Cash has properties that other payment instruments do not. One of the most important properties is related to confidence.

Cash is guaranteed by the authorities

The value of cash is guaranteed by the issuer (today, usually national authorities). This guarantee was a decisive factor for the emergence of cash over the course of history and also remains an important factor today.

When you have NOK 100 in cash, it is a direct claim on Norges Bank, the issuing authority. Norges Bank is responsible for the stability of the Norwegian krone’s value over time, a responsibility that is performed through monetary policy.

The cash issued by Norges Bank is also legal tender in Norway and you can therefore always be confident that it can be used to meet your payment obligations.

Money guaranteed by others

However, when you have NOK 100 in a bank account, it is a claim on your bank and not on the authority that issues NOK.

If for different reasons your bank were to become insolvent, you would risk losing access to the money the bank owes you and then be unable to meet your payment obligations.

If banks’ payment systems were disrupted for shorter or longer periods, you might also lose access to deposit money.

There are however robust systems in Norway for preventing such financial instability, and there are specific arrangements for securing deposits up to NOK 2m. The risk of deposit loss in a Norwegian bank is therefore small.

But in other countries, and earlier in Norwegian history, there are several examples of banks becoming insolvent with resulting losses for depositors.

Norges Bank satisfies demand

The difference between bank deposit money and central bank money often entails an increase in demand for cash in times of financial turbulence and a disruption in banks’ payment systems. But in normal times there does not seem to be any practical difference.

At the same time, a good principle is that you as a user can decide for yourself what kind of payment solution you wish to use. For this you need real options, and Norges Bank is of the view that it is important that you can use cash if so desired. The availability of cash is therefore important. Access to cash is not least as important as a back-up solution if electronic systems for bank deposit money were to fail.

Banks are required by law to make cash available to you should you wish to convert your deposit money into cash. This also applies in situations where electronic systems for bank deposit money are disrupted. It is Norges Bank’s responsibility to supply the banks with cash as long as there is demand for it.

Cash will therefore remain in use for many years to come. But you will decide the extent of their daily use.