As a result of the COVID-19 pandemic, the Bank of Canada is facing a deficit of $50 bills. The primary reason for this is the hoarding of cash by Canadians because of the pandemic. The Bank of Canada reported that the shortage might require banks to alter their cash orders to incorporate other denominations and would not impact the consumer’s ability to withdraw cash.
The statement reads, “We still have $50 banknotes in stock, but the order adjustments were made to maintain adequate inventories throughout the next few weeks. This adjustment is due to the larger-than-expected demand over the past few months, and ahead of our regularly scheduled stock replenishment expected by the end of summer. This measure, which only affects the $50 denomination, is temporary and will be lifted as soon as possible.”
The Bank of Canada failed to state why the demand has increased for the $50 specifically. Still, earlier this month, it released a staff discussion paper showing there was a spike in demand for all banknotes. However, in April and May, $20 and $50 bills were in the highest demand in comparison to the past five years. According to the report, during the pandemic, Canadians were holding on average $22 more in cash, in comparison to the same months last year. At the same time, 35 percent of Canadians decreased their overall cash use, and 30 percent of respondents said they did not use cash at all.
There are fewer places to spend the cash even though they are withdrawing more money. Over the past few months, several businesses are encouraging customers to avoid cash payments, while other businesses are refusing it altogether.
Reports show it is not only in Canada where hoarding is taking place but also in the U.K., in the United States, Italy, Spain, Germany, France, Australia, Brazil, and Russia, to name a few. The report states that it seems that this is being more than offset by panic-driven hoarding of banknotes while the economic shutdowns and increased use of online retailing are currently diminishing cash’s traditional function as a medium of exchange. In the U.S., what has led to a shortage of coins is the pandemic hoarding together with businesses refusing cash. Consumers in Spain may lose a layer of protection that a bank provides, and it increases security risk.