2022 – An Annus Horribilis?

The late Queen Elizabeth II famously remarked, back in 1992 when her family and the monarchy were beset with troubles, that it was her annus horribilis (horrible year) and, in a classic case of understatement, was ‘not one on which I shall look back with undiluted pleasure’.

The same could be said of 2022 for all of us.

There was a palpable sense of optimism as 2021 concluded that – despite disruptions, restrictions, new lockdowns and a virus on the march again – things were finally improving and would start going back to where they were, or at the very least, to somewhere different but nevertheless better than the previous two years.

That optimism, such as it was, proved to be short-lived. As the year progressed, the stuttering restart of the travel industry, the war in Ukraine, energy price inflation and a general lack of consumer confidence made it clear that a new-normal was still some way off.

So, what of the cash industry? Has it been an annus horribilis for us too?

The answer is not really. Some sectors are fairly immune to economic and social shocks. The funeral business is one, cash is another – in the short term at least. Longer term, the outlook is not so certain.

Despite the best efforts of COVID itself, not to mention the cash-bashers that used the opportunity to spread misinformation, and the switch to online consumerism forced by lockdowns, cash held up well. Demand rose sharply, albeit for high value notes as a store of value. Transactional use dropped as people went online, but the opening of economies has seen a slow return to something like before. That ‘before’ varies from country to country, but it is widely accepted that the pandemic didn’t fundamentally change anything – it simply accelerated ongoing trends, notably those towards cashless.

The industry, in the meantime, held up well – pivoting to new technologies and new ways of working in order to keep the cash flowing.

But we are now working through a post-pandemic world, where the economic and social consequences of the measures taken during COVID are now beginning to be felt. The economic shocks certainly aren’t helping, but an excess of cash is now being mopped up, while higher inflation and interest rates make holding cash, and its store of value status, less attractive. While demand is falling, costs are rising across the board, putting huge pressures on suppliers in a dwindling market.

The outlook may not feel rosy; however, these sorts of economic travails are not new. We have been here before (at least, those of us over a certain age – where economic downturns and rampant inflation were regular occurrences rather than once-in-a-lifetime events). There are a number of differentiators now versus the shocks of the last century which give cause for optimism.

First economic wealth and activity is changing, becoming less concentrated in the G7 countries, as other regions catch up. Building on a long-term trend, regions such as Asia have continued to grow faster than Europe, and they have been less hard hit by the war in Ukraine. These countries are major cash users and so provide opportunities for suppliers.

Second, the reasons for lower consumer confidence, and lower economic activity, are different compared with the last century. While China struggles with the end of its zero COVID policy, the rest of the world will be entering their second year of a return to something more normal, bringing a return of travel and related economic activity. Inflation is not yet structural and so is forecast to fall in 2023 and consumer confidence will rise in response. As a result, one can argue that confidence is likely to return in 2023, bringing increased economic activity.

Third, for countries experiencing less cash, it is clear that the authorities have grasped the societal risks and implications. We have seen a range of responses by parliaments and central banks, and the knowledge of what works is growing. Equally, the risks of dependence on electronic payments, particularly the challenge of regulating effectively to keep payment costs down, is clearer. A drive to maintain cash has started and we will see how that goes.

The dash to CBDCs has slowed to a more measured pace and with it the understanding that cash must, somehow, be maintained for the good of society.

Fourth, new opportunities are opening up. For a long time, it has been unclear how digitisation of society, including payments, will work with cash, if at all. There are now the first signs of clarity around this. There is an opportunity to use digitisation to make the cash cycle significantly more efficient.

So not quite an annus horribilis, more case of an annus durus (hard year). Perhaps the corner will turn in 2023, and it will be an annus mirabilis for us all.

Until then, all the best for the festive season, and felix annus novus, as they might have said in ancient Rome.