Despite the growing trend towards paying without notes and coins, the demand for cash remains high. “I suspect that people in the Corona crisis hoarded cash out of uncertainty and the lack of opportunity to spend money,” said Bundesbank board member Johannes Beermann of the German press agency. “The uncertainty in the pandemic is high.” For an estimated 40 percent of the demand for cash in Germany, the Bundesbank suspects hoarding in Germany as a motive.
Higher demand for banknotes
According to the central bank, avoiding negative interest rates could also play an increasing role. Commercial banks in the euro area have to pay 0.5 percent penalty interest if they park money at the European Central Bank (ECB). Many financial institutions pass the costs on to business customers, but increasingly also to private customers.
At the same time, many people consider cash to be a safe store of value in times of crisis. Banknote demand was particularly high at the start of the pandemic in Europe in March 2020. Overall, the value of the notes issued by the Bundesbank rose by 9.5 percent last year. The last time there was a similarly high growth rate in cash in circulation was 10.2 percent in 2014. Coins, too, continue to be minted in large numbers.
More banknotes in circulation, more deposits and withdrawals
“When and how the development will normalize in the wake of falling corona numbers and the associated relaxation of restrictions, cannot yet be estimated,” said Beermann. “We are currently noticing in our branches that cash deposits and withdrawals are increasing again.”
At the end of May 2021, banknotes issued by the Bundesbank were in circulation with a value of 839 billion euros, 52 billion or 6.6 percent more than a year earlier.
Cashless payment is on the rise – but cash is still the leader
The payment behavior of consumers in Germany had changed in the corona crisis year 2020. According to a recently published study by the Cologne retail research institute EHI, every third purchase in stationary retail is now paid for by card. “The crisis has accelerated the decline in cash sales in brick-and-mortar retail by at least three years. In addition to the significantly increased online business, cards are the clear winners of the crisis,” explained study author Horst Rüter.
According to the Bundesbank, cash is still by far the most widely used means of payment in Germany with a transaction share of 60 percent. The central bank assumes that notes and coins will remain a popular means of payment even after the Corona crisis – and the most widely used for the foreseeable future.