Monetary Policy and the Economy Q1–Q2/22

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• Monetary Policy and the Economy – Q1–Q2/22 (PDF, 3.9 MB) June 2022

Studies and Analyses

• Call for applications: Klaus Liebscher Economic Research Scholarship (PDF, 56 kB) en Jun 21, 2022, 12:00:00 AM

• Editorial: 20 years of euro cash in Austria (PDF, 76 kB) en Jun 21, 2022, 12:00:00 AM

• Nontechnical summaries in English and German (PDF, 125 kB) en Jun 21, 2022, 12:00:00 AM

• Past and future development of euro cash in Austria – resilience in light of technological change and economic crises (PDF, 1.1 MB) Schautzer, Stix. In this analysis, we discuss how the demand for and the use of cash has changed in Austria since euro banknotes and coins were introduced in January 2002. Cash use for payments has decreased over the past 20 years, which is not surprising given the enormous technological advances. Despite this decline, cash remains the prevalent means of payment at the point of sale (POS) in Austria. Somewhat contrary to the downward trend in the use of cash for payments, the overall circulation of euro cash has increased over the past 20 years. In international comparison, Austrians are among the more cash-affine Europeans; however, there are several other European countries with comparable levels of cash use. We examine how cash use has developed among different sociodemographic groups and how Austrians view cash and noncash payment means.
  With regard to the likely development in the near future, we discuss the critical factors which will contribute to a reduction of cash use and those which will contribute to maintaining a strong role of cash. We argue that cash has important features that are of value for society, such that it should be in the public’s interest to safeguard cash as a key means of payment. This requires maintaining adequate access to cash for consumers and to cash deposit facilities for merchants. Also, paying in cash at any POS should remain possible, and measures should be taken to ensure cost efficiency along the supply chain of cash. en cash demand, euro currency in circulation, hoarding, payments, financial innovation E41, E50, D10, G11 Jun 21, 2022, 12:00:00 AM

• From SEPA to the digital euro: payments past, present and future (PDF, 1.2 MB) Asel, Mingione, Niederländer, Nitsche. This paper investigates the increasing importance of electronic retail payments for the euro area economy, including Austria. Looking back 20 years, we address payments-related developments and regulatory aspects and summarize recent studies and empirical data on selected economies that underline the growing importance of electronic retail payments systems for competitiveness and economic growth. Specifically, we analyze changes in payment behavior over time, most recently under pandemic conditions. Furthermore, we discuss the role of European players in the electronic retail payment value chain and outline success factors for electronic payment systems. Against this backdrop, we provide an outlook on the potential developments of electronic retail payments in the euro area, 15–20 years ahead. We present the most likely baseline scenario and an alternative scenario, and discuss related policy implications and possible solutions, such as the introduction of a digital euro. An annex offers a comprehensive overview of key characteristics of retail payments processes and systems. en retail payments, payment behavior, electronic payment systems, European payments autonomy G20 Jun 21, 2022, 12:00:00 AM

• How much cash is in crypto? (PDF, 207 kB) Weber. In 2008, an anonymous white paper introduced “bitcoin.” Its ideas triggered and inspired the emergence of thousands of crypto assets in its wake. Putting key terms used in this paper to a close reading reveals that terms like “electronic cash,” “peer-to-peer” and “inflation” are used in a different sense than is customary in economic debate. Despite claims put forth in the white paper, transferring bitcoins is neither “peer-to-peer” in the sense of a non-intermediated transfer between two individuals nor does bitcoin offer technical protection against losses in value and is therefore not “inflation free.” Last but not least, bitcoin is not a carrier of stable value that is generally accepted like cash. en crypto assets, cash E42, E52, E58 Jun 21, 2022, 12:00:00 AM

• A digital euro and the future of cash (PDF, 347 kB) Hermanky, Summer. What is the discussion about a digital euro – and, more generally, digital central bank currencies– all about? We are focusing here on the future of cash. For strategic reasons, central banks are seeking to provide a credible and viable public anchor for digital money given that the future might be shaped more strongly by new private issuers of money. The technological structures and business model-driven incentives of the new players, which are associated with the internet economy and thrive on network effects, might lead to a concentration of significant market power in payments. Ultimately, this might even result in a fragmented monetary system and jeopardize universal access to public money. From a central bank’s perspective, the crucial question is therefore not so much about replacing cash with new payment technologies but about finding ways to ensure that the monetary system will continue to work in the public interest in a digital future. Cash will, and should, play a role also in a future monetary system. By creating a digital euro, central banks in the euro area aim to adapt cash in such a way that it meets the needs of the digital age. en central bank digital currency, digital transformation of money and finance, payment economics E42, E52, E58, G21 Jun 21, 2022, 12:00:00 AM

