Money Secretively Stashed: Ongoing Increase in Cash Hidden in Home Storage
In contrast to the prophecies of its imminent disappearance, cold, hard cash isn't vanishing anytime soon. Despite digital payments' growing dominance, the quantity of banknotes and coins swirling in the euro zone continues to escalate. Central banks and experts speculate that this cash isn't being spent extravagantly, but rather, stashed safely away by households in the billions.
Cash Stashes Across Homes
According to stats from the Bundesbank, about 42% of German banknotes are being hoarded for preservation purposes – a staggering amount that's nearly double the hoarding rate in 2013. By 2024's end, the Bundesbank anticipates that approximately 395 billion euros would be tucked away in German households – although, these reserves aren't spread evenly, with many families holding mere pocket change.
The Banknote Paradox
In March, the European Central Bank reported that a total of 1.564 trillion euros were in circulation across the euro zone. That's roughly 30 billion more than in the spring of 2022 and an incredible 300 billion euros more than during the early days of the Coronavirus pandemic, five years prior. Though the rate of growth has slowed considerably since 2022, the quantity of cash circulating continues to increase, not diminish. The Bundesbank has coined this peculiar phenomenon the "banknote paradox." A Bundesbank spokeswoman in Frankfurt explains that it's been observed in numerous countries for decades.
"Since 2021, the growth rate of banknotes in circulation has always exceeded the annual inflation rate," says Johannes Gärtner, a payment specialist at the consulting firm Strategy&.
This paradox is puzzling because it's common knowledge that the number of people using cash in their everyday lives is dwindling. In 2023, according to the Bundesbank, half of all point-of-sale transactions in Germany were still in cash, but they accounted for merely a quarter of the total sales. Fewer people, fewer transactions – yet, more cash circulates than ever before.
Electronic Payments on the Rise
A recent survey by Strategy& of 5,500 individuals across ten European countries and Turkey established that the debit card has now become the most frequently used payment method, surpassing cash for the first time. Just 23% of respondents preferred to pay with cash, while 61% opted for cards. Many retailers now prefer electronic transactions as well, particularly contactless payments, which can be processed up to seven times faster than traditional cash transactions.
Reasons Behind the Cash Craze
But why is there more cash if it's being used less frequently? Ralf Wintergerst, CEO of the Munich-based banknote and security technology manufacturer Giesecke+Devrient, puts it straightforwardly: "Uncertainty drives the hoarding of cash." In March 2021, the share of German cash reserved for preservation reached a historic high of 43% during the Coronavirus pandemic, but the surge was mostly due to the prolonged lockdowns during the initial stages of the pandemic.
Financial consultant Johannes Gärtner brings two additional factors into play that contribute to the increase in cash circulation. "The rise in cash isn't attributed to conventional payment transactions," Gärtner explains. "The reasons are a mix of hoarding, the shadow economy, and its role as a reserve currency abroad." The term "shadow economy" refers to activities conducted beyond legal boundaries, spanning from tax evasion to illicit activities. In November 2023, for instance, plainclothes police agents in Bavaria discovered a million euros stuffed into plastic bags in the car of a 34-year-old man, allegedly a product of criminal activities.
Cash: The Timeless Haven
Despite decreasing daily reliance on cash among law-abiding citizens, it's unlikely that only criminals will be carrying cash or stashes in the future. The Bundesbank emphasizes the preservation of cash infrastructure as a priority, as currency notes and coins have distinct advantages. Cash doesn't necessitate electricity or electronic infrastructure, which makes it more resilient in emergencies such as power outages or natural disasters.
"Central banks must ensure a sustainable, resilient payment infrastructure," says G+D CEO Wintergerst. "In the event of war, crisis, or floods, it should still be possible to pay with cash."
In the context of a growing trend towards digital payments, it's intriguing to note that the quantity of cash being hoarded by households in the euro zone continues to escalate, surpassing the hoarding rate in 2013 according to the Bundesbank. Uncertainty seems to drive this hoarding behavior, with financial consultant Johannes Gärtner noting that the increase in cash circulation is not solely attributed to conventional payment transactions, but also involves hoarding, the shadow economy, and cash's role as a reserve currency abroad.
Despite the shift towards electronic payments, the timeless advantages of cash as a more resilient payment method in emergencies and the need for a sustainable, resilient payment infrastructure make it unlikely that cash will completely vanish in the digital age.
