Bundesbank: More and more banknotes hoarded

Due to the extremely low interest rates, savers are holding more and more cash, so Notes the Bundesbank. According to the central bank, nine out of ten banknotes put into circulation in Germany are never used to pay in their own country, but to put in the proverbial old sock. A striking number of banknotes are also disappearing abroad, where they are used both as a means of payment and as a means of savings.

"Banks in Germany withdrew around €12 billion in cash last year to be able to store it physically"Bundesbank board member Carl-Ludwig Thiele told journalists in Frankfurt this week. In a triennial survey of the use of cash in Germany, the central bank notes that most euro banknotes put into circulation in Germany find their way abroad.

Euro banknotes popular

According to Thiele, the global demand for euro banknotes is now almost as high as the global demand for dollar bills. "This shows tremendous confidence in the currency," according to the central banker. Demand for cash in the eurozone's largest economy rose by 7% last year – almost twice as much as the growth of the German economy – to a total of €635 billion. The Bundesbank is the largest supplier of these banknotes, with a market share of about sixty percent.

However, much of the money does not stay in its own country, because the central bank's research shows that as many as half of the banknotes issued quickly find their way to countries outside the eurozone, while forty percent of the total remains within the currency union with the aim of being hoarded. In half of those cases, this takes place outside Germany.

In the end, therefore, only one in ten euro banknotes put into circulation by banks in Germany is actually used for domestic payments. This is also evident when you look at the amount of cash in the hands of the population. If you were to divide the total of €635 billion by the number of inhabitants, there would be about €7,700 in cash for every German. But in reality, according to Bundesbank figures, the average per capita is only €107.

Flight in cash

The popularity of banknotes is largely due to the extremely low interest rates on savings, but it is also conceivable that Germans have less confidence in the stability of the banking sector. With cash, you have less counterparty risk and can make payments at any time. In that respect, it seems to have become a kind of safe haven, in line with precious metals such as gold and silver.

For day-to-day payments, the convenience of electronic means of payment such as bank cards, internet banking and mobile banking is increasingly preferred. In 2017, 48% of all transactions in Germany were paid for in cash, compared to 58% of all transactions in 2008.

Euro also appears to be a popular store of value