• Should the use of cash be limited? (PDF, 191 kB) Schroth, Vyborny, Ziskovsky. Payment habits have changed over the last twenty years. In Austria, cash is still the most popular means of payment at the point of sale (POS). But card payments have become more important, which is largely due to technological progress. The COVID-19 pandemic has likewise amplified the trend toward cashless payments. Additional pressure on cash also results from an initiative of the European Union (EU): The EU plans to introduce an EU-wide upper limit for cash transactions, namely EUR 10,000. The respective regulation is currently being discussed as part of a package of measures to combat money laundering and terrorist financing. Cash ensures anonymity and protects privacy. Cash works even when technology fails. In terms of inclusion, cash is important for people whose self-reported income is in the lower income brackets as well as less technically versed people. During the pandemic, cash enabled them to satisfy their basic needs. Given its tangible nature, cash moreover allows people to keep track of their financial resources. The flip side of anonymous cash are illegal activities. This is why the EU proposed to put a uniform ceiling on cash transactions. To this effect, the European Central Bank (ECB) had already in 2016 decided to stop producing the 500 euro banknote and to exclude it from the second euro banknote series. Austria has not imposed any legally standardized ceilings for cash payments – in contrast to 10 of the 19 euro area countries. The restrictions range from EUR 500 in Greece to EUR 15,000 in Slovakia. Worldwide, upper limits for cash payments are rare, existing only in 9 non-European countries to our knowledge. Such ceilings are just one way of combating crime and money laundering. As a matter of fact, national cash ceilings have had little effect so far. What speaks against restricting cash payments? An EU-wide limit on cash payments might distort competition and redistribute illegal activities within the euro area. Stricter national limits would be likely to continue to apply. Illicit activities have already started to shift to alternative, i.e. digital, means of payment, so-called crypto assets. Limiting cash payments without introducing accompanying measures could thus prove ineffective – as could restricting a single means of payment. Last but not least, an absolute, uniform measure does not do justice to the EU’s subsidiarity principle, given that wage and price levels differ substantially across EU countries. en limits on cash payments, cash payments, COVID-19 E58, I28, H41, K15 Jun 21, 2022, 12:00:00 AM

• The use of euro cash as a store of value in CESEE (PDF, 1.1 MB) Bittner, Scheiber. People in Central, Eastern and Southeastern Europe (CESEE) have been using euro cash as a store of value ever since euro banknotes and coins were introduced in 2002. At that time, the euro replaced Austrian schilling, Deutsche mark and US dollar banknotes as a safe asset. To arrive at descriptive results for the use of euro cash in CESEE over the past 20 years, we drew on time series from the OeNB Foreign Currency Survey (1997–2007) and the OeNB Euro Survey (2007–2021). For one thing, we sum up the literature on euroization in CESEE. For another, we update and discuss key indicators of euro cash holdings in the region published in former studies that used OeNB survey data.
  Holding euro cash as a store of value is still widespread in Albania, Croatia, North Macedonia and Serbia. Survey respondents in Croatia, Romania and Serbia reported the highest median amounts of euro cash. Overall, the relative share of euro cash in total currency in circulation has been on a downtrend in all CESEE countries since 2007–08. However, on the level of individual portfolios, euro cash still plays an important role, in particular for the relatively large group of individuals with small savings in Southeastern Europe. Even among the relatively small group of banked savers in Croatia, Hungary, Albania, Bosnia and Herzegovina and Serbia, around 40% reported holding more than half of their total savings as cash in 2020–21.
  Many people in CESEE still prefer to save in cash and in euro. This suggests that the determinants of the demand for euro cash as identified by Stix (2013) and Brown and Stix (2015) are still relevant: a lack of credibility in the long-term stability of the local currency, network effects and a lack of trust in the stability of the banking system. We therefore assume that, also in the foreseeable future, euro cash will continue to play a role as a safe haven asset in CESEE. en euroization, asset and currency substitution, survey data, CESEE E41, D14, O16 Jun 21, 2022, 12:00:00 AM