Safeguarding the role of cash ...

Many continue to experience the payment landscape in Germany as being shaped by cash. But in Germany, too, the use of cash has been declining for some years now. The coronavirus pandemic has significantly accelerated change processes in payment behaviour. While cash payments accounted for 82.5% of total transactions in 2008, their share fell to 51% in 2023. At the same time, we see an increase in the use of debit cards (27% in 2023) and mobile payments (6% in 2023).

Nevertheless, cash remains an important part of economic life in Germany. Consumers expect to be able to pay with cash and want to maintain the freedom of choice between cash and cashless means of payment. On top of consumers’ preferences in favour of cash, the Bundesbank considers resilience, crisis preparedness, and inclusivity for all groups in society as further reasons why cash should be firmly anchored in the payment landscape. A functioning cash infrastructure with good access to cash and high acceptance rates of cash is crucial for this.

The Bundesbank has a statutory mandate to facilitate the smooth functioning of cash and cashless payments. Together with the other Eurosystem central banks, the Bundesbank works to ensure that euro cash remains generally available and accepted as a means of payment and store of value. That said, some developments such as the declining use of cash for payments and the thinning out of ATM networks suggest that a future with cash cannot be taken for granted.

… calls for future-oriented research

With this in mind, the Bundesbank has turned its attention to exploring what sort of long-term future cash might have in Germany. In order to be able to proactively shape the evolution of cash in light of the trends we are currently seeing, we need an idea of the environment in which cash will be embedded in future. What developments and trends will influence the payment landscape and the cash cycle over the next 15 to 20 years?

To take due account of the intricacies of the way in which cash is embedded in social and economic structures, a future-oriented study design is called for. One option is to take the strategic foresight route. The Bundesbank has therefore commissioned a study looking at the cash of the future, which uses this kind of method.

Future scenarios for Germany’s payment landscape

A commonly used approach in strategic foresight involves the development of future scenarios. These scenarios are hypothetical visions of the future on a set topic. The scenarios presented in the study describe potential futures for cash and the cash cycle in Germany from the perspective of the year 2037. They show alternative development paths and the influencing factors behind them.

The scenarios are based on empirical evidence and were developed by strategic foresight experts working with established academic methods. It is important to appreciate that scenarios are not forecasts and, as such, do not represent precise predictions of a future that will definitely come to pass. What scenarios actually provide us with is a way to orient ourselves. What developments are possible, what are the dependencies between different developments and what are the consequences? The scenarios can thus play a role in decision-making and strategy-building and aid communication with stakeholders and the general public.

A total of three scenarios were developed. In all three scenarios, cash use continues, albeit to different degrees. In all scenarios, cash is the only means of payment available as a fallback option in the event of technical outages.

The hyperdigital payment world — artificially intelligent, convenient, and vulnerable

This scenario is characterised by economic and social transformation aimed at safeguarding peace and prosperity. Geopolitical shifts and far-reaching digitalisation are the driving forces of this transformation. All areas of life are highly digitalised, and that includes making payments. The digital euro has already been introduced as legal tender. The majority of the public has a high degree of confidence in digital solutions, in the government, and in the providers of cashless means of payment. In this scenario, cash serves, at most, as a store of value.

Cash has all but disappeared from everyday payment situations. Only 15% of all transactions are settled using cash in 2037. Payments between individuals are almost exclusively made via payment apps.

Conventional online commerce, in which cash plays virtually no role, continues to grow strongly. When it comes to bricks-and mortar retail, hardly any checkouts are staffed anymore. Only a scarce few self-checkouts still accept cash payments. With a small number of exceptions, local governments, authorities, and public enterprises do not provide facilities for paying in cash either.

Banks have massively thinned out their ATM network. With the disappearance of staffed checkouts in the retail sector and the cutback in cash payment options for customers, in-store cash withdrawal services — which are currently still commonplace — vanish as well. Cost pressures on the cash cycle increase considerably up to the end of the decade. Only a small number of effective measures to cut costs in the cash cycle are implemented.

In accordance with an EU regulation, the Federal Government responds to the massive decline in the use of cash, adopting statutory standards to secure a basic level of cash provision for retailers and the general public. The aim of this move is to maintain the cash infrastructure in case there is a crisis.

In summary, this scenario shows us a highly digitalised world in which cash plays only a minor role. It is barely able to perform its function as a crisis preparedness measure.

The cash renaissance payment world — smart, self-determined, and resilient

The world of this scenario has been shaped by the coronavirus pandemic, climate change, advances in general-purpose artificial intelligence (AI) and the war in Ukraine. On the back of recent experiences, the public has become more aware of the need to prepare for disasters and crises.

Moreover, many people fear heteronomy and the notion of being controlled by self-learning AI systems trained on mass data. Ambitious individuals tending towards alternative lifestyles are advocating for the right to an analogue life, drawing attention to the dangers of AI and calling for data minimisation and digital sovereignty.

The benefits of cash are being rediscovered. Cash is associated with values such as sovereignty, independence, and constructive rebellion. This heightened awareness of the benefits of cash gradually spreads into society’s centre ground. Despite the stabilising effects on cash use, cash made up less than 50% of transactions at the end of the 2020s.

Policymakers were aware of the public’s desire for freedom of choice, as well as of the significance of cash for certain groups in society. Considerations around resilience and autonomy in payments prompted the Federal Government to take regulatory steps to strengthen cash as a means of payment. At the beginning of the 2030s, the Federal Government recommended that retailers should, as a basic principle, accept cash. All of the major supermarket chains offer both staffed checkouts and self-checkouts with cash payment modules.

