Cash remains the dominant means of payment in Greece

By Leonidas Stergiou

The theory of monetary quantities may have been for some of the most boring in economics. But it becomes interesting when used to explain the following paradox: Online transactions are constantly growing, along with the demand for banknotes and coins. This is a paradox, which has been identified by central banks in the Eurozone and the US, which became more apparent with the pandemic, when electronic transactions and at the same time the liquidity outside the banks skyrocketed.

The exact same phenomenon happened in Greece. Banks announce data, according to which cash transactions in stores have decreased by more than 50% compared to 2019, 97% of transactions are made through electronic means, the use of ATMs is declining. But at the same time, the demand for banknotes, according to BoG data, is increasing, as is the value of the average ATM cash withdrawal. Card transactions, ie from 2019 until today, have increased by 44%.

The ATM approach

An indicator used to describe trading behaviors is one that compares the value of cash from ATM withdrawals to the total of ATM cash and card transactions. The value of card transactions in 2020 rose to 35 billion euros (for 2021 is estimated to exceed 37 billion) from 24 billion euros in 2019. The value of cash withdrawn through ATMs in Greece fell in 2020 to 38, 8 billion euros from 41.5 billion euros in 2019. However, according to BoG data, the average withdrawal value showed a significant increase after many years (by about 15% compared to 2019, to 210 euros). Thus, the ratio of cash to card transactions and ATM withdrawals stood at 63% in 2019 and fell to 52% in 2020 (from 85% in 2015).

Payments hand in hand

However, this method takes into account only the cash withdrawn from ATMs, ie from cash that entered, recorded and left the banking system. It does not take into account the so-called OTC (over-the-counter) payments, ie cash payments, hand in hand, using cash that did not pass through an ATM, POS or banking system. This amount in Greece is estimated at around 20 billion euros, according to the latest report (SPACE) of the ECB, the percentage of cash in transactions to 80% (in number of transactions) and 62% (in value) in 2020. Other analysts and bank executives estimate that the percentage of cash in Greece in total transactions (in value) should be around 80% if we take all the payment methods and calculate the money that has not been recorded. Moreover, as they note, banknotes and coins in circulation by the ECB and the BoG are estimated. All the ECB knows is how much money it has printed and given to the banks. Beyond that, how much money was left out of banks in the pockets of consumers within the Eurozone and how much was left with their wallets abroad is something that is estimated.

How much cash is circulating outside the banks

Something similar happens for the calculation of monetary circulation in Greece. According to the Bank of Greece, the currency in circulation Mo (including overnight bank deposits) is estimated at 33.5 billion euros compared to 28.4 billion at the beginning of the pandemic. This amount is close to that of the banknotes in circulation in the BoD summary situation in November 2021. This amount was 34.6 billion euros.

However, the amount of 34.6 billion euros results from the key, ie the participation of Greece in the Eurosystem. In fact, there are fewer banknotes in circulation. This difference is corrected by deducting item 9.3 of the assets (net receivables arising from the distribution within the Eurosystem of euro banknotes in circulation), ie the amount of 14.8 billion. Therefore, the estimated amount of banknotes in circulation is now calculated. to 19.8 billion euros. To this must be added the actual amount of EUR 1 billion (receivables from the transfer of foreign reserves to the ECB). Thus, the estimate for the total circulation of banknotes in Greece of 20.8 billion euros is obtained.

The reason that banknotes were not returned to the banks, according to the BoG, was the low turnover of companies, due to the pandemic. So, they would only resort to this as a last resort. In particular, the BoG states: “The return of the returned banknotes occurred because during the pandemic the cash cycle in the economy (cash cycle) was interrupted. Retail companies or other service providers did not collect excess cash to be returned through the Many physical non-essential goods and services stores with high cash usage, such as accommodation and catering services, entertainment, etc., were underperforming during the pandemic, while depositing money in bank branches was also As a result, cash flow was probably less active compared to previous years, remaining longer in the individual participating parts of the cycle, without completing the cash cycle. πι In addition to being affected by the inflow of money from abroad, the significant contraction in tourist flows and travel receipts by about 80% in 2020 is estimated to have also had a declining effect on the volume of banknotes returning to the credit system.

Then, to all this, must be added the cash that was circulating in the market before the pandemic crisis, that is, another 20 billion euros that did not return to the banks, while not including support measures totaling 40 billion that contributed to the increase in deposits by € 36 billion in two years (as we are only talking about cash outside the banking system).

Tax evasion and informal economy

The issue of tax evasion and the informal economy should be raised at this point. Indicatively, it is mentioned that only in VAT, according to the European Commission, revenues of 12 billion are lost per year. These do not include small or large amounts of professionals or points of sale denying POS trading, but also indications that revenue concealment has increased in the pandemic in order for some operating industries to experience higher turnover for repayable advances and other support measures.

Nevertheless, the comparison of the trend of Mo (currency in circulation and overnight deposits), M1 (currency in circulation, overnight deposits, current and current accounts and simple savings) and M3 (previous plus Time deposits, repo , money market funds and bonds up to 2 years) does not show growth of the informal economy during the two years of the pandemic as they move with the same momentum. Or at least no change is recorded that is statistically detectable and significant.

In the Eurozone

Regarding the Eurozone, the most recent ECB study entitled “The Banknote Paradox” highlights the simultaneous growth of e-commerce and demand for banknotes, according to the ECB. comes from non-euro area countries, where in times of crisis, a strong currency has particular value, so it accounts for about half of the increase in euro outflow demand to third countries. for the needs of daily transactions.

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