Keep calm and carry cash: lessons on the unique role of physical currency across four crises

While the share of cash in daily transactions has declined in the euro area, the value of euro banknote circulation has significantly increased over the past two decades (Chart 1, panel a). This variable serves as a reliable indicator of overall demand – domestic and foreign – as the Eurosystem accommodates requests for banknotes. In fact, the value of outstanding banknotes has consistently maintained a share of over 10% of euro area GDP over the last ten years, with a temporary increase during the COVID-19 pandemic years and a moderation since the second half of 2022 due to higher interest rates. It also represents a consistent portion of around 10% of M3 (broad money) – a measure encompassing other liquid, euro-denominated assets. The sustained demand for cash, despite the proliferation of digital payment alternatives, suggests its distinct utility and imperfect substitutability. This stable overall demand contrasts with the diminishing share of cash in everyday payments, a phenomenon often termed “the paradox of banknotes” (Zamora-Pérez, 2021).

Chart 1

Euro banknotes in circulation

a) Value of euro banknotes in circulation

(left-hand scale: EUR billions; right-hand scale: percentages)

b) Monthly banknote net issuance from the public and banks

(EUR billions)

Sources: ECB Statistical Data Warehouse (SDW) and ECB staff calculations.
Note: In panel a), to ensure consistent comparison across periods of euro area enlargement, the ratios to GDP and M3 are presented on a “changing composition” basis, incorporating new member countries from their respective dates of entry.
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