The unusual study of the European Central Bank (ECB) emphasized the importance of cash in crisis situations. Some governments even recommend how long they should have it at home.
Analysts ECB Francesca Faella and Alejandro Zamora-Perez in the study entitled “Stay calm and keep cash” analyzed four crises that have hit Europe in recent years and influenced the demand for cash.
It is a pandemic of coronavirus, Russian invasion in Ukraine, which began in February 2022, a large electricity failure in the Iberian Peninsula in April this year, and a Greece Debt crisis before a decade ago.
As they point out, the usefulness of cash “grows significantly when stability is compromised – regardless of the specific nature or geographical volume of the shock itself, as well as to the level of digitization.”
Different reactions in different crises
During the pandemic, there was a permanent prevention of cash due to prolonged uncertainty in public health.
The Russian attack on Ukraine provoked a sharp growth in demand in states near the war zone. Increasing the number of cash raising in Estonia, Latvia, Lithuania, Slovakia and Finland, and is estimated that after the beginning of the war, additional 211m euros were raised – mostly in the first three weeks, transmits forbes. “So long-term growth for physical banknotes is especially surprising that the Baltic and Northern European countries are otherwise very digitized and strongly relying on-free payment systems,” added that the increased number of buildings also recorded in Germany and Austria.
The electricity disappearance on the Iberian Peninsula showed that cash is an irreplaceable way of payment when the digital infrastructure is scheduled. At the same time, an important instrument for calming the public is: the number of lifts increasingly increased even in areas that were not affected, although digital systems were functioning normally.
The Greek debt crisis caused repetitive waves of increased demand during long-term financial earthquakes and political tensions.
“In moments of acute stress, the public often turns physical money as a reliable value to preserve values and resistant payment, which emphasizes its key role”, write the authors of the study.
Reliable, tangible, private
Analysis shows that cash offers stable nominal value, current access and privacy. Its attractiveness intensifies its tangible nature, which provides a sense of security and control, as well as functionality without internet connection – key in case of interruptions of digital systems.
In this way, it creates a “scattered liquidity network for the Eurozone community when centralized systems schedule – the function based exclusively on digital payments cannot be replicated”, stated in the study.
When the state advises: keep cash
The authors add that these findings support increasing understanding of the authorities that cash is a key part of national preparedness in crisis situations.
“Central banks, Ministry of Finance and Civil Protection Agencies now recommend that households are holding multi-day stocks in the Netherlands, Austria and Finnish in terms of approximately 72 hours.
The study, according to the authors, confirms that it is still crucial for central banks and the private sector to provide efficient and large supply of cash, including appropriate stocks and flexible plans for continuous business.
They add that infrastructure and strategic reserves must be prepared on unpredictable demand jumps. “This is ensured that cash, as the only obligation of the Central Bank, which is directly available to everyone, is in general, especially when it is the most needed in the Eurosystem Eurosystem, the availability and acceptance of cash in the eurozone.”
