In the German city of Weimar, just a few steps from Enlightenment-era literary luminary Johann Wolfgang vonGoethe’s baroque residence, the Lavazza cafe seems determined to remain in the past. This cafe, like many other establishments all over the country, accepts only cash. That old-fashioned and inconvenient mode of payment is still revered in Germany. According to the latest study by Germany’s central bank, theBundesbank,on payment behavior, Germans pay for nearly 60 percent of their purchases—both goods and services—in cash.
In the German city of Weimar, just a few steps from Enlightenment-era literary luminary Johann Wolfgang vonGoethe’s baroque residence, the Lavazza cafe seems determined to remain in the past. This cafe, like many other establishments all over the country, accepts only cash. That old-fashioned and inconvenient mode of payment is still revered in Germany. According to the latest study by Germany’s central bank, theBundesbank,on payment behavior, Germans pay for nearly 60 percent of their purchases—both goods and services—in cash.
Germany is not the only country standing athwart the global trend toward cashless payments. In Austria, cash is so popular that the Austrian chancellor has claimed it should amount to a constitutional right. Yet in other European countries, such as the United Kingdom, cash will account for just 6 percent within a decade, and in the Netherlands only 11 percent of transactions were made in cash last year. In other bigger economies, the pace of the decline is even faster. While in China 8 percent of point-of-sale (POS) transactions were made in cash, in India, cash use has declined from 91 percent in 2019 to 27 percent in 2022.
But in Germany, an obsession with privacy, mistrust of big-tech and fintech in general, and worries about political and financial crises depleting bank balances overnight—an experience rooted in history as well as a cultural desire for control—all contribute to the country’s love for cash.Arnold, Maria, Elisabeth, and Harald, a group of middle-aged friends who refused to reveal their full names, were taking a break in Weimar from a road trip on their bicycles from Hessen in western Germany.“Nur Bares ist wahres,” said Elisabeth, which means “only cash is true” and is a famous saying in Germany that expresses more than a preference for cash. Arnold said spending in cash encouraged him to spend less and stay in control of his expenses, but more importantly it protected the details of where he was spending his money. “If you use a card, the bank knows everything about you,” he said. Harald jumped in and added that if he used digital means to pay, he would “feel surveilled.”
But as some European states, such as Sweden, go nearly cashless, with only 6 percent of transactions still settled with banknotes, how does Germany’s preference for cash impact the largest economy in Europe?Perhaps not as much as one might think.
On average, Germans carry more than 100 euros in their wallets—much more than their counterparts in many other developed nations. Since the euro was introduced, the Bundesbank has issued more cash than any other member in the 27-nation European Union, and according to the Bundesbank report, even though cash use was down from 74 percent in 2017, as high as 69 percent of respondents expressed their intention to continue to pay in cash.
Agnieszka Gehringer, a professor at Cologne University of Applied Sciences, said German fondness for cash can be understood via cultural attachment theory and behavioral factors. She explained that, culturally, cash is seen as safe by Germans. “If I have been customarily using cash as a payment method for ages and I know how it works and my data remain protected, there is no particular reason to change my habit,” she told FP.
Gehringer traced these behavioral and cultural attitudes in part to hyperinflation witnessed in the Weimar Republic in 1923, when a loaf of bread cost billions of marks; steep devaluation of the currency after World War II, which washed out nearly 90 percent of people’s savings; and the division of the country, which left the Soviet-controlled east impoverished. “This series of turbulences is considered the basis of the so-called German angst—the fear of losing control,” Gehringer said. “Beyond culture and attitude, for some others, cash is ameans of self-controland self-supervision: It is more transparent and easier to track the record of personal expenditures.”
While the fear of losing everything in a quick turn of events was passed on from generation to generation, so was the positive symbolism of the Deutsche mark. Post-World War II Deutsche marks rose in value and symbolized Germany’s resurgence and prosperity. In the late 1990s, Germans reluctantly agreed to a common European currency—but perhaps only because by then Germany was among the biggest European economies and influential in European decision-making.
Another reason to avoid possession of plastic money or credit cards is the fear of debt. “Germans do not like debt,” said Doris Neuberger, head of the money and credit department at Germany’s University of Rostock. In fact, the German word for debt and guilt are derived from the same word (Schuld), and this moral charge helps produce the country’s “low debt ratio and low usage of credit cards.”
