Summary of the January Monthly Report Current developments in the mutual funds market: demand, structural changes and investor behaviour

The financial and sovereign debt crisis has left a deep mark on Germany’s mutual fund business. Retail investors, in particular, have turned to other products for their asset placements. Although institutional investors, too, were more hesitant about increasing their investment fund portfolios in the crisis year 2008 than in earlier years, they subsequently upped their holdings in fund products again quite sharply. From 2007 to the end of September 2012 institutional investors invested around €237 billion of additional capital in specialised funds, with insurers accounting for the bulk of this amount. By contrast, credit institutions have continuously reduced their holdings of mutual fund units since the outbreak of the financial crisis. German mutual funds have responded to the escalating sovereign debt crisis over the past few years by readjusting their bond portfolios, offloading bank debt securities and government bonds of euro-area peripheral countries and increasing their exposure to other regions and to paper issued by non-financial corporations.

However, on top of these current developments, which are being strongly influenced by the financial and sovereign debt crisis, Germany's mutual fund industry is also undergoing profound structural changes. Among other things, it is possible to identify a growing segmentation in the specialised fund sector, a trend towards passive investment strategies via exchange-traded funds (ETFs), and a greater propensity among households to invest in fund-based supplementary private pension plans. This report also looks into these longer-term trends. It also shows that mutual funds’ liquidity management depends in some cases on the investor structure. Investment funds whose shares are chiefly held by retail investors tend – much more so than other types of funds – to use net inflows of capital to build up liquidity buffers as a hedge against possible outflows in periods of heightened tension. 

Current and projected development of coin circulation in Germany

The individual member states of the European monetary union have the prerogative to issue coins. The calculated volume of coin circulation in Germany, ie the coins issued by the Bundesbank less those paid in at its branches, rose more or less continuously from €3.8 billion (11 billion coins) in January 2002 to €6.8 billion (30 billion coins) in December 2012. This means that, on average, every member of the general public is in possession of around 345 coins with a value of €79.85, most of which (175 coins) is made up of 1 and 2 cent coins.

Every year in January and September, the Bundesbank, as part of its coin requirement planning, forecasts the change in the circulation of euro coins for each denomination.The demand for coins is influenced positively by the percentage share of consumer goods settled in cash and the percentage of persons aged over 65 in the population as a whole. Conversely, an increase in the use of the e-purse as an alternative means of payment to coins leads to a decline in the volume of coins in circulation.

A further aspect which influences the issuance of euro coins is coin migration.In 2012, around 37% of all euro coins in circulation in Germany were issued abroad.It is apparent that, all other things being equal, coins issued in Germany’s neighbouring countries have, on average, a 5 percentage point greater probability of ending up in Germany than those issued in countries which do not share a border with Germany. For coins originating in Germany’s most popular holiday destinations (Spain, Austria and Italy), the probability is, on average, 6 percentage points greater than in the case of coins from other euro-area states.

In the euro area, two countries – Finland and the Netherlands – have introduced a rounding rule in order to achieve greater efficiency in cash payments. This involves the final amount at the point of sale being rounded commercially either up or down to the nearest 5 cent.The general public in Germany appears to have a positive attitude towards small coins and is not in favour of introducing a rounding rule like in two the countries mentioned. The fear is that this could have an inflationary effect. According to the interim results of a cash study conducted on behalf of the Bundesbank, which has yet to be published, the inflationary effect due to the introduction of a rounding rule appears to be very small.In the case of commercial rounding of the sum on the cash receipt, the rounding-up and rounding-down effects largely balance each other out. Even in a scenario where retailers round up all transaction amounts to the nearest 5 cent, the one-off effect of the price increase would equate to no more than about 1‰.