The Banking Executive Magazine - May 2026 Issue

The Cash Economy in the Arab World Over the past decade, Arab economies have witnessed a notable shift in how individuals and busi- nesses approach the use of cash. Liq- uidity circulating outside the formal banking system has increased, and holding funds in physical form has become a preferred option for a broad segment of society. This trend did not emerge by design; rather, it reflects a response to exceptional cir- cumstances that reinforced the ap- peal of immediate liquidity as a source of perceived security and control. Yet, the expansion of a cash-based economy is not a sustainable trajec- tory. As more liquidity remains outside formal financial channels, the efficiency of financial intermedi- ation declines, limiting the system’s ability to channel savings into pro- ductive investment. At the same time, reliance on cash imposes tan- gible operational costs on busi- nesses—ranging from cash handling and storage to heightened exposure to logistical risks and the complexi- ties of reconciliation and audit. Beyond these direct costs, a cash- heavy environment constrains finan- cial innovation. Modern financial solutions—such as instant payments, digital wallets, and advanced point- of-sale systems—depend fundamen- tally on the flow of funds through banking and digital infrastructures. When transactions remain outside these channels, the opportunity to build reliable data ecosystems is diminished. This, in turn, weakens decision-making capabilities, risk management frameworks, and finan- cial planning for both individuals and institutions. Reducing reliance on cash, therefore, presents a strategic opportunity to reintegrate liquidity into the formal financial system. Increased use of banking channels supports broader financial inclusion, enabling under- served segments to access savings, credit, insurance, and digital pay- ment services. It also enhances trans- parency and contributes to greater efficiency across the economic cycle. Importantly, the objective is not to eliminate cash, but to restore bal- ance. Cash will remain a valid and necessary means of payment. How- ever, it should no longer be the dom- inant one. The aim is to create an environment in which digital and banking transactions become the natural choice—driven by their ad- ISSUE 209 MAY 2026 the BANKING EXECUTIVE 37 • Cash reliance surged under crisis conditions • Hidden costs weaken financial system efficiency • Digital shift can rebuild banking trust