Trust might also have something to do with the opposite trend in emerging economies. To be willing to hoard cash, people must have a certain amount of confidence in a government’s ability to manage its legal tender. In developing countries, this confidence is often lacking. Consider India’s 2016 “demonetization,” in which the government pulled large-denomination banknotes out of circulation and replaced them with new bills. The move didn’t disrupt the shadow economy as intended, but it did undermine the currency: Cash holdings have yet to recover to their pre-reform level.
Cash accumulation can go only so far as a sign of trust in government. After all, governments in the developed world would typically like to see more electronic payments. Getting rid of cash can have a lot of benefits: It can help deter crime, reduce tax evasion and give central banks more power to stimulate the economy. But people have to believe that electronic money will be safe from mismanagement, man-made disasters, hackers and even confiscation. So far, neither the denizens nor the overseers of the financial system have done a great job of earning that trust.
This article provided by Bloomberg News.