Cash
Cash is money in the tangible form of currency, such as banknotes and coins.
In book-keeping and financial accounting, cash is current assets comprising currency or currency equivalents that can be accessed immediately or near-immediately. 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 caisse, which comes from the Old Italian cassa, and ultimately from the Latin capsa.History
In Western Europe, after the fall of the Western Roman Empire, coins, silver jewelry and hacksilver were for centuries the only form of money, until Venetian merchants started using silver bars for large transactions in the early Middle Ages. In a separate development, Venetian merchants started using paper bills, instructing their banker to make payments. Similar marked silver bars were in use in lands where the Venetian merchants had established representative offices. The Byzantine Empire 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. 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 कर्ष karsa, a weight of gold or silver but akin to the Old Persian ??? karsha, unit of weight. East India Company coinage had both Urdu 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, 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, 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, which played a crucial role in financing the Peninsular War 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 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 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.
Motives of cash holding
In economic theory, the cash holding of cash is roughly attributed to three motives:- Transactions motive
- Precautionary motive
- Speculative motive.
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
- Activation of a reward center in the brain
- Expenditure control
- Tradition
- Inclusion
- Identification
- Educational tool for children
- Paying a tip as immediate recognition of good service.
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, 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 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% to more than 21%, 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 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 and Japan.
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
- Macroeconomic studies of cash flows through the central bank
- Statistical recording of the lifespan of banknotes by the central bank
- Tracking the 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
- Use of individual banknotes for sharing messages with recipients using the mobile app smill.
With Directive ECB/2010/14, the European Central Bank 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.