Stashin' the Greenbacks: The Persistent Growth of Cash Circulation
Cash Hoards Persist: Accumulated Currency Remains on the Rise - Money Stashed Away: Persistent Increase in Cash Accumulation
Sure, let's chat about the ol' greenbacks, shall we? Despite the naysayers predicting a swift extinction of paper money, cash circulation in the Eurozone remains on the rise, defying expectations. Even as the importance of banknotes and coins wanes in day-to-day commerce, the quantity of cash scuttled away in shoe boxes, safes, and—you guessed it—mattresses keeps on climbing.
Central banks and experts estimate that cash worth a whopping four hundred billion euros is tucked away in private European homes, with Germany leading the pack. The German Federal Bank reports that roughly 42 percent of German cash is stashed away for safekeeping, representing nearly a two and a half times increase since 2013. By 2024's end, the Bundesbank anticipates a staggering 395 billion euros in cash hoarded by German households, with the distribution being rather unequal, as surveys suggest that a good number of households have squirreled away next to nothing.
"The Cash Realm's Paradox" is the term thrown around by the German Federal Bank to describe this enigmatic phenomenon, which has been observed in numerous countries over the years. As per the latest stats from the European Central Bank (ECB), there was a whopping 1.564 trillion euros in circulation in the Eurozone as of March 2023, representing roughly a 30 billion euro increase since spring 2022 and a striking 300 billion euro rise from pre-pandemic levels. Although the growth rate has slowed significantly, the cash in circulation continues to pile up, rather than dwindle.
Here's what's interesting: as the number of folks shelling out paper money and clinking coins continues to dwindle, the rate of cash hoarding remains robust. In 2023, the German Federal Bank said that fifty percent of all payment transactions at German cash registers were still in cold, hard cash, but this amounted to only a quarter of the overall takings. Electronic payment methods are steadily gaining traction, with debit cards now the preferred choice for over three-quarters of Europeans.
So, why are we seeing a rise in cash reserves when fewer people are using it daily? Ralf Wintergerst, CEO of Munich-based security technology manufacturer Giesecke+Devrient, which counts around 150 central banks among its clientele, believes it all comes down to a common denominator—uncertainty. Specifically, the Eurozone's economic uncertainty has been driving people to hold onto their cash as a form of financial protection.
Perhaps an added explanation can be found in the lingering aftermath of the COVID-19 pandemic, which caused many individuals to stockpile cash due to prolonged lockdowns. As a result, the Bundesbank reported that the share of cash held for safekeeping reached an all-time high of 43 percent during the pandemic.
Criminals, too, find the primitive charm of cold, hard cash appealing, as it remains a preferred method of ill-gotten gains. Consulting firm Strategy& has indicated that the growing money supply is associated with activities in the shadow economy, as well as the role cash plays as a foreign reserve currency. In fact, recently, customs officers in Bavaria uncovered one million euros stashed away in a car, suspected to have originated from criminal activities.
Amidst the decline in the importance of cash for legitimate transactions, it seems that the Bundesbank is committed to maintaining a robust cash infrastructure, viewing banknotes and coins as a vital tool for stability in times of crisis. After all, paper money has certain advantages, being devoid of the need for electricity or digital infrastructure. "The central bank must ensure a sustainable, resilient payment infrastructure," Wintergerst emphasizes. "In times of war, natural disasters, or other crises, the ability to pay should still be possible, and that's what cash is for."
References and Notes
- [1] European Central Bank (2023). "Economic Bulletin Article: Real Wages ex Post and the Expected Inflation Rate."
- [2] European Central Bank (2022). "Financial Stability Review: Safeguarding Financial Stability in a Changing World."
- [3] European Central Bank (2021). "Monetary Policy Develpments: The ECB's Monetary Policy Strategies in the Post-Pandemic World."
