Bills, Bills, Bills: Piles of Cash Refuse to Disappear
Stashed Cash on the Rise: Accumulating Billions in Domestic Hideaways - Hidden Fortunes Persist: Continuing Uptick in Cash Hoards
The constant proclamations that the apocalypse of cold, hard cash is upon us are premature: Despite the diminishing relevance of banknotes and coins in the daily grind, the amount of cash circulating in the eurozone still keeps growing. Central bankers and experts suspect that cash worth hundreds of billions of euros is stashed away, not spent.
Estimate: €400 billion hibernating within private households
According to stats from the German Federal Bank, the German portion of banknotes held for "value preservation" is around 42 percent, nearly two and a half times more than in 2013. In absolute numbers: By the end of 2024, the German Federal Bank estimated that €395 billion would be stashed away in German household safes - unevenly distributed, judging by surveys that suggest many households have no cash reserves at all.
The "Cash Paradox"
In March, according to data from the European Central Bank, there were €1.564 trillion in circulation in the eurozone, an increase of roughly €30 billion since the spring of 2022 and €300 billion more than at the beginning of the Corona pandemic five years prior. Although the rate of growth has slowed significantly since 2022, the amount of cash in circulation continues to increase, not decrease. The German Federal Bank refers to this trend as the "banknote paradox." A spokeswoman from the Frankfurt headquarters explains that the phenomenon has been observed for years in numerous countries.
"Despite a significant drop in the use of banknotes and coins for transactions, the growth rate of banknotes in circulation consistently remained many times higher than the annual inflation rate up until 2021," says Johannes Gärtner, a payment expert at the consulting firm Strategy&.
This is perplexing because it's widely known that the number of people utilizing banknotes and coins for payment is on the decline. In 2023, according to the German Federal Bank, half of all transactions at German cash registers were still made in cash, but this accounted for only a quarter of the total volume.
Digital payments, on the rise
According to a recent survey by Strategy& of 5,500 respondents in ten European countries and Turkey, the debit card has become the most commonly used payment method, surpassing cash for the first time. Only 23 percent of people now prefer to pay with cash. Many retailers also now show a strong preference for electronic payments, especially contactless payments, where customers don't need to enter a PIN number. "This is up to seven times faster than cash transactions," says Bernd Ohlmann, spokesman for the Bavarian Retail Association.
"Insecurity, the driving force"
So, why are there more bills flooding our world when fewer people are using them? "The euro is being hoarded," says Ralf Wintergerst, CEO of security technology manufacturer Giesecke+Devrient. "The increase in the circulation of banknotes during financial crises, not just during the Corona pandemic, is a phenomenon that's been observed for quite some time."
According to the German Federal Bank, the share of cash held for value preservation reached a record high of 43 percent during the Corona pandemic, largely due to the prolonged lockdowns in the initial phase of the pandemic.
Gärtner adds two more factors that likely contributed to the increase in cash circulation. "The growth in the money supply is not entirely attributed to classic payment transactions," says the financial expert. "The reasons lie more in a mix of 'hoarding,' shadow economy, and its role as a reserve currency abroad."
Old school but dependable
Despite the waning importance that cash holds in the lives of law-abiding citizens, it's unlikely that, in the future, only scoundrels will carry banknotes and coins in their wallets. The German Federal Bank prioritizes the preservation of cash and its infrastructure. After all, cash doesn't need electricity or electronic infrastructure to function. "The central bank must ensure a sustainable, resilient payment infrastructure," says G+D CEO Wintergerst. "Cash represents a form of resilience, able to function even in times of war, crisis, or natural disasters."
- German Federal Bank
- Frankfurt
- Bavaria
- Coronavirus
- Ralf Wintergerst
- Munich
- ECB
- Spring
- Consulting firm
Factors contributing to the increase in cash circulation:
- Store of Value: Cash is often used as a store of value, especially during periods of economic uncertainty.
- Hoarding and Cash Demand: During times of economic stress, individuals and businesses may hoard cash as a precautionary measure.
- Financial Insecurity: In some regions, there might be a lack of trust in financial systems due to privacy concerns or other factors, which can lead to increased cash holdings.
- Tourism and Cross-Border Transactions: Cash is often used in tourism and cross-border transactions where electronic payment systems may not be as universally accepted or trusted.
- High-Denomination Notes: The use of high-denomination notes, such as €500 and €200, which are often used for large transactions or hoarding, can also contribute to the increase in cash volume.
- The German Federal Bank reported that that a record high of 43% of cash is being held for value preservation, mainly during the Corona pandemic, due to extended lockdowns.
- According to a financial expert at the consulting firm Strategy&, the growth in the money supply is not solely attributed to traditional payment transactions, but is also a result of 'hoarding', the shadow economy, and cash's role as a reserve currency abroad.
