September 17, 2024, 8:44 am | Read time: 13 minutes

Cash is convenient, anonymous, and extremely popular, but bills and coins have their price. However, anyone trying to determine the costs of the cash cycle quickly finds themselves in a complicated web of players, cost drivers, and business secrets.

What many consumers may not realize is that cash also incurs costs. A lot, in fact. However, it is not easy to determine the cash economy’s total costs. This is partly due to the many players involved, from production to transportation to retail.

Only 10 percent of cash actually circulates

In 2023, the Deutsche Bundesbank put notes worth 921 billion euros into circulation. Twenty years ago, the figure was just 165 billion euros. Coins worth 10.2 billion euros were added to the banknotes last year. Including the newly produced banknotes and coins, there were around 1.567 trillion euros in circulation in 2023. This large amount of cash causes considerable costs, both in production and in cash handling by the Bundesbank, commercial banks, retailers, and cash-in-transit companies.

“An estimated half of the 921 billion euros is held abroad,” the Bundesbank explained to TECHBOOK, “while around 40 percent is used domestically to store value and up to 10 percent for transactions.” This means that only a small proportion of cash actually ends up over the counter. Banks and companies retain the majority, although consumers and criminals also account for it. An estimated 200 to 370 billion euros in cash is currently parked in various places in Germany.

According to the Bundesbank, this trend has increased sharply in recent years: “From the beginning of 2016 to mid-2022, the statistically recorded cash holdings of credit institutions based in Germany more than tripled.” However, consumers have also stored larger sums of cash in their piggy banks or safe deposit boxes for some time. In 2018, the average sum amounted to 1364 euros. Extrapolated to the entire adult population, this corresponds to around 94 billion euros in stored cash. According to a survey by the Bundesbank, consumers primarily want to avoid bank charges with their cash reserves.

Cash payments have been falling since corona

Consumers in Germany have been carrying an average of 103 euros in their wallets for ten years. However, the number of cash payments is gradually decreasing. While consumers only paid for 21% of their purchases by card in 2017, this figure had already risen to 30% by 2020. The calls during the pandemic to make contactless payments wherever possible are likely to have encouraged this trend. The Bundesbank currently records that around 40% of payments are made non-cash – i.e., by card, smartphone, or smartwatch. This survey includes all payments, both online and offline. The Cologne-based EHI Institute, on the other hand, explicitly examined the retail sector. It found that 61.8% of customers here already pay by card.

For end customers, in particular, the broadest possible acceptance of cash, credit, and debit cards and mobile payment methods means a high level of convenience. For merchants, however, the acceptance of cash payments results in higher and, in the medium term, rising transaction costs. The fixed costs of the cash infrastructure remain at the same level, even if customers pay less frequently with cash.

In a flyer on the future of cash, the Bundesbank even speaks of an impending “downward spiral,” as rising cash costs could lead to less acceptance of cash by retailers. As a result, there would be fewer and fewer cash acceptance points, such as small stores, restaurants, or bank branches with deposit options. The Bundesbank, therefore, predicts increasing “cost pressure on the cash cycle” by 2030. So, while the decrease in cash transactions in everyday life is welcomed as a modern development, it also results in considerable costs for commercial banks, retailers, and the Bundesbank.

The German banking industry told TECHBOOK: “Basically, the costs of operating the cash infrastructure result from factors such as the location of the branch or ATM, personnel, technology, cash security system, self-service checkout and cash register, cash demand, range of services, customer structure, cash logistics – including supply and disposal – and insurance.”

The long journey of cash begins with printing

The journey of cash begins with production, which is probably the most tangible cost item in the cash cycle. In cooperation with the European Central Bank (ECB), the Deutsche Bundesbank is responsible for the production of euro banknotes. “The production of a euro banknote from the Europa series currently costs around 10 cents on average,” the Bundesbank told TECHBOOK. Compared to 2013, when the costs still amounted to 8 cents, there has been a slight price increase.

