More cash in circulation, highest in 10 years

Approximately RM130.4b worth of banknotes and coins were in circulation at the end of 2020 despite MCO


CASH has remained the most prevalent medium of payment in the country in the past year, with an annual growth of 14.3% — the highest increase in currency in circulation (CIC) in the last 10 years.

According to Bank Negara Malaysia’s (BNM) Annual Report 2020, the significant increase in demand, which can also be observed in other countries, was due to the more precautionary behaviour among members of the public and small businesses as they sought to hold more cash during the Covid-19 pandemic.

“With higher CIC and decline in GDP, the CIC over GDP rose to 8.3% from 6.6% in the previous year,” the report stated.

In 2019, the CIC’s growth was 7.3%, while it averaged at 8.9% in the last 10 years.

BNM said there was approximately RM130.4 billion worth of banknotes and coins in circulation at the end of 2020 despite movement restrictions and rapid acceleration in e-commerce and online spending last year.

It added that public demand for cash has surged since the sudden implementation of the Movement Control Order (MCO) to curb the pandemic, hence the strong growth in CIC.

The higher cash circulation might seem counterintuitive, but the public held extra cash for comfort and security during the pandemic, the central bank added.

“The strong surge in demand for cash during the MCO posed operational challenges to BNM in ensuring the public had convenient and easy access to cash throughout the year.

“At the same time, with the public keeping more cash in hand, we received 23% fewer deposits from financial institutions during the year. This meant fewer fit banknotes were available for re-issuance into circulation.”

To meet the surging demand for cash, BNM executed three action plans, by using its buffer, comprising additional currency stock that the bank keeps over and-above normal consumption.

The buffer stock is to ensure that there is sufficient cash to meet demand by the public in any unforeseen circumstances.

During the pandemic, having an adequate buffer proved indispensable to the central bank in ensuring no shortage of cash throughout 2020.

BNM has also closely collaborated with its strategic partners in the cash industry, especially financial institutions and cash in transit companies (CITs), in ensuring that the cash was continuously available at more than 12,000 automated teller machines throughout the country.

“In this regard, as financial institutions and CITs were classified as essential services, their operations remained uninterrupted during the MCO,” BNM stated.

The central bank also ensured business continuity and minimal disruptions to the operations of the automated cash centre, which has the capacity and capability to process significant volumes of banknotes for issuance into circulations, by implementing split operations and back-up teams.

“A key focus is to maintain the high quality of banknotes to ensure public confidence in our currency”.

In maintaining the currency’s high quality, BNM said it processed 2.3 billion (2019: 2.9 billion) banknotes in 2020 and shredded 23.3% (2019: 20%) of these banknotes that no longer meet the quality standards.

As for counterfeit banknotes, BNM said ongoing efforts have contributed to Malaysia’s consistently low counterfeiting rates.

At the end of 2020, Malaysia’s counterfeiting rate was less than one piece per million (ppm) of banknotes (2019: one ppm), well below that of other benchmarked countries.

Read our previous report here

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