From Coins to Stacks: Persistent Growth in Physical Money Storage
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Surreptitious Cash Hoard: The Amount Secreted Away Keeps Growing - Secret Fortunes in Homes: Ongoing Boost in Cash Hoardings
It seems like the doomsday prophets have got it all wrong: Cash, the ancient currency that's been a subject of speculation for its alleged demise, continues to thrive, defying expectations that it'll dissolve into obscurity. In the European Union, regardless of the dwindling significance of notes and coins in everyday purchasing, the amount of cash circulating in banks is on the rise.
A closer look reveals that central banks and experts believe that there's around €400 billion worth of cash hidden away in European households, with German households holding approximately €395 billion by the end of 2024. This cache of currency is hoarded unevenly, as surveys suggest that many families have little or no cash on hand.
"Banknote Paradox," Frankfort's Stalemate
By March 2023, the total cash in circulation within the euro area reached €1.564 trillion, marking an increase of around €30 billion from the spring of 2022 and €300 billion more than at the onset of the Corona pandemic five years back. Although the growth rate has decreased significantly since 2022, the amount of cash in circulation continues to climb rather than recede. Economists refer to this puzzling trend as the "banknote paradox." According to a Bundesbank spokesperson in Frankfort, this trend has been persistent "for many years and in many countries."
"The euro is being hoarded very strongly," explains Ralf Wintergerst, the CEO of Giesecke+Devrient, a banknote and security technology manufacturer. With central banks from over 150 countries on its client list, the company has spent decades examining the cash cycle and uncovering the reasons behind this confounding trend. "The euro is being hoarded very strongly," he continues.
Abusing Cash: Crime Syndicates Thrive on Uncertainty
Business analyst Johannes Gärtner, a payment expert at consulting firm Strategy&, offers additional explanations for the increase in cash circulation. "The reasons lie rather in a mix of 'hoarding', shadow economy, and its role as a reserve currency abroad." When in doubt, times of economic turmoil exacerbate the appeal of physical money, providing a safe haven for those seeking to safeguard their wealth and means of exchange in unpredictable times.
In Europe, the shadow economy comprises various illegal and unreported activities that bankroll the black market, with currency serving as the primary means of exchange. Fraught with uncertainty, the economic outlook creates opportunities for smugglers and criminal rings to profit from the growing demand for cold, hard cash.
Why Cash? Fear, Inflation, and the Power of Tangibility
The hoarding of cash has become increasingly popular due to several factors. Firstly, the economic climate remains uncertain, as factors such as geopolitical instability and skyrocketing inflation contribute to a sense of insecurity among citizens. Concerned about the potential for financial downturns, these individuals opt to save more—both physically and digitally—as a hedge against economic challenges.
Secondly, recent periods of high inflation have reduced real wealth, prompting people to rebuild their wealth reserves—even though cash itself may not be the primary vehicle for such savings. Higher overall savings rates reflect a broader trend of hoarding financial assets.
Thirdly, the European Central Bank's monetary policy influences the preference for holding cash, thanks to adjustments like interest rates and the current environment of economic liquidity within the banking sector.
Lastly, the enduring allure of tangible assets, reinforced by centuries of human psychology, cannot be understated. Even if cash usage declines in day-to-day transactions, individuals may still find solace in physical money during times of economic upheaval, highlighting our deep-rooted trust in financial security.
While digital currency may hold the future, the value of cash remains undeniable. As wintergerst rightly notes, "the central bank must ensure a sustainable, resilient payment infrastructure." Cash may be old-fashioned, but it demonstrates resilience in the face of adversity, providing a stable means of exchange—even in times of chaos and crisis.
- The employment policy of a company like Giesecke+Devrient, a manufacturer of banknotes and security technology, should prioritize continuous research on the cash cycle and trends in money storage, given the ongoing 'banknote paradox' and the persistent hoarding of cash in many countries worldwide.
- As the economics of the shadow economy thrive on unreported activities and currency usage, policymakers must address the issue of rising cash circulation in the European Union, ensuring that finance, business, and technology regulations target illegal activities while safeguarding the right to ownership of physical money for legitimate purposes.
