Saudi Arabia’s move towards a cash less economy propelled by COVID-19

Let us look at the usage of cash in Saudi Arabia, the largest economy in the GCC. The question is whether usage of cash is going up or going down, are people moving towards a cash less economy as is being talked about by some of the influential thinkers who believe in the digital economy. Digital technologies have brought about great ease of investing in financial securities and quick conversion to cash of such assets. With such technological developments, it would be expected that consumers will prefer to stay less liquid so that they earn more by parking their money in income generating assets like flexi bank deposits or digital wallets instead of keeping hard cash in their wallets.

To examine what is happening on this account, we studied the Currency in Circulation in Saudi Arabia vis- a- vis the Private Final Consumption Expenditure (PFCE) over the period 2013-2017. We also looked at the use of cash withdrawals from ATMs and use of POS for settlement of payments by consumers in the Kingdom over this period.

The cash in circulation, which is the amount of cash locked up in consumers wallets, in the Saudi economy continues to grow undesirably from USD 38.2 billion in 2013 to USD 45.9 billion in 2017, forming as much as 9.5% of the country’s non-oil GDP and 16.2% of the total private final consumption expenditure in the economy. The amount is more than double the investment managed by Saudi investment funds in domestic equities of USD 18 billion and as large as the total market capitalization of Oman stock market. Also, it is three times the annual budget for Infrastructure & Transportation in the state budget. In a resource seeking economy, a large cash balance is a definite drain on the investable resources of the economy and thus pulls down the growth of the economy. Thus, the proponents of the digital economy have a valid argument that if digital economy is made fully prevalent the government can put a large chunk of these resources to better productive use.

Further analysis of the cash withdrawals and POS transaction in Saudi economy, reveals that despite wide prevalence of debit and credit cards in the economy, POS transactions value is only about 28% of the total cash withdrawals from ATM machines. A far cry from a digital cash less economy. The total cash withdrawals at ATM machines increased from USD178 billion in 2013 to USD 194 billion in 2017. On the other hand, the POS transactions were valued at only USD 36 billion in 2013 and USD 54 billion in 2017.

All is not however bleak in this aspect. Analysis of the POS transactions over the period 2013-2017 reveals that the growth in POS transaction value was at CAGR of 10.7% while that of ATM cash withdrawals were at a CAGR of only 2.2%. Also, average POS transaction size has dropped steadily from SAR 506 in 2013 to SAR 283 in 2017, which is an encouraging sign of smaller transactions being financed through POS. Another important metric is the average size of cash withdrawals at ATM machines which has fallen steadily from SAR 500 in 2013 to SAR 362 in 2017 showing a shift to smaller amount stored as cash in physical wallets by the consumers. These signals bode well, but policy actions to further discourage cash-based transactions with digital transactions using the likes of digital wallets liberally can speed up the progress and release the locked-up cash resources for more productive purposes in the economy and giving a breather to the resource gaps for economic growth.