ECB finds that cash is still king across much of Europe
Digital currencies may be getting all the buzz these days, but notes and coins still reign supreme in most of Europe.
Cash made up around 79 per cent of everyday payments across the eurozone last year, according to a European Central Bank (ECB) study. Almost a quarter of consumers also kept some cash at home as a precaution, and 20 per cent said they had a high-denomination note – €200 (Dh877) or €500 – in their possession in the year before the survey was conducted.
As the study notes, the results “challenge the perception that cash is rapidly being replaced by cashless means of payment.”
The picture differs across the 19 member states though. Cash is most dominant in southern Europe, Germany, Austria and Slovenia, where it accounts for 80 percent of all payment transactions at pointof-sale. That figures drops to 45 to 54 per cent in the Netherlands, Estonia and Finland.
The study also found that many people don’t actually know their own payment habits. When asked how they prefer to pay, a larger share of respondents said card, not cash. That may be because nearly two-thirds of all transactions are below €15, the report said. Purchases of coffee and lottery tickets don’t stick in the mind as much as, say, a new pair of shoes.
People mostly seem to remember the larger-value payments they make less regularly, and tend to forget how frequently they make low-value payments on a daily basis.
The experience of some countries shows how things can change though. While contactless cards accounted for just 1 per cent of payments across the eurozone in 2016, the figure was almost 10 per cent for the tech-savvy Netherlands. The authors of the study say that the small size of contactless payments – 81 per cent of transactions are below €25 – give technology great potential.
And that is where bitcoin could come in. The cryptocurrency is showing no signs of slowing down, blowing past US$9,000 less than a week after topping $8,000 and now quickly closing in on five big figures.
The price of the largest cryptocurrency by market value is soaring as it gains greater mainstream attention despite warnings of a bubble in what not everyone agrees is an asset. From Wall Street executives to venture capitalists, observers have been weighing in, with some more sceptical than others. Bitcoin has climbed more than 40 per cent over the past two weeks.
“Bitcoin has seen another frenzy of buying as the fear of missing out trade bites even harder,” analysts at IG Group, a trading-platform operator, wrote in a note.
“There are others who see downside risks from the introduction of bitcoin futures,” they wrote.
This could have a significant impact on the use of cash for smaller-value payments. Especially given that respondents in the ECB survey who prefer cash and those who prefer cards both appear to place importance on the transaction speed. Still, central bankers say the success of bitcoin and others is just a bubble.
But it keeps them awake at night because these private currencies threaten their control of the banking system and money supply, which could undermine the monetary policies they use to manage inflation. They are also worried they will be blamed if the market crashes.
This is why several central banks are advocating regulations to impose control. Others are even looking at whether to introduce their own digital currency and are testing payment platforms.
“The problem with bitcoin is that it could easily blow up and central banks could then be accused of not doing anything,” said the ECB policymaker Ewald Nowotny.
“So we’re trying to understand whether bank activity in relation to cryptocurrency trading needs to be better regulated.”
Cryptocurrencies holders also have a claim on a private, rather than a public entity, which could go bust or stop functioning. For these reasons, and given their low adoption by retailers, central banks have dismissed cryptocurrencies as risky commodities with no bearing on the real economy.
“Bitcoin is a sort of tulip,” the ECB vice president Vitor Constancio said in September, comparing it to the Dutch 17th-century trading bubble.
“It’s an instrument of speculation.”
Cash made up around 79 per cent of everyday payments across the eurozone last year, according to a European Central Bank study