Horded Greenbacks: A Rise in Stashed Cash in the Eurozone
Money stashed away: Accumulation of cash persists - Secret Stash of Cash Persists: Unabated Increase in Hidden Currency Reserves
Ah, the apocalyptic talk of cash's impending doom seems to have jumpstarted its engine once again! Despite the diminishing critical role of currency in everyday shopping, the amount of cash stashed away in the eurozone has been on the rise. Central banks and experts are in agreement - cash valued in the hundreds of billions is being held, not spent.
Estimate: Euros to the tune of four hundred billions stored in private households
According to data from the German Central Bank, around 42% of German banknotes are held for "value preservation." This is roughly twice the amount held in 2013. Breaking it down, the Bundesbank predicts that as much as 395 billion euros were tucked away in German living rooms by the end of 2024. The distribution, as surveys claim, is quite lopsided, with many families rockin' nothing more than scratch or just a few bucks.
"The Cash Paradox"
March statistics from the European Central Bank reveal a whopping 1.564 trillion euros in circulation throughout the eurozone, a 30 billion euro increase from the spring of 2022 and an astounding 300 billion euros more than was circulating during the initial years of the Corona pandemic. While the growth rate has slowed significantly since 2022, the cash supply has continued to balloon, rather than shrink. This unusual phenomenon is referred to internally at the German Central Bank as "the banknote paradox." A Central Bank spokesperson in Frankfurt remarked, "This trend has been observable for years, and it's true in many countries."
"Until as late as 2021, the growth rate of banknotes in circulation was consistently several times the annual inflation rate," suggests Johannes Gärtner, a payment expert at consulting firm Strategy&.
So why is there more cash if fewer people are using it? "The old clamtango is being hoarded very strongly," says Ralf Wintergerst, CEO of Munich-based banknote and security technology producer, Giesecke+Devrient, who counts around 150 central banks among their valued customers. "The production volume of the euro is also being used for payment, but it is now also being set aside." The company has been discussing this with central banks for 20, 30 years: "What happens in the cash cycle, why and for what do people use cash?" Wintergerst's analysis of the trend: "Uncertainty is the driving factor."
According to the Bundesbank, the percentage of cash saved for value preservation peaked at 43% during the COVID-19 pandemic, mostly due to the prolonged lockdowns in the early stages of the crisis. "The increase in the circulation of banknotes during crises, not just during the COVID-19 pandemic, due to the uncertainty that comes with them, is a commonly observed phenomenon," adds a Bundesbank spokesperson.
Cash is king for shady businesses
Gärtner offers two additional explanations to contribute to the rising cash circulation. "The growth in the amount of cash is not related to classic payment transactions," says the financial expert. "The reasons lie rather in a mix of 'hoarding,' shadow economy, and its role as a reserve currency abroad." Though the underworld may still be counting on cash, it's not just the black market that's dabbling - in November, customs officers reportedly found €1 million in a car belonging to a 34-year-old man suspected of illicit activities and neatly packaged in plastic bags.
Old-school but secure
As the reliance on cash in the daily lives of honest citizens continues to dwindle, cash isn't expected to become the sole domain of criminal minds. The Bundesbank has prioritized the sustainability and resilience of cash infrastructure: "The central bank must ensure a secure, robust payment infrastructure. In times of wars, crises, floods, it must still be possible to pay." Cash has undeniable advantages, including the fact that banknotes and coins don't require electricity or electronic infrastructure.
German Federal Bank
Frankfurt
Germany
Coronavirus
Ralf Wintergerst
Munich
Bavaria
ECB
Spring
Consulting firm
Insights:
- The eurozone's increasing household cash hoarding, particularly in Germany, is driven by precautionary motives, wealth rebuilding, and broader economic uncertainties impacting saving behavior across the eurozone.
- Households with higher cash reserves tend to prioritize precautionary savings due to heightened macroeconomic risks, weaker growth outlooks, and ongoing economic instability.
- Despite the decline in cash transaction usage, households continue to see cash as a safe asset for their savings, especially in the context of ongoing economic uncertainty and declining consumer confidence.
- Policy interventions in countries like Germany may focus on redirecting household savings away from cash and into more productive investments, as a significant portion of household wealth is currently held in liquid forms.
- The shadow economy points toward the continued use of traditional currencies for illicit activities, but the predominant factors driving the increase in cash hoarding are precautionary savings and the rebuilding of wealth buffers.
[1] "The Future of the Eurozone," European Central Bank, accessed March 21, 2023, https://www.ecb.europa.eu/pub/pdf/scpwps/ecb.wp2348~426be614.en.pdf
[2] "Germany’s Economy Defies Downturn," Financial Times, accessed March 21, 2023, https://www.ft.com/content/8f0e4924-c032-4db7-b5cd-096cc08fbfa7
[3] "Germany Mulls Pension Auto-enrollment," Reuters, accessed March 21, 2023, https://www.reuters.com/world/europe/germany-local-media-says-government-mulling-pension-automatic-enrollment-2023-02-20/
[4] "The Role of Cash in the Digital Age," Giesecke+Devrient, accessed March 21, 2023, https://www.gi-de.com/content/dam/gi-corporate/gd-local-sites/global/pdfs/events/infographic-the-role-of-cash-in-the-digital-age.pdf
[5] "Savings in the Time of Coronavirus," Strategy& Insights, accessed March 21, 2023, https://www.strategy-and.pwc.com/global/assets/pdf/savings-in-the-time-of-coronavirus.pdf
- In light of the increased cash hoarding in European Central Bank (ECB) countries, such as the rise of tucked-away euros in German living rooms, this trend suggests that many individuals and businesses are prioritizing 'personal-finance' and 'finance', viewing cash as a means to secure their wealth in times of uncertainty and economic instability.
- Following the report by the German Federal Bank in Frankfurt, Germany, discussing the 'banknote paradox', the surplus of euros in circulation throughout ECB countries provides evidence of an unusual pattern - a shift away from the 'free movement of workers' and 'freedom to provide services' towards a more conservative approach to personal wealth management, a reality affecting both 'business' and 'individuals'.
