Cash in Germany: Germans hoard around 400 billion under their mattresses

Munich/Frankfurt. The frequent dire predictions about the impending disappearance of cash are premature: Despite the steadily declining importance of banknotes and coins in everyday purchases, the amount of cash in circulation in the euro area continues to rise. Central banks and experts estimate that hundreds of billions of dollars worth of cash is not being spent but hoarded.

According to Bundesbank figures, the share of banknotes held in Germany as a "store of value" is around 42 percent, almost two and a half times higher than in 2013. In absolute terms: at the end of 2024, Bundesbankers estimate that 395 billion euros were stored in German private households - very unevenly distributed, as surveys show that many households have little or no cash reserves.

According to figures from the European Central Bank, a total of 1.564 trillion euros in cash was in circulation in the euro area in March. This was almost 30 billion euros more than in spring 2022 and even 300 billion euros more than at the beginning of the coronavirus pandemic five years earlier. Although the growth rate has slowed significantly since 2022, the amount of cash in circulation is still increasing, not decreasing. The Bundesbank calls this phenomenon the "banknote paradox." It has been observed "for many years, in many countries," says a Bundesbank spokeswoman in Frankfurt.

“Up until 2021, the growth rate of banknotes in circulation was always several times the annual inflation rate,” says Johannes Gärtner, payment expert at the management consultancy Strategy&.

The phenomenon is paradoxical because the number of people paying with notes and coins is known to be declining. According to the Bundesbank, in 2023, half of all payments at Germany's cash registers were still made in cash, but this only accounted for a good quarter of total sales.

According to a recent Strategy& survey of 5,500 respondents in nine European countries and Turkey, debit cards have now replaced cash as the most widely used payment method, with only 23 percent preferring cash. Many retailers now also prefer electronic payments, especially contactless payments, which do not require customers to enter a PIN. "It's up to seven times faster than paying with cash," says Bernd Ohlmann, spokesperson for the Bavarian Retail Association.

But why is there more cash in circulation when fewer and fewer people use it in everyday life? "The euro is being hoarded heavily," says Ralf Wintergerst, CEO of the Munich-based banknote and security technology manufacturer Giesecke+Devrient, which counts some 150 central banks worldwide among its customers. "The euro production volume is certainly used for payments, but these days it's also used for storage." The company has been in ongoing discussions with central banks for 20 or 30 years: "What actually happens in the cash cycle, why and what do people use cash for?" Wintergerst's explanation for the apparent trend toward cash hoarding: "Uncertainty is the driving factor."

According to the Bundesbank, the share of cash stored as a store of value reached a peak of 43 percent during the coronavirus pandemic – although this was largely due to the months-long lockdowns in the first phase of the pandemic: "The increase in banknote circulation during crises – not only during the coronavirus pandemic – due to the uncertainty associated with them is a frequently observed phenomenon," says the Bundesbank spokeswoman.

Management consultant Gärtner brings two further factors into play that presumably contribute to the increase in cash circulation. "Fundamentally, the growth in the amount of cash cannot be attributed to traditional payment transactions," says the financial expert. "Rather, the reasons lie in a combination of hoarding, the shadow economy, and the role of the currency as a reserve currency abroad."

The "shadow economy" refers to economic activities outside the bounds of law and order, whether classic illegal work or criminal activity. For example, the A3 Autobahn in Bavaria is notorious for police repeatedly encountering immense sums of cash during checks: In November, undercover officers found one million euros in the car of a 34-year-old man, presumably from criminal activities and wrapped in plastic bags.

But even if the importance of cash in the everyday lives of law-abiding citizens is likely to continue to decline, it's not to be expected that in the future, only gangsters will be carrying notes and coins in their wallets—or in plastic bags. The Bundesbank has made the preservation of cash and the associated infrastructure its top priority. Cash has undeniable advantages.

This includes, not least, the fact that banknotes and coins don't require electricity or electronic infrastructure. "The central bank must ensure a permanent, resilient payment infrastructure," says G+D CEO Wintergerst. "In war, in crises, in floods, it must still be possible to pay. Cash is the answer."

RND/dpa