When cash is still king

The share of transactions settled with cash has declined significantly in the last decade. The ECB reports that in the Eurozone, 52% of all payments in 2024 were made using cash, down from 79% in 2016. In terms of value, only 39% of total transaction volume is done in cash. Yet this is not the whole story since some forms of cash are increasingly popular.

Jörn Tenhofen from the Swiss National Bank shows that while the share of transactions made with cash has declined, the total value of banknotes in circulation increases steadily in most countries. Between the financial crisis of 2008 and 2021, the value of banknotes in circulation in the US increased by 168%. That is an annual growth rate of 8.6% compared to an average inflation rate of 2.2% during the period. In Switzerland, the value of banknotes in circulation increased by 125%, or 7% per year, compared to an average inflation rate of 0.0%.

Banknotes in circulation

Source: Tenhofen (2025)

The main driver for this excess growth in banknotes is the large notes, CHF 200 and CHF 1,000 in the case of Switzerland. They used to account for about 40% of the total value of notes in circulation in 1950, but now account for roughly 75%.

Value shares of large banknotes in Switzerland

Source: Tenhofen (2025)

Why would people hold larger banknotes in a world where cash is dying?

One reason Tenhofen points out is the store of value. Especially in a world of negative interest rates, people will prefer to hold cash over bank deposits where they may face penalties for holding cash above a certain threshold (as has been the case in Switzerland in the late 2010s).

If interest rates are low, the opportunity cost of holding cash declines and it even becomes an opportunity gain if interest rates are negative. Correspondingly, one would expect to see the velocity of large banknotes decline in a low-rate environment as people hold on to their large banknotes for longer.

And indeed, this can be observed in Switzerland, where the velocity of large banknotes declined as interest rates dropped, but then increased again in recent years when interest rates rose.

Velocity of large banknotes and interest rates in Switzerland

Source: Tenhofen (2025).

Yet, there could be other factors at hand as well. Tenhofen points to factors such as economic, financial, or political uncertainty, and they may well play a role.

But may I suggest another reason that someone working at the Swiss National Bank may be unable to mention: Taxes.

Large banknotes are a great means to evade taxes, whether it is to pay workers for jobs done ‘off the books’ or, as reader G.M. recently pointed out to me, to avoid gift taxes and inheritance taxes since cash gifts cannot be traced by the tax authorities and thus do not count toward the gift tax allowance. Which is why, apparently, these large banknotes earned the nickname ‘Bin Ladens’ (known to exist but rarely seen).

Looked at it from this angle, the incredible growth in large banknotes across most countries indicates a growing size of the shadow economy of tax avoidance and increasing ‘leakage’ of the tax revenues collected by the government.