Due to an EU regulation on access to cash, the trend towards branch closures and the thinning out of the ATM network started to slow again from the mid-2020s. Clear regulation for maintaining cash infrastructures gives cash cycle stakeholders greater certainty for investing in innovation and cost-saving measures.

All in all, in this scenario, we see parts of society circling back to cash and its benefits, meaning that cash use is declining only slowly and stabilises in the 2030s.

The vanishing hybrid payment world — pluralistic, segregated, and indifferent

In the 2020s, there was significantly greater individualisation and pluralisation in people’s living standards, lifestyles, and personal environments compared with the 2010s. Members of more progressive milieus, in particular, are regarded as early adopters when it comes to innovations in cashless payment instruments. But still, even those who mainly opt for cashless payments often carry an “emergency stash” of a few notes in their smartphone case or in their bag or pocket.

At the end of the 2030s, cash is still being used by a large part of the population to pay street vendors, when tipping, as a gift to friends or family and when paying smaller amounts. The decline in cash use is gradual (31% of all transactions in 2037).

The remaining bricks-and-mortar retailers are aware of the diverse preferences of their customer base. This means there is huge variation in terms of cashier system facilities and cash acceptance. However, bricks-and-mortar retailers encourage customers to use cashless payment methods. Public authorities are also coming to favour cashless means of payment.

Banks continued to significantly reduce the number of their branches and ATMs throughout the country up to the end of the 2020s. As the share of cash is shrinking, less and less cash is coming into shop tills, meaning that in-store cash withdrawal services

deteriorate. Overall, it becomes harder to access cash.

A major crisis or disaster that could draw society’s attention to cash as a resilient means of payment fails to materialise. A pro-cash movement among the general public cannot be orchestrated in an increasingly segregated society. This means there is no political pressure to act and no resistance against the gradual decline of cash.

A downward spiral is created: the use of cash continues to decline as access to and acceptance of cash become restricted. The fixed costs for the supply and removal of cash appear disproportionately high as cash volumes fall. Options for accessing cash and situations where it is accepted are therefore limited further. A hybrid payment landscape — something desired by large parts of society — slowly but surely disappears as it becomes more and more difficult to actually use cash.

Current developments

Once scenarios have been developed, they should be checked against current developments from time to time. It is important to bear in mind that certain trends already visible today might appear in one scenario or another but this does not necessarily mean that a particular scenario will occur. Nor do these trends make it more likely that one of the scenarios will prevail. This is because the developments described in the scenarios should not be looked at in isolation; it is only through their interplay that they mesh to form a holistic projection of the payment landscape in 2037.

Cashless payments more convenient

Recently published research by the Bundesbank shows that cash currently accounts for 51% of all transactions in Germany. Contactless cards and mobile payment methods are being used more and more frequently. Cashless means of payment are increasingly perceived as more convenient, faster, and easier than cash. These are characteristics regarded as key reasons in deciding for or against a means of payment in the “hyperdigital payment world” and “hybrid payment world” scenarios. On top of this, acceptance of cashless means of payment has risen sharply, including in former cash strongholds such as restaurants and cafés and the services industry. Against this background, the general trend of declining cash usage in the scenarios appears highly plausible.

Cash availability and acceptance declining

Acceptance of cash in Germany remains high, although it is slightly declining. Cash payments are almost universally accepted at retail outlets for day-to-day purchases. At retail outlets for durable goods and in the food services sector, acceptance has somewhat deteriorated. In public administration, meanwhile, cash acceptance is low and falling.

As anticipated in all three scenarios, the number of ATMs and bank offices is declining sharply. The number of ATMs fell by 12% between 2019 and 2023. A weakening of this decline in the mid-2020s does not seem to be on the cards so far. As things currently stand, legal framework conditions creating guaranteed access to cash are lacking. Although more and more people are making use of the option to withdraw cash in shops, Germany’s Retail Federation (Handelsverband) is warning of service constraints if the declining propensity to pay in cash results in there not being enough cash in registers. These developments make a downward spiral of declining cash usage, acceptance of cash, and cash availability highly likely.

Cash should not be taken for granted

Cash use does not increase again in any of the scenarios. While the share of cash payments does slowly stabilise in the “cash renaissance” scenario, it steadily contracts in the other two. That said, neither of those two scenarios anticipate a complete disappearance of cash. But two of three scenarios — as well as the developments that we are currently seeing — suggest that its stabilising function and freedom of choice between cash and digital payments are not fully given anymore.

The Bundesbank considers cash to be its core physical product and takes active measures to safeguard its continued existence and future use alongside its complement, the digital euro. However, the Bundesbank, too, has to adapt to the changing payment landscape. Under its new branch strategy the Bundesbank is aiming to create a more efficient branch network. Branch closures will go hand in hand with extensive investment into new and modern branches. Increased automation and simpler access routes for CIT companies will ensure a secure and efficient supply of cash in the long term.

Society and policymakers called to action

The scenarios also show that the responsibility does not lie solely with the Bundesbank. The Bundesbank’s measures will not be adequate unless they are accompanied by action from policymakers and society. That is why it is initiating further collaborative activities. The National Cash Forum brings the relevant stakeholders to the table to lay the groundwork for enhancing and stabilising the cash cycle. A joint dialogue with various interest groups from society culminated in position papers expressing a clear commitment to cash. We at the Bundesbank are committed to contributing to a future with cash.