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In this paper, we focus on the stabilizing role of cash from a society-wide perspective. Starting with conceptual remarks on the importance of money for the economy in general, special attention is paid to the unique characteristics of cash. As these become apparent especially during crisis periods, a comparison of the Great Depression (1929 – 1933) and the Great Recession 2008/09 shows the devastating effects of a severe monetary contraction and how a fully elastic provision of cash can help to avoid such a situation. We find interesting similarities to both crises in two separate case studies, one on the demonetization in India 2016 and the other on cash supply during various crises in Greece since 2008. The paper concludes that supply-driven cash withdrawals from circulation (either by demonetization or by capital controls) destabilize the economy if electronic payment substitutes are not instantly available. However, as there is no perfect substitute for cash due to its unique properties, from the viewpoint of the society as a whole an efficient payment mix necessarily includes cash: It helps to stabilize the economy not only in times of crises in general, no matter which government is in place. Consequently, it should be the undisputed task of central banks to ensure that cash remains in circulation in normal times and is provided in a fully elastic way in times of crisis.
Die Digitalisierung hat neben Kreditkarten auch unterschiedliche Bezahlsysteme möglich gemacht. Mittlerweile sind diese neuen Systeme auf dem Weg, das Bargeld abzulösen. Tatsächlich gibt es aus der Wissenschaft sogar Empfehlungen, das Bargeld ganz abzuschaffen. Die Autoren des Zeitgesprächs setzen sich mit den Argumenten für die Abschaffung auseinander und kommen zu dem Ergebnis, dass Bargeld wichtige Funktionen hat, auf die nicht so leicht verzichtet werden sollte.
Seit der Einführung des Euro-Bargelds ist der Umlauf deutscher Banknoten außerordentlich stark gestiegen. Vor allem der Auslandsumlauf spielt dabei eine Rolle – und hier wiederum der Umlauf außerhalb des Euroraums. Die Autoren schätzen die regionale Verteilung dieses Umlaufs mithilfe verschiedener Methoden und kommen zu dem Ergebnis, dass der Anteil der inländischen Geldnachfrage für Transaktionskasse und für die Wertaufbewahrung nur bei rund einem Drittel des gesamten Umlaufs deutscher Euro-Banknoten liegt.
Currency movements within and outside a currency union: The case of Germany and the euro area
(2013)
In this paper, we analyse the volume of euro banknotes issued by Germany within the euro area with several seasonal methods. We draw a distinction between movements within Germany, circulation outside Germany but within the euro area and demand from non-euro-area countries. Our approach suggests that only about 20% of euro notes issued by Germany are used for transactions in Germany. The rest is hoarded (10%), circulates in other euro area countries (25%) or is held outside the euro area (45%).
In this paper, we analyze the volume of Euro banknotes issued by Germany and circulating in other Euro area countries as well as outside the Euro area with a banknotes’ age model. Our approach suggests that about 60% of banknotes, the equivalent of around € 225 billion, is held abroad.
Highlights
► We analyze the volume of Euro banknotes issued by Germany and circulating abroad. ► We use a model of the age of banknotes. ► The model captures demand from other Euro area countries and outside the Euro area. ► About 60% of “German” banknotes (€ 225 billion) are held abroad.
This paper focuses on the role of specific types of crisis (technological crisis, financial market crisis, natural disaster) and their effects on the demand for cash in an international context. As evidence from the last 30 years shows, demand for cash increases during periods of crisis, regardless of the nature of the crisis. The nature of the crisis does, however, determine whether small or large banknote denominations are affected more. This study finds that times of payment uncertainties are associated with increased demand for small denominations, probably reflecting an elevated demand for transaction balances. By contrast, in times of financial crisis or general economic uncertainty, the increased demand for cash is largely the result of consumers taking precautionary actions and building up non-transaction balances; for this reason, there is greater demand for large banknote denominations. This study finds that cash continues to play an important role in crisis management. Whether this function can also be fulfilled by a future central bank digital currency, however, remains to be seen.
In dem vorliegenden Papier versuchen wir den Bestand der Euro-Banknoten zu ermitteln, der sich von der deutschen Banknotenemission im Ausland befindet. Dabei unterscheiden wir nach Beständen, die außerhalb des Euro-Währungsraumes gehalten werden, und solchen, die in anderen Ländern der EWU zirkulieren. Die Analyse basiert auf Ansätzen, die den Auslandsumlauf auf indirektem Wege abschätzen. Der Untersuchungszeitraum reicht von 2002 bis 2009. Wir finden heraus, dass Ende 2009 insgesamt rund zwei Drittel der deutschen kumulierten Nettoemissionen im Ausland umliefen. Der größte Teil, etwa 160 Mrd. €, befand sich außerhalb des Euro-Raums, der Rest - 80 Mrd. € - lief in anderen EWU-Ländern um. Somit entsprach der Inlandsumlauf deutscher Euro-Banknoten nur rund einem Drittel aller von der Bundesbank in Höhe von 350 Mrd. € in Umlauf gegebenen Banknoten. Damit werden die Ergebnisse direkter Ansätze bestätigt.
In this paper, we endeavour to determine the volume of euro banknotes issued by Germany that is in circulation outside Germany. In so doing, we draw a distinction between banknotes outstanding in non-euro-area countries and those that are in circulation in other euro-area countries. The analysis is based on approaches that estimate the volume of banknotes in circulation outside Germany indirectly. The observation period runs from 2002 to 2009. We discover that, at the end of 2009, a total of roughly two-thirds of Germany's cumulated net issuance of euro banknotes was in circulation outside Germany. The lion's share of roughly €160 billion was in non-euro-area countries, with the remaining €80 billion in other euro-area countries. Thus, the volume of German euro banknotes in circulation in Germany accounted for only roughly one-third of all banknotes issued by the Deutsche Bundesbank (€350 billion). This confirms the results of direct approaches.
To broaden the operational scope of monetary policy, several authors suggest cash abolition as an appropriate means of breaking through the zero lower-bound. We argue that the welfare costs of bypassing the zero lower-bound by getting rid of cash entirely are analytically equivalent to negative interest rates on cash holdings. Using a money-in-the-utility-function model, we measure in two ways the welfare loss consumers as money holders would be forced to bear once the zero lower-bound is broken: in terms of the amount needed to compensate consumers (compensated variation), and as excess burden (deadweight loss) imposed on the economy as a whole. We calibrated the model for the euro area and for Germany. Our findings suggest that the welfare losses of negative interest rates incurred by consumers as holders of cash and transaction balances (M3) are large and enduring, notably if implemented in the current low-interest rate environment.