Cash Piles Growing in Homes: Cash Continues to Dominate as a Store of Value
Undisclosed Fortunes Hidden: Accumulating Cash Remains Unabated - Secreted Fortunes: Persisting Increases in Unreported Cash
In defiance of the prophecies of cash's impending extinction, the volume of cash circulating in the euro zone remains on the rise. Despite a decline in the importance of paper notes and coins in day-to-day transactions, central banks and experts predict that cash worth billions is being stockpiled, not spent.
Estimated: Over 400 billion euros in cash stored in private households
According to data from Germany's Central Bank, approximately 42% of banknotes in Germany are kept for "value preservation," a figure nearly double that of 2013. By the end of 2024, the German Central Bank anticipates that roughly 395 billion euros will be stored in German households—a sum unevenly distributed, with many households reporting no or minimal cash reserves.
"Cash Conundrum"
As per stats from the European Central Bank, total cash value in circulation within the euro zone hit 1.564 trillion euros in March—an increase of around 30 billion compared to the spring of 2022 and 300 billion more than at the onset of the coronavirus pandemic five years prior. While the growth rate has slowed significantly since 2022, the amount of cash in circulation continues to grow, rather than decrease. The enigma surrounding this phenomenon is called the "banknote conundrum" by the German Central Bank. "It has been observed for many years, and in numerous countries," affirms a representative from the German Central Bank in Frankfurt.
"Until 2021, the growth rate of banknotes in circulation was always significantly greater than the annual inflation rate," explains Johannes Gärtner, a payment expert at the consulting firm Strategy&.
The riddle is intriguing since it is widely recognized that the number of people using cash for transactions is diminishing. In 2023, according to the German Central Bank, cash still accounted for half of all payment transactions at German cash registers, but only a quarter of the total turnover.
Digital Payments Taking Center Stage
According to a recent survey by Strategy& of 5,500 respondents in ten European countries and Turkey, debit cards have surpassed cash as the most widely used payment method, with only 23% preferring cash. Retailers are increasingly embracing electronic payments, particularly contactless, where customers can complete transactions without entering a PIN number. "This is up to seven times faster than cash transactions," asserts Bernd Ohlmann, spokesperson for the Bavarian Retail Association.
"Uncertainty is the driving force"
Despite a decline in cash usage among law-abiding citizens, it is unlikely that criminals will be the sole carriers of cash in the future. Both the Federal Bank and cash-security technology manufacturer Giesecke+Devrient posit that "uncertainty" underpins the trend toward cash hoarding.
The Federal Bank reports that the percentage of cash held for value preservation peaked during the coronavirus pandemic at an astounding 43%, primarily due to prolonged lockdowns in the early phase of the pandemic. "The rise in the circulation of banknotes during crises, not just during the coronavirus pandemic, driven by the uncertainty associated with them, is a frequently observed phenomenon," assures the representative from the Federal Bank.
Business consultant Gaertner offers two additional factors contributing to the increase in cash circulation. "The growth in the amount of cash is not related to classic payment transactions," acknowledges the financial expert. "The reasons lie rather in a mix of 'hoarding,' shadow economy, and its role as a reserve currency abroad." The shadow economy includes both illicit activities and unreported income.
In spite of cash's declining role in everyday life, it remains an indispensable store of value, the Federal Bank explains. One of the advantages of cash is its independence from digital infrastructure or electricity, ensuring that people can still transact during emergencies or crises. The central bank must guarantee a reliable, sustainable infrastructure for cash, asserts G+D CEO Wintergerst, because "cash is king during times of uncertainty."
- The increasing amount of cash being held in private households, as revealed by data from Germany's Central Bank, contrasts sharply with the declining use of cash for transactions, a trend that has been observed in day-to-day business.
- Despite the growth in digital payments and the declining importance of cash in day-to-day transactions, central banks and experts continue to emphasize the importance of cash as a crucial store of value, particularly in times of uncertainty, due to its independence from digital infrastructure and electricity.
