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Central banks and experts estimate that cash worth hundreds of billions of euros is being hoarded rather than spent.
“Cash paradox”
In March, according to figures from the European Central Bank, a total of €1.564 trillion in cash was in circulation in the eurozone. That was almost €30 billion more than in spring 2022 and even €300 billion more than at the start of the coronavirus pandemic five years earlier. Although the growth rate has slowed significantly since 2022, the amount of cash in circulation continues to increase rather than decrease. The Bundesbank refers to this phenomenon as the “banknote paradox.” It has been “observed for many years, in many countries,” says a Bundesbank spokeswoman in Frankfurt.
“Until 2021, the growth rate of banknotes in circulation was always a multiple of the annual inflation rate,” says Johannes Gärtner, a payment expert at the consulting firm Strategy&.
The phenomenon is paradoxical because it is well known that the number of people paying with cash is declining. According to the Bundesbank, half of all payment transactions at German cash registers were still made in cash in 2023, but this accounted for only a good quarter of total sales.
Electronic payment continues to gain ground
According to a recent survey by Strategy& of 5,500 respondents in nine European countries and Turkey, debit cards have now surpassed cash as the most widely used means of payment – only 23 percent still prefer to pay in cash. Many retailers now also prefer electronic payments, especially contactless payments, which do not require customers to enter a PIN. “This is up to seven times faster than cash payments,” says Bernd Ohlmann, spokesperson for the Bavarian Trade Association.
But why is there more cash in circulation when fewer and fewer people are using it in everyday life? “The euro is being hoarded to a great extent,” says Ralf Wintergerst, CEO of Munich-based banknote and security technology manufacturer Giesecke+Devrient, which counts some 150 central banks worldwide among its customers. “The production volume of the euro is still being used for payments, but now it’s also being put aside.” The company has been in discussions with central banks for 20 to 30 years: “What is happening in the cash cycle, why, and what do people use cash for?” Wintergerst’s explanation for the obvious trend toward cash hoarding: “Uncertainty is the driving factor.”
According to the German Bundesbank, the proportion of cash stored as a store of value reached a peak of 43 percent during the coronavirus pandemic – although this was largely due to the months-long lockdowns in the first phase of the pandemic: “The increase in banknotes in circulation during crises – not only during the coronavirus pandemic – due to the uncertainty associated with them is a frequently observed phenomenon,” says the Bundesbank spokeswoman.
Gangsters need cash
Management consultant Gärtner introduces two additional factors that are believed to contribute to the increase in cash in circulation. “The growth in the amount of cash cannot be attributed to traditional payment transactions,” says the financial expert. ‘The reasons lie rather in a mixture of hoarding, the shadow economy, and its role as a reserve currency abroad.’ The ‘shadow economy’ refers to economic activities outside the law, whether traditional undeclared work or criminal transactions. The A3 motorway in Bavaria, for example, is known for the fact that the police repeatedly find huge sums of cash during checks: in November, plainclothes officers found one million euros in the car of a 34-year-old man, presumably from criminal activities and packed in plastic bags.
Old-fashioned, but safe
But even if the importance of cash in the everyday lives of law-abiding citizens is likely to continue to decline, it is unlikely that only gangsters will carry notes and coins in their wallets – or plastic bags – in the future. The Bundesbank has made it its mission to preserve cash and the associated infrastructure. After all, money has undeniable advantages. Not least among these is the fact that notes and coins do not require electricity or electronic infrastructure. “The central bank must ensure a permanent, resilient payment infrastructure,” says G+D CEO Wintergerst. “In the event of war, crises, or flooding, it must still be possible to
Old-fashioned, but secure
Even though cash is likely to continue to decline in importance in the everyday lives of law-abiding citizens, it is unlikely that only criminals will carry notes and coins in their wallets – or plastic bags – in the future. The Bundesbank has made it its mission to preserve cash and the associated infrastructure. After all, cash has undeniable advantages. Not least among these is the fact that notes and coins do not require electricity or electronic infrastructure. “The central bank must ensure a permanent, resilient payment infrastructure,” says G+D CEO Wintergerst. “In the event of war, crises, or flooding, it must still be possible to make payments. Cash is the best option for this.”
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