Cash still king in Germany but pandemic is changing payment behaviour

Demand for cash remains high in Germany even as the possibilities grow for consumers to use other forms of payment for goods and services.

Frankfurt (dpa) – “I suspect that people hoarded cash during the pandemic out of uncertainty, and because they lacked the opportunity to spend money,” Bundesbank chairman Johannes Beermann told dpa, adding that the coronavirus had brought a great deal of uncertainty.

The Bundesbank estimates that people’s desire to hold on to cash at home makes up some 40 per cent of the demand for cash in Germany.

The desire to avoid negative interest rates could also influence this behaviour, the central bank said.

Commercial banks in the euro zone have to pay 0.5 per cent penalty interest when they park money with the European Central Bank (ECB) and many financial institutions are increasingly passing this on, not only to business customers, but also to private customers.

Many flee to cash during crisis, and demand for banknotes soared in Germany when the pandemic first broke out in March 2020.

Overall, the value of bills issued by the Bundesbank rose by 9.5 per cent last year.

“It isn’t yet possible to estimate when and how this trend will normalize, as case numbers fall and restrictions are eased,” Beermann said. “At bank branches, we’re currently seeing cash deposits and withdrawals are on the rise again.”

In 2020, German consumers changed the way they paid for goods according to a study by EHI research institute based in Cologne.

“The crisis has accelerated the decline in cash sales in stationary retail by at least three years. Cards – along with online business, which has grown significantly – are the clear winners of the crisis,” said study author Horst Rueter.

However, people still prefer to pay cash in Germany, with a 60-per-cent share of transactions, the Bundesbank said. The trend is expected to continue beyond the pandemic and for the foreseeable future.