Uncertainty, Politics, and Crises: The Case for Cash

The authors analyze the repercussions of different kinds of uncertainty on cash demand, including uncertainty of the digital infrastructures, confidence crises of the financial system, natural disasters, political uncertainties, and inflationary crises. Based on a comprehensive literature survey, theoretical considerations and complemented by case studies, they derive a classification scheme how cash holdings typically evolve in each of these types of uncertainty by separating between demand for domestic and international cash as well as between transaction and store of value balances. Hereby, they focus on the stabilizing macroeconomic properties of cash and recommend guidelines for cash supply by central banks and the banking system. Finally, they exemplify their analysis with five case studies from the developing world, namely Venezuela, Zimbabwe, Afghanistan, Iraq, and Libya.