Cash Trends and The Future of Cash in the Eurozone

At the European Cash Cycle last autumn, the presentation by Josef Vrana, Senior Banknote Issuance Expert, Directorate Banknotes for the European Central Bank (ECB), covered euro cash trends and the effect of COVID-19 to date. It also covered work to ensure that cash will remain for years to come and will continue as a viable means of payment for the next decade, in line with the ECB’s Cash 2030 Strategy.

As of September 2021, the value of euro cash in circulation had increased to €1.5 trillion and the number of banknotes to 27.5 billion pieces. The increased demand for cash due to the COVID-19 pandemic is consistent with increased demand experienced during other major crises, such as the financial crash of 2008 and the Russian ruble crisis in 2015.

During 2020 the annual growth rate increased from 6% in February to around 11% in December. In 2021 it increased further, reaching a peak in February of around 12%, but then fell to around 8.5% in April and has remained at that growth rate since, which is around 2-2.5% higher than in 2019, ie. before the pandemic.

The €200 note has dominated the growth rate by denomination since the withdrawal of the €500 in 2019, taking over its role as both the highest transactional banknote and as a store of value (see graph). In early 2020 the increase in demand peaked at nearly 100%. It then fell steadily but is still around 33% higher than at the beginning of 2019.

Evolution of banknotes in circulation - 2008-2021. (Source: ECB).

The only denomination with an annual negative growth rate (-8%) is the €500, reflecting its withdrawal from circulation. Significantly, the three low denominations combined only showed an increase in growth rate of around 4%, with the €50 and €100 each achieving around 10%.

Also, the cumulative net euro banknote shipments – those shipped outside of the eurozone – contracted steadily from a peak of around €180 billion in mid 2015 to around €165 billion at the start of the pandemic. The rate of decline increased during the pandemic and is currently running around €150 billion. Notably, in the last 12 months the inflows have constantly outpaced the outflows.

Another statistic of relevance is that the gross issuance and the number of banknotes returned to NCBs is now 15% lower than in 2019, whereas the number of issued and returned banknotes for high denominations has returned to pre-COVID levels.

The data is consistent with a crisis, in this case COVID-19 causing an increase in the cash in circulation, the majority of which is for emergency purposes and as a store of value.

The issuance of high value coins – €2, €1 and 50 cents – in recent months followed a similar pattern to 2018-2019; it increased from April 2021 reaching, at end September 2021, an annual growth rate of 2.2% compared with 1.4% at end 2020.

The Eurosystem’s Cash 2030 Strategy

It is the vision of the ECB and the NCBs that in 2030 cash will continue to remain widely available and accepted as a competitive payment instrument and store of value.

To achieve this, five strategic objectives have been identified, namely that the Eurosystem:

1. Ensures the issuance of cash.

2. Supports access to cash services (withdrawals and deposits) for all EU citizens and businesses.

3. Defines the acceptance of cash as essential for the freedom of choice how to pay.

4. Ensures innovative and secure euro banknotes.

5. Ensures the health and safety of banknotes and endeavours to reduce cash’s environmental footprint.

Those involved are the European Commission, the ECB, the European Retail Payments Board (ERPB), the NCBs and national initiatives (such as those of the Dutch and French central banks, covered in the November and December 2021 issues of Currency News respectively).

Work is already taking place. The Experts Group on the Legal Tender of Euro Banknotes and Coins (TLTEG 3) is due to report in the first half of 2022, but may continue after that date given the complexity of this aspect.

A Study on Payment Attitudes in the Euro area (SPACE2), due in the last quarter of 2022, will give insight into the effects of the pandemic on different means of payments.

Another group, the ERPB Working Group, has recently reported on the access and acceptance of cash (see December 2021 issue of Cash & Payment News™).

Various countries in the eurozone are carrying out their own national initiatives in terms of non-binding agreements regarding the continued supply and use of cash in meeting the specific nature of the challenge in their own countries.

And finally, the European Commission is working on the role of NCBs in the cash supply and the potential solution to the optimal distribution of cash access points and applicable legal framework.