled spending of money. It supports anonymity and avoids tracking for economic or political reasons. In addition, cash is the only means for contingency planning in order to mitigate risks in case of
natural disasters A natural disaster is the very harmful impact on a society or community brought by natural phenomenon or Hazard#Natural hazard, hazard. Some examples of natural hazards include avalanches, droughts, earthquakes, floods, heat waves, landslides ...
or failures of the technical infrastructure like a large-scale power blackout or shutdown of the communication network. Therefore, central banks and governments are increasingly driving the sufficient availability of cash. The US Federal Reserve has provided guidelines for the continuity of cash services, and the Swedish government is concerned about the consequences in abandoning cash and is considering to pass a law requiring all banks to handle cash.


Digital and virtual currencies

Digital currency is a generic term for various approaches to support secure transactions of the public or using a distributed ledger, like blockchain, as a new technology for decentralized asset management. The blockchain 1.0 era has enabled the application of virtual digital currencies in the marketplace, such as money transfer and payment systems. It considers establishing an electronic version of the national currency which is backed by the central bank as the issuer. Virtual currency is a digital representation of value that is neither issued by a central bank or a public authority, such as Bitcoin. Facebook's concept for the diem is based on a token to be backed by financial assets such as a basket of national currencies. In 2012,
Bank of Canada The Bank of Canada (BoC; ) is a Crown corporations of Canada, Crown corporation and Canada's central bank. Chartered in 1934 under the ''Bank of Canada Act'', it is responsible for formulating Canada's monetary policy,OECD. OECD Economic Surve ...
was considering introducing digital currency. Meanwhile, it rates digital currency a fairly complicated decision and is analyzing the pros and cons and working to determine under which conditions it may make sense to, one day, issue a digital currency. As a threat, a central bank digital currency could increase the risk of a run on the banking system. Also in 2012, Sveriges Riksbank, the central bank of Sweden, was reported to analyze technological advances with regard to electronic money and payment methods for digital currency as an alternative to cash. In 2019, it is investigating whether Swedish krona need to be made available in electronic form, the so-called e-krona, and if so, how it would affect Swedish legislation and the Riksbank's task. It has started procuring a technical supplier to develop and test solutions for a potential future e-krona. No decisions have yet been taken on issuing an e-krona.


Costs of payment

An analysis by the Deutsche Bundesbank in 2017 found that a cash payment in retail costs an average of 24 euro cents, while payments with a girocard cost 30 cents (or often 0.3 to 0.4% of sales plus a transaction fee) and with a credit card charge one euro which is included in the sales price. This is why retailers often refuse to accept card payments below a minimum amount. Depending on the account model, there are also booking costs for the account holder with an average of 35 euro cents charged for each(!) account posting. Because of this convenient source of income, commercial banks and credit card companies favor cashless payments. In the case of cashless payment transactions, in addition to the documentation of the payment itself, the personal details of the payer are usually linked to the data of the payee according to the Know Your Customer (KYC) principle. This enables the payment process to be precisely traced for the payer and the payee. The constant increase in digitization leads to a more detailed recording of cashless payment transactions and their evaluation for advertising and marketing campaigns. Since this digital documentation is usually more centralized than before, the potential for abuse increases. On the other hand, the cash transactions are anonymous, unless purchasing profiles are recorded with the help of loyalty programs based on customer cards, and keep the payment landscape competitive.


Cash in constitutions


Austria

In August 2023,
Chancellor of Austria The chancellor of Austria, officially the federal chancellor of the Republic of Austria (), is the head of government of the Austria, Republic of Austria. List of chancellors of Austria, Twenty-nine people have served as chancellor. The curre ...
Karl Nehammer came out in support for enshrining cash in the Austrian constitution. This came after the Freedom Party of Austria campaigned on the idea.


Hungary

In February 2025, Prime minister of Hungary Viktor Orbán announced plans to enshrine The right to use cash in the Hungarian Constitution. This was first proposed by the far-right Mi Hazánk. In April 2025, the Hungarian parliament passed these constitutional amendments.


Switzerland

In 2023, The Swiss government supported moves to have a constitutional protection for cash. This came after a popular initiative asked for it.


Slovakia

In June 2023, the Slovakian parliament voted with the support of 111 of 150 MPs to put the right to use cash in the Constitution of Slovakia. The amendment was proposed by the Sme Rodina party.


See also

* * * * * * * ** * * * * * * * *


References


Further reading

* * {{Authority control Money