For the love of cash: a German story
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It might be a well-known fact that Germans love cashMoney in physical form such as banknotes and coins. More and data shows that the trend is nowhere near deflating. Indeed, according to both a European Central Bank (ECB) survey, released in November 2017, as well as to the December 2017 PYMNTS Global Cash Index 80% of transactions in Germany are carried out in cash, by far surpassing any other payment methodSee Payment instrument. More.
Many researchers have tried to understand the motives behind this affinity, but none can pinpoint an isolated one. In fact, there seem to be many different variables involved including the country’s history with hyperinflation, the oppressive over-surveillance by the Stasi during the Cold War, a deep cultural aversion to debt and a generally low credit and debit card acceptance rate.
There is also a high level of hoardingThe term refers to the use of cash as a store of value. However, the term has a negative connotation of concealment, and is often used in the context of the war on cash. See Precautionary Holdings. More, which is far from being discouraged by the government. In fact, in 2016, the Germany recommended that citizens store food, water and cash in case of a national emergency or a disaster. But this practice is not limited to individuals. Because of the prolonged economic stagnation in the Eurozone, German banks began to hoard stacks of notes to avoid ECB-imposed negative interest rates – and insurers didn’t miss the opportunity to jump on the bandwagon and offer coverage for those piles of billions of euros.
In 2016, there was a national upheaval when Finance Minister Wolfgang Schäuble proposed to cap cash transactions at €5,000 as many Germans saw it as a way to limit their freedom. Surprisingly, Schäuble proposed such restrictions arguing that it’s to fight money launderingThe operation of attempting to disguise a set of fraudulently or criminally obtained funds as legal, in operations undeclared to tax authorities, and therefore not subjected to taxation. Money laundering activities are strongly pursued by authorities and in most countries, there are strict rules for credit institutions to cooperate in the fight against money laundering operations, to declare and report any transactions that could be considered suspicious. More and fraud, yet Germany has a smaller shadow economy than Sweden – a country on its way to cashlessness.
In short, the Deutsche Bundesbank gives six reasons to explain this love story in their 2016 Research Brief Cash payments more popular in Germany than in other countries but at the end of the day it proves that there are often profound cultural reasons that drive consumers to choose one paymentA transfer of funds which discharges an obligation on the part of a payer vis-à-vis a payee. More tool over another, regardless of the incentives to switch.
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