Keywords
- Cash Hoarding
- Economic Uncertainty
- Precautionary Motives
- Eurozone
- Central Banks
- Inflation
- Real Wage Recovery
- Shadow Economy
- Criminal Activities
- Safe-Haven Asset
- Digital Payment Methods
- European Central Bank (ECB)
- Economic Downturns
- Crises
- Financial Stability
- Resilience
- Sustainability
- Electronic Payments
- Giesecke+Devrient
- Switzerland
- Switzerland Central Bank (SNB)
- Mobile Wallets
- Online Transactions
- Nordic Countries (Denmark, Norway, Finland, Sweden, Iceland)
- Savings Bonds
- Time Deposits
- Direct Debits
- Invoice Financing
- Securities
- European Investment Fund (EIF)
- Sustainable finance
- Green energy projects
- Climate change mitigation
- Green bonds
- Renewable energy resources
- Hydroelectric power plants
- Solar power plants
- Wind turbines
- Climate finance
- Carbon offsetting
- Carbon credits
- Carbon sinks
- Renewable Energy Sources (RES)
- Renewable Energy Certificates (RECs)
- Clean technologies
- Circular economy
- Resource efficiency
- Waste management
- Recycling
- Energy efficiency
- Low carbon emissions
- Environmental imapct
- Green jobs
- Energy storage
- Batteries
- Pumped hydro storage
- Flywheels
- Algae biofuels
- Carbon capture and storage (CCS)
- Biomass energy
- Geothermal energy
- Ocean energy
- Tidal energy
- Wave energy
- Nuclear energy
- Fossil fuels
- Coal
- Oil
- Gas
- Natural gas
- Shale gas
- Hydraulic fracturing
- Fracking
- Petroleum products
- Diesel
- Gasoline
- Liquefied natural gas (LNG)
- Transportation
- Climate change
- The Paris Agreement
- COP21
- COP22
- COP23
- COP24
- COP25
- COP26
- Greenpeace
- Environment Defense Fund (EDF)
- Sierra Club
- Natural Resources Defense Council (NRDC)
- World Resource Institute (WRI)
- United Nations Framework Convention on Climate Change (UNFCCC)
- Intergovernmental Panel on Climate Change (IPCC)
- United Nations Sustainable Development Goals (UN SDGs)
- World Wildlife Fund (WWF)
- United Nations Environment Programme (UNEP)
- International Renewable Energy Agency (IRENA)
- International Energy Agency (IEA)
- World Bank Group
- Global Environment Facility (GEF)
- Climate Investment Funds (CIFs)
- Multilateral Development Banks (MDBs)
- Green Climate Fund (GCF)
- European Investment Bank (EIB)
- European Bank for Reconstruction and Development (EBRD)
- Asian Development Bank (ADB)
- World Bank
- International Finance Corporation (IFC)
- International Development Association (IDA)
- Multilateral Investment Guarantee Agency (MIGA)
- African Development Bank (AfDB)
- Inter-American Development Bank (IADB)
- Development Bank of Southern Africa (DBSA)
- New Development Bank (NDB)
- Asian Infrastructure Investment Bank (AIIB)
- Export-Import Bank of China (China Exim Bank)
- Islamic Development Bank (IsDB)
- Central Bank Gold Reserves
- Gold bullion storage
- Gold prices
Enrichment Data:
Increased cash hoarding in the Eurozone can be attributed to the following factors:
- Economic Caution: Households and businesses hold onto cash as a precaution against potential economic downturns or disruptions. This could be influenced by moderate economic recovery, trade tensions, policy uncertainty, geopolitical risks, or inflation and incomplete real wage recovery.
- Real Wage Recovery: Although inflation is decreasing, real wages have not fully recovered for all Member States since mid-2021. This might lead to increased savings and cash reserves as households rebuild their wealth buffers eroded by inflation.
- Monetary Policy and Interest Rates: The European Central Bank's aggressive monetary policy measures like rate cuts can influence cash holding habits. However, these actions may not directly lead to more cash hoarding unless they are perceived as signaling economic instability.
- Risk Perception and Financial Stability: Heightened macroeconomic risks and financial stability concerns may encourage households to hold more cash as a safe haven asset, particularly when financial markets are volatile or perceived risk is high in other asset classes.
- Shadow Economy: The growth in the money supply is associated with activities in the shadow economy, including criminal activities like drug dealing, tax evasion, or money laundering that often depend on cash transactions due to their illicit nature.
- Use of Cash as a Foreign Reserve Currency: Cash can serve as a reserve currency for countries, providing a stable store of value during economic crises or political instability in their local currency or economy. Cash is particularly useful in cases where electronic payment systems are not reliable, widespread, or accessible.
These factors have resulted in a decrease in cash use for transactions, with electronic payment methods gaining traction. However, the rise in cash hoarding persists despite this trend, largely driven by the economic uncertainties and precautionary motives noted above.
- The surge in cash hoarding across EC countries, such as Germany, can be linked to economic uncertainty, as households view cash as a form of financial protection amid potential downturns.
- As the reliance on cash dwindles in legitimized financial transactions, its value as a haven asset in the shadow economy persists, contributing to the continued growth in cash circulation throughout the Eurozone.
