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Several authorities in Germany are considering a flight to cash in a scenario in which the power goes out, a so-called 'blackout'. The Bundesbank, Germany's central bank, has already stockpiled additional billions of euros in banknotes to continue supplying banks. To ensure that cash-in-transit trucks can continue to operate, they should also be given priority in any diesel rationing. What's going on?
This week, news agency reported Reuters based on various sources in Germany that the authorities are taking into account this scenario, in which a stable power supply can no longer be guaranteed. Sanctions against Russia and sabotage gas supplies to the Nord Stream pipelines have become uncertain next winter. Gas reserves have been filled, but that is not enough to completely compensate for the loss of supply from Russia. As a result, energy security is under pressure.
This has direct consequences for the payment system, which is largely conducted electronically and via banks. If the power goes out, it becomes much more difficult to make electronic payments. In Germany, people still pay for about 60% of all transactions with cash and withdraw an average of more than €6,000 in cash per year. This means that a good cash infrastructure is vital to ensure that payment transactions run smoothly. During the coronavirus pandemic and lockdowns, Germans collectively withdrew more than €20 billion in net cash. Apparently, authorities are once again preparing for such a scenario, but for different reasons.
During the lockdowns, governments and banks had time to keep everything on track, but that is more difficult with power outages or fuel shortages. In that case, there are many more practical problems involved in keeping the payment system afloat. For example, cash vans are currently not a priority in the event of a scarcity of fuel. These are issues that the government needs to prepare for, Andreas Paulick of BDGW, the German association of value carriers, told Reuters. "We need to tackle the realistic scenario of blackouts preventively. It would be naïve not to talk about that now."
The scenario of blackouts sounds surreal in the rich West, but according to a poll by the umbrella media organization Funke Mediengruppe, more than 40% of Germans already expect this to happen in the next six months. And the German government itself has already indicated that in that case, in addition to food and water, people will also have something More cash in the house.
Banks in Germany do not yet expect large-scale blackouts, but the German regulator has ordered them to prepare for that scenario. In Frankfurt, a member of the city council suggested that the city should work out a blackout plan, but that proposal was rejected by the city council. It would lead to unnecessary panic.
In Germany, many people still regularly pay with cash, but our eastern neighbours are an outlier in this respect from a European perspective. In many other European countries, electronic payments have been the standard for years. In countries such as Sweden, almost no cash used anymore. And with central banks' plans for central bank digital money, the reliance on electronic infrastructure for payments will only increase further.
So it's important that cash continues to exist, even if it's just as a backup to fall back on in uncertain times. This is also the opinion of Thomas Leitert of KomRE, a company specializing in energy security in the event of a power outage. "Cash is the only official payment option that still works", he told Reuters.
If European countries do indeed have to deal with power outages next winter, they had better be well prepared by also having their cash infrastructure in place.
This contribution was made from Geotrendlines
