Cost of Cash: Status Quo and Development Prospects in Germany

May 1, 2014

The direct cost of cash in Germany in 2011 is estimated at €8,570 million. The indirect social cost of cash associated with the underground economy is estimated at €77,600 million. Since the underground economy is unlikely to be totally eliminated even if cash is completely replaced by electronic payments in Germany, for purposes of estimating the indirect social cost of cash, three scenarios are used: (A) 10% reduction; (B) 30% reduction; and (C) 50% reduction of the indirect social cost as a result of the elimination cash. Accordingly, the estimate of indirect social cost of cash is: €7,760 million in scenario A; €23,280 million in scenario B; and €38,800 million in scenario C.

Combining the direct and indirect social costs of cash yields the following: €16,330 million in Scenario A; €31,850 million in Scenario B; and €47,370 million in Scenario C. In 2011 the German GDP is €2,592,600 million (Eurostat). Thus, as a percentage of GDP, the total cost of cash for Germany is estimated at 0.63% in Scenario A, 1.23% in Scenario B, and 1.83% in Scenario C. The mid-range estimate of Scenario B of 1.23% of GDP appears to be the most realistic.

cost of cash germany

The costs of cash (and benefits) in Germany are examined from the perspectives of the key economic agents: the Bundesbank, the banking sector, the retail sector, and the household sector.

The Bundesbank perspective: The Bundesbank is able to realize significant earnings in producing and distributing the euro, known as seigniorage1, while incurring costs for producing the euro. It is estimated that only some 37% of the euro notes and coins produced by the Bundesbank circulate within Germany. Thus, counting only the seigniorage accrued from outside of Germany, the Bundesbank earned €2,509 million in 2011. Subtracting the cost of production, the Bundesbank had a net benefit of €2,032 million.

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Seigniorage can be simply defined as difference between the value of money and the cost of producing it; expressed as the interests earned by the Bundesbank on securities acquired in exchange for euro notes and coins minus Bundesbank’s cost of production and distribution.

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