Cash demand surges in Europe despite coronavirus lockdown
Eurozone citizens responded to pandemic by hoarding banknotes, data suggest
The value of euro banknotes in circulation has increased by the largest amount since the 2008 financial crisis, according to new data which indicates many people in Europe have responded to the coronavirus pandemic by hoarding cash.
In the four weeks to April 10 the value of euro banknotes distributed to individuals and businesses rose by €41.2bn to €1.33tn, the weekly financial statement published by the European Central Bank on Wednesday showed.
That is the biggest jump in the amount of cash in circulation in the eurozone since it rose by €41.4bn in the four weeks to October 24 2008 — shortly after Lehman Brothers went bankrupt, causing the global financial system to freeze.
In some European countries, where cash is still the only way to pay in many shops and cafés, consumers responded to concern about the spread of coronavirus by withdrawing extra cash from ATMs at the start of the pandemic.
A sharp increase in cash withdrawals was reported by both the German and Austrian central banks last month, as the virus spread rapidly across Europe and governments responded by imposing increasingly strict lockdowns on activity.
Demand for cash continued to rise last week despite much of the eurozone being subject to strict social distancing rules and many people being told to stay at home except for essential travel, while shops and restaurants had closed their doors. The value of euros in circulation rose €7.7bn in the week to April 10 from the previous week.
About a third of all cash in circulation is kept by households as a safe asset for “rainy day” purposes, according to a previous ECB study.
The increase in demand for banknotes was comparable to the uptick usually seen in the weeks before Christmas, suggesting it was linked to the recent increase in spending on household items, such as toilet paper, pasta and soap, as many consumers stocked up.
In Germany, the use of contactless payments has jumped after supermarkets and chemists started asking people to pay by card if possible to avoid the risk of the virus being transmitted via handling of cash — a major shift in a country where three-quarters of transactions in shops are usually carried out using cash.
However, in other countries cash demand has reduced recently. In research published on Wednesday, Ireland’s central bank reported a sharp fall in ATM withdrawals and bank card transactions after the government directed people to stay indoors last month.
ATM withdrawals in Ireland were down 57 per cent month-on-month in the first week of April, after the first coronavirus restrictions were introduced. Card spending was down one-third in the same period.
Average ATM withdrawal amounts “increased markedly” since the government announced it was closing schools on March 12, the central bank said.
“This was combined with a lower number of transactions at ATMs, suggesting that people were concentrating their cash withdrawals into a small number of ATM visits,” it said.
“If the current level of spending and ATM withdrawals were to continue for the remainder of April 2020, it is estimated that overall card spending and cash withdrawals would be €2.6bn — or 40 per cent — lower than in comparison with April 2019,” the bank said