Cash is King

As at the 26th of May, the world has recorded more than 5.5 million cases of the coronavirus. The pandemic has led to the deaths of 348,000 individuals across the world. Lockdown measures have been reviewed, traveling has been banned from selected countries, small and large businesses have been forced to shut down since the emergence of the virus in Wuhan, China. It is only logical to conclude that the economies of the world, and several nations have suffered a drastic recession.

It is in this pandemic that the discussions around the importance of cash have gained more prominence. More than any time in the last few years, several individuals now see the relative importance of possessing cash in the long run. The world is plagued with uncertainty, and it is almost impossible to accurately predict the next moment; who would have thought the whole world will be on lockdown in 2020? With the uncertainty of our existence comes the need to be prepared at all times, hence the need to possess cash at hand. 

Since the coronavirus gripped the world by the throat, the need to buy emergency items by family have increased extensively. Ron Delnevo, the executive Director in Europe of the ATM Industry Association says, "In such cases, cash offers residents a way to purchase items to meet their urgent needs. It also gives local businesses a way to recover from the impact of the disaster." 

To cite a major example, a devastating earthquake occured in New Zealand in the years 2010 and 2011. Financial experts noticed that a spike arose in the need for cash, as the demand for essential items such as water, fuel, and food also increased quickly. To make matters even worse, electronic retail payment systems began having glitches, due to the impact of the earthquake. Within a few days, commercial banks ordered for more cash from the Central Bank. According to RNBZ (Reserve Bank of New Zealand), there was an increase in the demand for cash all across the country.

Drawing from case studies in Haiti, Australia and the Philippines, the OECD (Organization for Economic Cooperation and Development) released a report that showed policies were needed to put cash at the centre of coming pandemics, or natural disasters. If used in the right context, cash is more reliable, is cheaper to hold at hand, more efficient, and could even boost the local economy. 

Today, cash is the most trusted and fastest means of payment. Also, in a time like this, where technology is being crippled by a lack of maintenance caused by lockdown measures as a result of the coronavirus, having cash at hand provides financial security. Hence, to avoid a repetition of this economic mistake again, it is important that governments, central and commercial banks, come up with cash policies which will cater for the needs of households and even businesses in the emergence of a pandemic or a natural disaster.

The need for cash isn't a subject that affects only families, the availability of cash also has a direct influence on large, medium and small businesses. In the early days of March, 2020, Boeing, who has suffered a grounding of one of its airplanes, the 737 Max Aircraft, tapped a credit line of $13.8 billion which had been made available to it a month ago. Other reputable companies in the United States such as the Wynn Resorts, SeaWorld Entertainment and Hilton have all drew on their credit lines, as the economic impact of the novel coronavirus keeps hitting. There are several unconfirmed reports that suggest that even private equity firms are making plans to draw from their credit lines. Also, a bank branch for Chase in the Hamptons submitted a request for cash of $30,000, all in a bid to possess cash at hand.

Banks in the United States are also doing everything within their powers to conserve cash; banks like Citigroup and JPMorgan Chase have suspended the stock repurchasing program in a bid to save cash. The need for cash has even shown itself at withdrawal points in some locations in the United States; in early March, The New York Times reported that a branch of the Bank of America in Manhattan ran out of $100 bills. This was because customers were withdrawing thousands of funds every minute.

Perhaps Warren Buffet saw this pandemic coming, because the principle explained in a meeting in the University of Maryland in 2013 offers an answer: 

"BRK (Berkshire) always has $20 billion or more in cash. It sounds crazy, never need anything like it, but some day in the next 100 years when the world stops again, we will be ready. There will be some incident, it could be tomorrow. At that time, you need cash. Cash at that time is like oxygen.

"When you don't need it, you don't notice it. When you do need it, it's the only thing you need. We operate from a level of liquidity that no one else does. We don't want to operate on bank lines.

"Something like that will happen maybe a couple of times in your lifetime. Two things when it happens again - don't let it ruin you, and if you have money/guts, you'll have an opportunity to buy things at prices that don't make sense. Fear spreads fast, it is contagious. It doesn't have anything to do with IQ. Confidence only comes back one at a time, not en masse. There are periods when fear paralyzes the investment world. You don't want to owe money at that time, and if you have money, then you want to buy at those times. Be greedy when others are fearful and fearful when others are greedy."

Today, in the trying times of COVID-19, cash is freedom, security and speed in buying essential products. With a vaccine for the virus still out of sight, the need for cash for businesses, investors and households will increase, and only those who have prepared accordingly will be safe.