Germany: The Role and Perception of Cash in Society

In recent years, the use of cashMoney in physical form such as banknotes and coins. More as a payment methodSee Payment instrument. More in Germany has been on a steady decline. Despite this trend, cash remains a crucial element of the paymentA transfer of funds which discharges an obligation on the part of a payer vis-à-vis a payee. More landscape, valued for its unique attributes and societal benefits. A study commissioned by the Bundesbank explores potential scenarios where the availability and acceptance of cash could deteriorate, leading to significant reductions in cash payment options. This report delves into the current arguments for and against cash from various sectors, including politics, science, and society, and presents the results of a representative population survey.

The Decline of Cash Payments

The Bundesbank’s study highlights a continuous decrease in cash transactions. In 2017, consumers conducted about three-quarters of their daily payments with cash, but by 2023, this figure had dropped to just under half. This decline has prompted the Bundesbank to commission a study on the future of cash, examining the potential challenges and opportunities for cash usage up to 2037. The study outlines three scenarios, all of which predict a further decline in cash usage and availability, with two scenarios suggesting that the choice between cash and non-cash payments could become significantly limited.

Public Opinion on Cash

Despite the preference for cashless payment methods among most Germans, more than two-thirds of respondents consider cash important from a personal perspective. Even more respondents believe that cash holds significant value for society as a whole. The survey reveals several key advantages of cash amongst which:

1. Technical Reliability: Cash is seen as a secure payment method during technical infrastructure failures, such as power outages or cyber-attacks. Its physical nature ensures that it can be used even when electronic systems fail.
2. Financial Inclusion : Cash plays a vital role in ensuring financial inclusionA process by which individuals and businesses can access appropriate, affordable, and timely financial products and services. These include banking, loan, equity, and insurance products. While it is recognised that not all individuals need or want financial services, the goal of financial inclusion is to remove all barriers, both supply side and demand side. Supply side barriers stem from financial institutions themselves. They often indicate poor financial infrastructure, and include lack of ne... More. It provides a payment method for individuals who may not have access to banking services or digital payment technologies such as Unbanked Individuals, Elderly and Technologically Challenged, Low-Income Groups.
3. Privacy and Anonymity: Cash transactions offer a level of privacy and anonymity that digital payments cannot match.
4. Educational Value: Cash plays a crucial role in teaching children about moneyFrom the Latin word moneta, nickname that was given by Romans to the goddess Juno because there was a minting workshop next to her temple. Money is any item that is generally accepted as payment for goods and services and repayment of debts, such as taxes, in a particular region, country or socio-economic context. Its onset dates back to the origins of humanity and its physical representation has taken on very varied forms until the appearance of metal coins. The banknote, a typical representati... More management. The tactile experience of handling cash helps children understand the value of money and the concept of budgeting.
5. Social and Communicative Functions :Cash has social and communicative functions that go beyond its role as a payment method. For example: Gift-Giving, Charitable Donationsor Tipping
6. Independence from International Payment Systems: Cash provides a degree of independence from international payment systems and financial institutions.

The Cons of Cash

Despite its advantages, cash is not without its criticisms. Over half of the respondents see cash as facilitating illegal activities, such as tax evasion and 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. Cash is also a target for crimes like robberies and ATM explosions. Other concerns include the costs associated with the production and transportation of cash, longer payment times at checkout counters, and hygiene issues, particularly highlighted during the COVID-19 pandemic.

 Societal Benefits and Criticisms

The report outlines several societal benefits of cash:

1. Crisis Preparedness: Cash serves as a reliable backup during crises, ensuring that people have access to a payment method even when electronic systems fail.
2. Financial Education: Cash aids in teaching children about money management, helping them develop essential financial skills from a young age.
3. Inclusion: Cash ensures that everyone, regardless of their access to technology or banking services, can participate in the economy. This is particularly important for vulnerable groups, such as the elderly, those with disabilities, and those in precarious economic situations.

However, cash also faces significant criticisms:

1. Illegal Use: Cash can be used for shadow economy activities, making it difficult to track and regulate illegal transactions.
2. Crime Target: Cash transactions and ATMs are often targets for theft and other crimes, posing security risks.
3. Costs: The production, transportation, and handling of cash incur significant costs for businesses and financial institutions.

The Future of Cash

Despite the criticisms, a clear majority of respondents wish to retain cash as a payment option in the future. The Bundesbank has initiated measures to strengthen the cash cycleRepresents the various stages of the lifecycle of cash, from issuance by the central bank, circulation in the economy, to destruction by the central bank. More, such as establishing the National Cash Forum to facilitate dialogue and collaboration among stakeholders and the construction of four new branches to strengthen the infrastructure. However, most respondents currently do not demand active measures to support cash usage, indicating a level of satisfaction with the current state of cash availability and acceptance in contrast with empirical findings, according to which measures could be necessary in the future to secure the broad usability of cash.

Conclusion

The report concludes that while cash usage is declining, it remains valued for its unique benefits. The Bundesbank and other stakeholders are encouraged to ensure the continued availability and acceptance of cash, balancing its advantages with the challenges posed by digital payment methods. As society moves towards an increasingly digital future, it is essential to preserve the role of cash as a reliable, inclusive, and secure payment method.

In summary, the Bundesbank’s report provides a comprehensive overview of the current state and future prospects of cash in German society. It highlights the importance of cash as a payment method, despite the growing popularity of digital alternatives. By addressing the challenges and leveraging the benefits of cash, stakeholders can ensure that cash remains a viable and valued payment option for years to come.