Cash Becomes King Again in Israel During the Coronavirus Pandemic

Bank of Israel says hoarding has caused jump in supply of banknotes and coins

Avi Waksman
Avi Waksman
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A man sits inside his money exchange shop in Jerusalem on April 21, 2020.
A man sits inside his money exchange shop in Jerusalem on April 21, 2020.Credit: MENAHEM KAHANA/AFP
Avi Waksman
Avi Waksman

The coronavirus pandemic has brought more digitization to everything from work to school. But in one place the reverse has happened: In Israeli wallets, cash and coins are king.

In a phenomenon seen in many countries since the onset of the pandemic, Israelis have pounced on ATMs, apparently to hoard cash. After growing slowly for years, the amount of cash in circulation surged higher starting in March, according to the Bank of Israel’s annual currency report.

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In August, the figure breached 100 billion shekels ($29.2 billion) for the first time ever. The supply jumped 15.7% in just six months, more than three times the annual pace over the previous three years. The last time the supply of cash grew like that was during the global financial crisis in 2009.

Most of the growth has been in banknotes. In Israel, they account for 97% of all the cash in circulation by value. There are a lot more coins – 2.7 billion, to be exact, compared with 596 million notes as of the end of 2019 – but they account for just 3% of money in circulation by value.

The coin most in circulation is the 10-agorot piece – 1.6 billion of them, or 176 for each Israeli (including children). Since 20212, the number of 10-agorot coins has grown 44%, which is not an unusually large increase. The number of half-shekel coins grew 42% and shekel coins by 48%.

Within inflation so low, or even negative, in recent years, coins have not been inflated out of usage. Still, the growth of the 10-agorot coin is surprising. Regulations barring setting prices on denominations of less than 10 agorot have encouraged merchants to round down (or more likely up) to the nearest shekel to avoid being saddled with lots of change at the end of the day.

The 10-agorot coin’s other main function was to provide change to bus riders paying for their tickets in cash. But tickets bought with cash are mostly a thing of the past – and even more so during the pandemic, after the Transportation Ministry allowed drivers to refuse cash payments to prevent the spread of the virus.

Dan, the operator of buses in the greater Tel Aviv area, says that these days, only senior citizens still pay in cash and use of 10-agorot coins in “negligible.”

The Bank of Israel is planning for all eventualities. The currency report noted that the bank receives “updates from the Ministry of Transportation on changes in the use of cash and the transition to alternative means of payment on public transportation. This helps it plan its cash supply for a possible decline in demand.”

The secret to the continuing demand for the 10-agorot coin is simply that people are constantly losing them, or more precisely, letting them collect in the bottom of desk drawers and the like. As the Bank of Israel noted in an earlier report, the coin isn’t worth enough for people to care where they put it or whether they lose it altogether.

What could eventually spell the 10-agorot coin’s doom is simple economics. When its little brother, the 5-agorot coin, went out of circulation in 2008, the Bank of Israel explained that the cost of minting it was 16 agorot, more than three times its face value. And that didn’t include ancillary costs, such as distributing it.

The bank won’t say what it costs to mint a 10-agorot coin, but its contents are the same as the 5-agorot piece – 92% copper, 6% aluminum and 2% nickel – and it weighs more. Also, the price of copper has risen in recent years.

Still, the central bank has to keep minting them based on its estimate of how many are needed. The central bank says it remains committed to the coin. It still plays a useful role, and without it, the next coin up in value is worth five times as much. That’s a big difference, it says.

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