Using cash is also easy for a wide range of consumers, including the elderly, who may be unfamiliar and uncomfortable with using smartphones or keystrokes online. It’s also cheaper for retailers and end consumers on transactions under 50 euros, as the cost of holding cash is lower than the fees incurred with non-cash payments, according to the Bundesbank. But the cost of producing, storing, and transporting bank notes and coins is eventually passed on to consumers, experts say.
There are other downsides to excessive use of cash, too.According to a reportby the Office of Technology Assessment at the German Bundestag, high levels of cash holdings reduce the central bank’s “monetary policy steering options,” Gehringer wrote. “Sure, holding cash has a higher hurdle to make the money available for financial investments.”
But most experts say the argument that cash exacerbates the shadow economy tends to be overstated. The Office of Technology Assessment report noted that in countries with less cash spending, such as Switzerland, the Netherlands, and France, there is less activity in the shadow economy when compared to countries such as Spain, Italy, and Greece, which have high rates of cash use. But it added that in Sweden, despite a minor role for cash, the shadow economy is “medium-sized,” while in Austria and Germany, with relatively high shares of cash transactions, the shadow sector is relatively small.
In 2019, the Bundesbank conducted a study on the extent of “illicit cash use” in Germany, in collaboration with Friedrich Schneider, a professor at the Johannes Kepler University Linz.It saidthat without more in-depth analysis it was “impossible to distinguish those stocks of banknotes that are being held as a store of value—and kept at home under the mattress totally legally and legitimately by every citizen—from illicit banknote stocks.” On average, a German hoards more than 1,300 euros at home or in a safe deposit box.
“Available estimates for the size of the shadow economy lie between 2 percent and 17 percent of gross domestic product,” the study said. “This range alone shows that studies of the shadow economy are subject to an above average degree of uncertainty and all results should be interpreted with care.”
“Cash does not promote a shadow economy, as it is not a cause,” Schneider, a co-author of the study, told FP. “Causes are tax burden, regulations, etc.” Schneider said the higher the tax burden, the higher the motivation to evade taxes. “If cash is completely abolished, then people find other means.” He added that earlier uses of cash were more firmly linked to tax evasion than now, when “it is very difficult to open a bank account abroad with a large cash sum of money.”Money laundering in real estate is deterred with a different set of regulations.
Neuberger claimedmuch more criminal activity is conducted with digital money than with cash. “Nowadays, the ideal medium for illegal drug transactions is not cash, but Amazon gift cards,” she said. “Gift tokens allow for anonymous payments anywhere in the world and, unlike cash, do not require a face-to-face transaction. The same holds for prepaid credit cards, which can be loaded with cash anonymously.”
Burkhard Balz, a member of the executive board of the Deutsche Bundesbank, told FP no initiatives have been taken by the government to discourage or disincentive the use of cash and that it is “an excellent back option should other payment methods end up temporarily out of action—because of a power outage or software error.” Regulations to limit cash use are deemed politically unpopular in Germany, especially since people and experts just don’t see any disadvantages to carrying on with folded euros in their pockets and wallets.
A digital euro, however, could reduce the costs of producing, storing, and transporting cash. It wouldn’t be tied to any intermediary banking institution—as opposed to electronic payments, which are intermediated by multiple banks—and won’t even require a bank account. Balz said the digital euro would ensure “the accessibility and usability of central bank money alongside cash in a digitized world.”
“Currently, the Eurosystem is about to conclude its two-year investigation phase on a digital euro and may move into the next phase of the project—the preparation phase,” he said, “provided that the [European Central Bank] Governing Council takes this decision in late autumn this year.”
At least some privatebanks believethat payments made with the digital euro could still be tracked and help with anti-money laundering regulations, but not without placing limits on the highly prized privacy of citizens. Furthermore, it could lead to a reduction in deposits to credit institutions and limit the ability of the banks to offer loans.
Online purchases rose from 6 percent in 2017 to 24 percent in 2022 amid the COVID lockdown, but neither the pandemic nor digitization so far has managed to eliminate the appeal and comfort of cash for Germans. Even though Germany’s banking industry envisages a growth of 2 percent per year in card payments, a cash decline of 3 percent a year would still mean that, in 2030, Germans will carry out at least 30 percent of transactions in cash.
