In Germany, the digital euro is an unfamiliar concept to just over three-quarters of the general public. This was the finding of a recent Bundesbank survey, which found that 77% of respondents had neither heard nor read anything about a digital euro before. Bundesbank Executive Board member Johannes Beermann revealed this surprising statistic in his welcome remarks at the Bundesbank’s fifth International Cash Conference. He also pointed out that, at 56%, the majority of people surveyed viewed it with scepticism, saying that “Many of them were not convinced that it would deliver sufficient added value compared with the existing range of payment options.” Later on in the conference, Johana Kimmerl from the Directorate General Cash Management presented the results of the survey in more detail.

Dr Beermann also touched upon the ECB’s public consultation on the possible introduction of a digital euro, which ended in January 2021: “Privacy, security and reach across Europe ranked highest in European citizens’ preferences [for features],” he explained, adding that privacy is precisely what paying in cash delivers.

Fewer payments made in cash ...

All the same, the use of cash at the point of sale decreased during the pandemic. And this was not just a German phenomenon born out of the crisis, but one seen across Europe.  Dr Beermann cited one of the main reasons for this in his welcome remarks: “Many places where cash tends to be used frequently, such as cafes, outdoor events or street markets, have not been open as much during the crisis as they usually are.”

... more cash put aside

However, the demand for cash in the euro area increased during the same period, rising by €190 billion between March 2020 and May 2021 in the case of euro banknotes – which equates to growth of almost 15%. Fabio Panetta, ECB Executive Board member responsible for its Directorate General Market Infrastructure and Payments, explained what appears at first glance to be a contradictory development: “One possible explanation for this apparent paradox – increasing demand for banknotes while cash payments decline – is that during the crisis people turned to cash as a tool to manage uncertainty.” Dr Beermann shared this view and highlighted the increased importance of cash as a store of value in times of crisis, remarking that “Cash offers a safe haven, particularly when the sea turns rough.”

Cash infrastructure in good shape 

In countries such as Sweden and the United Kingdom, paying in cash is becoming a thing of the past. TV journalist Anja Kohl, who served as moderator on the first day of the conference, wanted to know from Dr Beermann in the discussion that followed whether this could also happen in Germany. In response, he said that payment habits and traditions vary across Europe. Germany’s cash infrastructure is well developed and it is possible to obtain cash from a number of places, not just by withdrawing cash from ATMs but by using cashback options at checkouts. As there is trust among consumers in banknotes and coins, he explained, he does not believe that there is a risk of this happening. By contrast, Würzburg-based economist Peter Bofinger, who formerly sat on the German Council of Economic Experts, contended that banks would pull back from cash operations. This was then countered by Franz Seitz, professor at the East Bavarian Technical University of Applied Sciences Amberg-Weiden, who said that many banks and retailers already have well-functioning cooperative arrangements in place for cash recycling.

Upper limit on cash payments under fire

The European Commission is currently launching another bid to introduce an EU-wide upper limit on cash payments. The main idea behind this is the assertion that it will reduce money laundering. In Professor Seitz’s opinion, this renewed attempt makes little sense, given that the European Commission shelved its initial proposal to introduce an upper limit on cash payments after an impact study that it commissioned found that there was no proven link between such an upper limit and a reduction in money laundering. Given this, he said, he did not understand why the topic was being revisited. This view was echoed by Dr Beermann, who likewise saw no empirical evidence to suggest that the upper limit on cash payments would curtail the shadow economy. While Professor Bofinger cautioned that cash is a driver of the shadow economy in the craft trades and certain services, in particular, Professor Seitz replied that, though this may be happening, briefcases full of cash no longer play any sort of role in organised crime nowadays. 

This debate is further proof that the times of turmoil are probably not over for cash, even if it does offer a safe haven. In spite of this, Dr Panetta and Dr Beermann each underlined in their remarks the fact that cash will remain a fixture in the payments landscape going forward – with the digital euro co-existing with cash rather than replacing it.