"Cash will still be with us in 30 years' time"
Interview published in Tagesspiegel
Interview with Carl-Ludwig Thiele conducted by Heike Jahberg.
Translation: Deutsche Bundesbank
Mr Thiele, what is your preferred form of payment? Do you always carry cash on you?
Yes, I do. But, like most Germans, I use various payment media. I mostly use plastic for payments over €50 and cash otherwise.
A cap on cash payments is being debated in the European Union at present. Many countries have already introduced such a cap, but not Germany. Do we need one, too?
The fight against crime, money laundering and terrorist financing are always trotted out as reasons for introducing a cap on cash payments. There's no question that this fight is necessary. However, I have yet to see a scientifically founded study that proves that a cap on cash payments does indeed effectively fight crime. My fear is that such a cap would constrain legitimate users in particular. Criminals, on the other hand, would keep using cash for their activities, either because they don't care about the law or because they use foreign currencies, precious metals or bitcoins instead. I would therefore advise against rashly introducing an upper limit in Germany. Countries with such a measure in place do not seem to have less crime as a result than we do.
Like Italy, which has a €3,000 limit ... One gets the idea that the eurozone's biggest fans of cash are the Germans. Why is that?
Cash is widely accepted, its costs are low, it enables people to keep track of their spending, payments are quick, and it is anonymous. In addition, acquiring cash in Germany is simple. By the way: if we compare payment habits throughout Europe, Austrians are even bigger fans of cash than we are.
Do people who use non-cash payment methods spend more?
According to our most recent payment behaviour study, published three years ago, 65 per cent of those surveyed who use only cash said that keeping their spending in check was the most important reason. Of those who use cards for payments, only 22 per cent believed that cash was more conducive to keeping tabs on spending. One thing is baffling, though: everyone – whether cash users or otherwise – wants to make payments in a simple, secure, speedy and sensible manner. And everyone believes his or her payment medium is the best way of doing that.
Do older people tend to pay cash and younger people by card or smartphone?
I think that non-cash payments will increase. Times are changing. Do you remember the most-used app during the 2006 FIFA World Cup held here in Germany?
No, what was it?
There weren't any! And now apps are second nature to us. My eldest son has never owned a car; instead he uses the Carsharing platform here in Germany. The way we make payments will change as well. New procedures are on the cusp of introduction: in future, everyday payments will be transferred throughout the euro area in seconds. There are myriad uses for these “instant payments” in connection with a smartphone app. And indeed, even our generation has already seen many changes. If we go beyond payments in stores or restaurants, we can see that the vast majority of payments in Germany are settled without cash, and have been for some time: wages and salaries, rents, electricity and insurance.
Will cash still be with us in 30 years' time?
Yes. The amount of it, in fact, is on the rise. At the introduction of euro cash on 1 January 2002, €220 billion were brought into circulation. By the end of 2004, this figure had already gone up to €500 billion, and by the end of 2014 it was around the €1 trillion mark. In the past few years, we have seen an annual increase in cash of about 6%.
The euro has become the world's second largest reserve currency. Around ten per cent of money issued by the Bundesbank is used at points of sale, where cash payments are made. 20 per cent is being hoarded in Germany, another 20 per cent in the rest of the euro area and 50 per cent outside the eurozone. In regions with soft currencies and high inflation, such as Eastern Europe, people eagerly turn to the euro as a store of value thanks to its status as a stable currency. This is enabling the euro to catch up more and more with the US dollar, which has been around much, much longer. As at the end of 2016, the Eurosystem had issued €1.13 trillion, compared to US$1.46 trillion.
There might not be a threat of a major bout of inflation in Germany but there are negative interest rates on savings. Doesn't this play into the hands of those who support the case for cash?
There had never been negative nominal interest rates in Germany before the ECB Governing Council's decision in June 2014. Credit institutions have already reacted by stockpiling cash in their vaults in order to avoid negative interest rates. If money is held as a means of payment on the accounts at the respective central bank, they have to pay 0.4% interest but not if the money is in the vault.
What kind of sums are we talking about here?
German credit institutions have stockpiled an additional €10 billion worth of cash in their vaults over the past two years in order to avoid negative interest rates. I expect this trend to continue.
If one plans to store money in the vault, it's better to use €500 notes rather than €5 denominations. Printing of the €500 note will be discontinued from the end of next year. Is that a mistake?
Bundesbank President Weidmann and myself were against the decision at the time. At least we managed to ensure that the €500 banknotes in circulation will remain legal tender – and beyond 2018 too.
Will it be the €200 banknote next?
I hope that doing away with the €500 note will be a one off. The value of money has fallen over the years in spite of low inflation. That's why we need the higher-denomination banknotes. The DM1,000 banknote, which would be worth around the same as the €500 note today, was introduced in 1964. In the 1960s, an average employee had to work more than a month in order to bring home DM1,000 gross. Today an employee with an average monthly salary of approximately €3,700 gross and around 20 working days a month needs just under three working days to earn €500 gross.
Twelve billion Deutsche Marks are still being hoarded in Germany. Will the Bundesbank, at some stage, no longer exchange the old notes and coins into euros and cents?
No, we will continue to exchange the money, so people don't need to worry. By the way, coins now make up more than half of the Deutsche Mark holdings. But a large part of the DM and pfennig coins are likely to have been lost by now.
Do you exchange coins too?
Yes. I was in our Bundesbank branch in Bielefeld some time ago and a coin dealer turned up with old DM10 collectors' coins from the 1972 Olympic Games. They have no value for collectors and that's why he exchanged them. He had four big boxes of them.
Many euro-area countries are abolishing one and two cent coins on account of the high production costs. Should we follow suit?
The Federal Finance Minister holds the coin prerogative and I am not aware that he has any such plans.
The Germans love gold almost as much as they do cash. Half of the Bundesbank's gold reserves are in Germany. Where exactly?
This part of the gold reserve is in the Bundesbank's vaults in Frankfurt, with the exception of one bar which is on display in our Money Museum. Visitors are allowed to touch and feel it, under strict security of course. Many are surprised how heavy it is. The bar, worth more than €400,000, is smaller than a carton of milk yet weighs in at 12.5 kilograms.
Why have you only brought half of the gold back home?
Strictly speaking the gold hasn't come back home; this was the first time that it had been on German soil. Up until then, it had been placed in the custody of the central banks that had taken original delivery – in New York, Paris and London. Up until German unification, just under 77 tonnes of German gold holdings were stored at the Bundesbank in Frankfurt. During the Cold War, it was considered safer to store the gold as far west as possible from the Iron Curtain.
Putting it another way: Why is half still stored abroad?
The part of the Bundesbank's gold reserves which is to remain abroad could, in particular, be activated in an emergency. Therefore one part will remain in New York following completion of the relocation – the United States has the most important reserve currency in the world – and one part in London, the world's largest trading centre for gold. In the event of a crisis, the gold could be pledged as collateral or sold at the storage site abroad, without having to be transported. In this way, the Bundesbank could raise liquidity in a foreign reserve currency. However, these are purely precautionary measures as we are not expecting this kind of contingency scenario at the current time.
The Bundesbank has gold reserves with a value of approximately €120 billion. Isn't that dead capital?
Gold is a type of emergency reserve which can also be used in crisis situations when currencies come under pressure. Each year, we hand over just over four tonnes to the Federal Finance Minister to mint gold coins. Other than that we don't touch the stocks.
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