However, these are only average values, as higher-value notes are also more expensive to produce. This is partly due to the higher material consumption of the larger bills but also to additional security features. These include, for example, the satellite hologram, which is only used on 100 and 200 euro bills. For this reason, the cost of a 500 euro bill was already 16 cents in 2013. However, this has not been printed since 2019.

According to the Bundesbank, it has placed printing orders for around 791 million banknotes for 2024. The costs incurred for this amount to around 79.1 million euros. This is roughly equivalent to the production costs of six “Game of Thrones” episodes. According to the Bundesbank, the printing costs in 2023 amounted to 76 million euros. An increase can, therefore, also be seen here.

However, the Bundesbank produces significantly more banknotes than are actually used in Germany. This is because, in agreement with the ECB, the Bundesbank prints a quarter of the cash required in the EU. This means that the production costs for the cash that circulates in Germany are significantly lower than the total printing costs. At the same time, consumers also pay with cash from other national central banks. It is not possible to draw a sharp dividing line between the cash cycles.

Freshly minted to the cash center

While the Bundesbank commissions the printing of banknotes, coins are minted directly on behalf of the Federal Ministry of Finance (BMF). In 2024, it had 342 million coins with a total value of 241.15 million euros produced, as a BMF spokesperson told TECHBOOK. It also states: “The production costs – made up of material costs, minting costs, packaging, and transportation – are higher than the face value for the 1 and 2 cent coins. From a nominal value of 5 cents, they are lower.” However, the specific production costs are a trade secret. In 2013, the production of a 1 cent coin still cost 1.65 cents. Given increased energy and personnel costs, the value is now likely to be higher but still below 5 cents.

The Bundesbank then distributes the freshly printed and minted cash to commercial banks and retailers via cash centers. In the Bundesbank’s cash centers, the money is partly prepared for customers by machine, partly by hand, and made ready for transport. It is almost impossible to calculate from the outside how much the Bundesbank’s cash handling costs, from production to distribution and transportation to redemption. An estimate from 2011 put the Bundesbank’s cash costs at 375 million euros. This means that production only accounts for a small proportion.

As the Bundesbank has the issuing monopoly in Germany, it is also the profiteer of the cash cycle through seigniorage. In simple terms, seigniorage income is the difference between the production costs and the actual face value of the money put into circulation. This enables the Bundesbank to make a profit despite production and handling costs.

Long distances, high transportation costs

From production to destruction, a euro note passes through many hands over a period of one to ten years. An average banknote changes hands 144 times in the course of its life. This does not include all the employees who count, portion, package, rearrange, deliver, and recount the money on its way between banks, retailers, and private individuals.

Cash transporters transport the cash from the Bundesbank’s cash centers to ATMs, bank branches, or retail outlets – and back. There is also a lively exchange of cash between retailers and commercial banks. The stores have to keep sufficient change in stock and also deposit the cash profits at the end of the business day

This lively back and forth results in several costs that drive up the price of cash handling. These include the long distances between the relevant stations. Both the number of bank branches and the number of ATMs have been declining rapidly for several years. The cash withdrawal business generates little to no profit for banks while maintaining a branch, which incurs costs.

The situation is similar with ATMs. Their operation is not becoming any more attractive, especially given criminal activities like the increasing number of blasts. As more and more people are also withdrawing their money at supermarket checkouts, the supply of cash to the population remains secure. However, this also puts banks in a downward spiral of branch closures. As a result, the distances between branches are getting longer, increasing personnel and energy costs for cash-in-transit companies.

Personnel as a major cost driver

Personnel costs account for a large proportion of cash handling costs in both retail and commercial banks. On the banking side, for example, quality and authenticity checks are central, as is manual (multiple) counting in accordance with the dual control principle. In its Future Flyer, the Bundesbank, therefore, calls for authenticity and fitness for circulation to be checked only once per cycle if possible. The many media discontinuities, i.e., the changeover between different packaging units, also often require manual labor. Greater standardization could lead to greater automation and, therefore, a reduction in costs.

