Cash Holdings Continue to Rise Despite Shift to Digital Payments

Amid increasing digital transactions, the amount of cash in circulation continues to grow, raising questions about the vast sums of money that remain unspent. Recent analyses indicate that cash is not fading into obscurity but is instead being hoarded, with estimates suggesting that individuals are holding around EUR400 billion in cash across households in Germany alone.

According to data from the Bundesbank, approximately 42% of banknotes in circulation in Germany are retained for 'value preservation,' a significant increase from the previous figure reported in 2013. By the end of 2024, it was estimated that EUR395 billion in cash was stored in German homes, though this wealth is unevenly distributed, as many households report minimal or no cash reserves.

The European Central Bank reported that as of March, a total of EUR1.564 trillion in cash was circulating within the Eurozone, reflecting an increase of nearly EUR30 billion since spring 2022, and a staggering EUR300 billion rise compared to the onset of the COVID-19 pandemic five years ago. While the growth rate of cash circulation has slowed since 2022, the overall trend continues to indicate an increase rather than a decline. This phenomenon, referred to by the Bundesbank as the 'cash paradox,' has been consistently observed across various countries.

Despite the declining frequency of cash transactions--whereby, as of 2023, cash accounted for half of all payment transactions in Germany, contributing to only about a quarter of total sales--the amount of cash in circulation continues to rise. A recent survey conducted by Strategy& revealed that debit cards have overtaken cash as the most common form of payment, with only 23% of respondents indicating a preference for cash payments.

Experts suggest that the current trend of cash accumulation can be attributed to various factors, including economic uncertainty. Ralf Wintergerst, CEO of Giesecke+Devrient, a company specializing in cash and security technology, noted that while cash is still used for transactions, a significant portion is retained as a safety net. This accumulation trend, particularly pronounced during the pandemic, highlights a recurring pattern observed during times of crisis.

In addition to individual savings, the increase in cash holdings can be linked to illicit activities in the shadow economy, where cash remains a favored medium of exchange. Instances of large sums of cash discovered during law enforcement operations further underscore this issue.

Despite the declining utility of cash for everyday transactions among law-abiding citizens, experts assert that the need for cash persists. The Bundesbank remains committed to preserving cash and maintaining the infrastructure necessary for its use, emphasizing that cash payments do not rely on electricity or electronic systems. This reliability becomes particularly crucial in times of crisis or natural disasters.

In conclusion, while digital payments are on the rise, the increasing volume of cash held by individuals indicates a complex relationship between modern payment methods and traditional currency, driven largely by factors such as economic uncertainty and personal preference for financial security.