On the Resilience of Payment Methods

We study the resilience of payment systems to large disruptions in digital infrastructure caused by natural disasters and outages. While advanced economies have rapidly shifted toward electronic payments, these systems depend critically on electricity and information technology, raising concerns about their reliability during crises. We combine high-frequency county-level electricity outage data with detailed weather records, transaction-level expenditure data, household scanner data, and new representative surveys from the United States, Spain, and Sweden. Event-study evidence shows that natural disasters---especially hurricanes---generate persistent outages that sharply reduce expenditures. Natural disasters by themselves do not alter households' choice of payment method; instead, shifts toward cash arise through three channels: electronic payment methods become unavailable, households increase cash holdings for precautionary reasons, and cash is subsequently spent once available ("cash burn"). Consistent with these mechanisms, payment composition shifts markedly: spending rises before disasters due to stockpiling, largely financed with credit, while after disasters digital payments decline and cash usage rises, particularly in areas experiencing outages. Survey evidence confirms that nearly half of consumers are unable to use their preferred electronic payment during outages and that cash serves as a key fallback. Exploiting variation in cash holdings across households and locations, we find that greater access to cash increases the likelihood of completing transactions during outages and mitigates expenditure declines. Complementary survey evidence and the immediate response to our information treatment show that outages and official guidance increase desired cash holdings. Finally, we embed an RCT in the NielsenIQ panel: roughly half of panel households receive authoritative preparedness guidance, and we follow their realized purchases through the subsequent hurricane season. This design provides a clean framework for causal identification of whether greater cash preparedness smooths consumption during weather shocks. Together, the observational, survey, and experimental components of the paper show that cash plays a critical role in sustaining economic activity during payment-system disruptions and point to the value of offline-capable payment instruments, including CBDCs, in increasingly digital economies.