Cash Stashes Creeping Up: The Persistent Surge of Cash in Circulation
- *
Cash Hoarding Persists: Accumulation of Currency in Private Deposits Increasing - Secreted Wealth: Persistent Increase in Cash Stashings
The seemingly apocalyptic forecasts about cash's imminent disappearance appear premature: Despite the falling significance of banknotes and coins in everyday retail, the volume of cash circulating in the eurozone remains on the rise. Central banks and experts predict that an estimated hundreds of billions of euros in cash are not being spent but rather hidden away.
According to the Deutsche Bundesbank, the proportion of German banknotes reserved for "value storage" is around 42%, nearly double the rate from 2013. Translated to real numbers: By the end of 2024, the Deutsche Bundesbank forecasted that approximately 395 billion euros would be stashed away in German private households – unevenly distributed, with many households having no or minimal cash reserves.
A Case of the "Cash Paradox"
In March, data from the European Central Bank revealed a total of 1.564 trillion euros in circulation throughout the eurozone, marking about a 30 billion euro increase compared to the spring of 2022 and nearly 300 billion euros more than at the beginning of the Corona pandemic five years ago. Although the growth rate has slowed significantly since 2022, the volume of cash in circulation keeps growing rather than declining. This phenomenon is referred to as the "banknote paradox" by the Deutsche Bundesbank. "It's been observed in multiple countries for quite some time," explains a spokeswoman based in Frankfurt.
"Up until 2021, the growth rate of banknotes in circulation was consistently several times greater than the annual inflation rate," notes Johannes Gärtner, a payment specialist at the consulting firm Strategy&.
The discrepancy is puzzling because it's well-known that the number of people transacting with cash is steadily decreasing. In 2023, according to the Deutsche Bundesbank, 50% of all payment transactions at German cash registers involved cash, but this accounted for only 25% of the total turnover.
Electronic Payments Gaining Momentum
According to a recent survey by Strategy& of 5,500 respondents across nine European countries and Turkey, debit cards have overtaken cash as the most common payment method, with only 23% preferring to pay in cash. Many retailers also favor electronic payment, especially contactless payment, where customers no longer need to enter a PIN number. "That's up to seven times faster than cash transactions," says Bernd Ohlmann, spokesman for the Bavarian Retail Association.
"Uncertainty is the key driver"
However, why is there more cash in circulation if fewer people use it daily? "The euro is being hoarded quite heavily," says Ralf Wintergerst, CEO of the Munich-based banknote and security technology manufacturer Giesecke+Devrient, which serves around 150 central banks as clients. "Although the euro is used for payment, it is also being saved." Wintergerst attributes the increased trend toward cash hoarding to "uncertainty."
According to the Bundesbank, the share of cash reserved for value preservation reached a record high of 43% during the COVID-19 pandemic, primarily due to the prolonged lockdowns in the early phase of the pandemic. "The rise in the circulation of banknotes during crises – not just during the COVID-19 pandemic – due to the uncertainty associated with them is a commonly observed phenomenon," explains the Bundesbank spokeswoman.
Hiding Money for Criminals
Business consultant Gärtner identifies two additional factors contributing to the surge in cash circulation. "The growth in cash isn't due to traditional payment transactions," comments the financial expert. "Rather, it's linked to 'hoarding', the shadow economy, and its role as a reserve currency abroad." The shadow economy encompasses economic activities that fall outside the law, spanning from black market work to criminal activities. For instance, the A3 motorway in Bavaria is notorious for police discovering substantial sums of cash during checks: in November, plainclothes police found a million euros in a 34-year-old man's car, allegedly the proceeds from criminal activities and packaged in plastic bags.
A Timeless and Reliable Choice
Despite cash's diminishing role in everyday commerce for law-abiding citizens, it's not expected that criminals will be the sole carriers of banknotes and coins in the future. The Bundesbank has prioritized the preservation of cash and its associated infrastructure. After all, cash has several undeniable advantages, including the fact that notes and coins do not require electricity or electronic infrastructure. "The central bank must ensure a sustainable, resilient payment infrastructure," says G+D CEO Wintergerst. "In the event of war, crises, or natural disasters, it must still be possible to pay. Cash stands for that."
- The increase in cash circulation, despite a decline in cash usage in everyday transactions, may be indicative of individuals choosing to hoard cash as a result of uncertainty, as suggested by Ralf Wintergerst, CEO of Giesecke+Devrient.
- The rise in cash hoarding is also linked to the shadow economy, criminal activities, and the role of the euro as a reserve currency abroad, according to Johannes Gärtner, a payment specialist at the consulting firm Strategy&.