In retail, costs are also incurred for cash register accounting, check counts after every shift change, secure checkout systems, safes, prevention technologies, insurance, and depreciation, for example, for money counting devices, safe bags, cash drawers, or cash scales. A 2013 study by the Research Center for Financial Services at Steinbeis University Berlin concluded that cash costs in retail amounted to around 6.7 billion euros. Of this sum, 5.7 billion euros alone was attributable to “payment processes at the checkout and handling processes in the back office.”

A study by the Bundesbank from 2019, on the other hand, puts the total cost of cash in retail at just 3.775 billion euros. The deviation is due partly to the different sums assumed for parameters like wages, duration of cash accounting, cash disposal, and depreciation. The figures are, therefore, not comparable on a one-to-one basis. However, they provide an impression of the scale of cash costs in the retail sector.

Retailers complain about rising cash costs

The German Retail Association (HDE) classifies the situation in relation to the recent study as follows: “The costs of cash logistics in the retail sector have increased in recent years – including since 2019. Small and medium-sized retailers, in particular, are complaining about rising costs in the procurement of change (coin rolls) and in the distribution of daily takings.”

One reason for the rising costs is “the creeping withdrawal of commercial banks from the cash sector.” Banks are providing fewer cash services at more expensive conditions. These include fees for cash deposits, which – in addition to a basic fee – can amount to up to 3 percent of the amount deposited. The thinned-out branch network also means that the so-called cash contact points of the retailers are no longer available. This also results in longer and, therefore, more expensive transportation routes.

This is how much cash costs overall

The total costs of the cash economy are difficult to determine due to the many players involved. TECHBOOK’s inquiries to Commerzbank, among others, regarding the current handling costs of commercial banks remained unanswered. The German Banking Industry said: “In Germany, there are over 1400 credit institutions and numerous institutions involved in cash handling. It is not possible to determine consolidated costs for cash handling here.”

In 2013, the Steinbeis study concluded that the private sector costs of the cash economy amounted to around 13.5 billion euros. The retail sector accounted for 6.7 billion euros of this. As factors such as wage and energy costs, as well as cash production, have increased in recent years, the total costs of the cash economy are also likely to have risen significantly over the past ten years.

These costs indirectly affect consumers, for example, through rising store prices. The costs in the cash cycle will continue to rise. Among other things, this could encourage the closure of bank branches and reduce the acceptance of cash in stores. As the costs per cash transaction increase, it will become increasingly unattractive for smaller retailers, in particular, to accept cash payments.

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What is the future of cash?

Although the complete abolition of cash is not seriously up for debate, the question of its future viability arises. While the Bundesbank is making a profit from distributing cash, the majority of consumers in Germany are also holding on to coins and banknotes. According to a survey conducted by the Bundesbank in 2023, 69% stated that “the use of cash is fairly or even very important to them.”

At the first National Cash Forum in February 2024, the Bundesbank emphasized that cash is not only worth preserving out of habit. Cash is a comparatively crisis-proof payment method, especially during acute disasters or extensive software malfunctions – for example, at banks, servers, or card terminals. At the same time, those involved in the cash cycle are trying to reduce fixed costs wherever possible. One way of doing this could be to abolish the 1 and 2 cent coins, as is the case in Italy, the Netherlands, and Finland. This could reduce production and transportation costs as well as change fees, personnel costs, and counting processes.

Overall, however, the Bundesbank believes that cash will remain indispensable in the future: “Last but not least, it is the least data-intensive means of payment in terms of its use and therefore makes it possible to retain some control over one’s own data in an increasingly digital world.” The German Banking Industry Association adds: “It is also a familiar and uncomplicated payment method, especially for older or less tech-savvy people.”

However, the HDE expects the use of cash to continue to fall and believes this will pressure retailers in particular. “Consequently, the HDE urges policymakers and the Bundesbank to explore potential optimizations in the cash cycle to ensure a predictable and manageable future for cash for all stakeholders.”