Johannes Beermann: Cash of the future
Welcome remarks by Dr Johannes Beermann, Member of the Executive Board of the Deutsche
Bundesbank, at the Banknote & Currency Conference 2022, Washington DC, 24 February 2022.
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1 Introduction
Ladies and gentlemen,
Thank you for the invitation and kind introduction. It is a great pleasure for me to be here in
Washington, D.C. and to speak at the Banknote and Currency Conference. Having the
opportunity to attend a conference like this again and see each other in person is another step
towards normality - or rather: towards a new normality.
"The best way to predict the future is to create it." This timeless wisdom is sometimes attributed
to the 16th President of the United States of America, Abraham Lincoln. I also see it as a call for
us to start thinking about the cash of the future today.
As the member of the Bundesbank Executive Board responsible for cash, I arguably very much
represent what many outside these four walls may refer to as the "old world of payments". A
world that some claim has little room for innovation and progress.
However, the exciting contributions of the past conference days show the opposite: the latest
developments in the field of cash production, the innovative methods presented in the fight
against banknote counterfeiting and cybercrime, as well as the highly topical discussion on
sustainability all speak for the fact that this supposedly "old world of payment transactions" is
much more modern and promising than it might seem at first glance.
The future of cash - this plays an important role in my speech. But when we talk about the future,
we cannot disregard current developments. Therefore, let us first take a look at the present.
Cash in circulation continues to increase in Germany and throughout the euro area. The
Bundesbank has issued more than half of the euro banknotes currently in circulation by value.
Cash fulfils various economic functions. One of them is to store value. Another is to make
payments.
According to our estimates, only about one in twenty banknotes issued by the Bundesbank is
used to make payments in Germany. The use of cash as a means of payment is declining - this
is true both internationally and in Germany. Nevertheless, the level of cash use is still high in
many countries - and especially so in Germany.
There are fewer cash payments, but we are far from being cashless. So why has physical cash
not sunk in the vast sea of digital means of payment? In my opinion, this has to do with the
special characteristics of cash.
2 Cash as an independent means of payment
We regularly monitor payment behaviour in Germany to understand households' motives for
using certain means of payment. Protection against financial loss, privacy and an overview of
spending are crucial features that consumers expect from a means of payment. In all these
areas, cash performs well according to our surveys.
My interpretation of these results is: German households value independence - and physical
cash offers three unique forms of independence, which distinguishes it from digital payment
systems.
First, it offers independence from one's socio-economic background. Cash is tangible and does
not require any technical equipment. The use of cash is easily understood across generations,
from young children to the elderly. The physical feel of cash is, in my view, an important element
for strengthening financial inclusion.
Consumers can use cash regardless of their income level or level of education. In this sense,
cash is also a means of safeguarding social cohesion.
Therefore, ensuring access to cash is particularly important in rural areas with inadequate
banking or technical infrastructure. A study we conducted, the results of which we published in
2020, showed that cash access is guaranteed in both urban and rural areas of Germany.
Second, cash ensures independence from technological ecosystems. Given the still partially
fragmented payments landscape in Europe, it is important to note that cash has long been a
universal means of payment when it comes to person-to-person transactions in the euro area.
Tech companies and foreign financial service providers could shake up the traditional banking
system. These companies can often leverage their global reach and large customer base. This
may bring benefits for consumers, for example in cross-border payments. However, it also
means that customers are becoming locked into particular payment ecosystems and private
companies.
In the Eurosystem, cash offers an easy way out, at least for certain transactions. This is
because it can also be used as a matter of course for payments abroad.
Third, cash ensures independence from social control and data collection. As legal tender, cash
is fully backed by the domestic central bank. Cash is the payment method of choice when it
comes to privacy. This strengthens individual freedom.
Ultimately, digital payment systems involve the collection of personal data. Compiling data is not
harmful per se. In the age of Big Data, collecting detailed data means obtaining valuable
information that, in turn, makes it possible to construct patterns of individual behaviour. It is not
for nothing that data is often referred to as the gold of the digital age.
From a consumer protection point of view, though, the question arises as to how much
information is required to carry out a particular transaction and for what purpose the data is used.
From an economic point of view, the disclosure of personal data can be seen as an additional
type of fee.
When comparing the cost structures of different payment methods, this aspect should be taken
into account. I therefore have my doubts as to whether we can actually describe payments with
Apple Pay, Google Pay or PayPal, which are now part of everyday life for many of us, as free of
charge for the consumer.
3 Cash in the crisis
Ladies and gentlemen, ensuring well-functioning payment transactions - that is one of the core
tasks of central banks. When it comes to cash payments, we as a central bank are an important
part of the cash infrastructure, but not the only part.
The cash cycle only runs smoothly when the various stakeholders work together. In normal
times, we have established processes and routines for this. Withdrawals and deposits of
banknotes therefore run smoothly.
Yet the pandemic has added some burdens. All cash stakeholders - from cash-in-transit
companies and retailers to banks - have had to quickly adapt established work processes, for
example, to improve occupational health and safety, avoid physical contact and, at the same
time, always keep an eye on the pandemic situation and the resulting containment measures.
During the coronavirus crisis, cash payments functioned smoothly in many places. This was and
still is important. Cash fulfils a special, stabilising role in times of crisis and macroeconomic
uncertainty. The data on cash demand illustrate this.
With the spread of the coronavirus, cash demand in Germany increased particularly strongly. In
2020, the Bundesbank's net issues were significantly higher than in the previous year. In
uncertain times, cash is in particularly high demand because it is something haptic, something
tangible.
People in Germany value cash not only as an easy-to-handle and familiar means of payment, but
also as a safe store of value. The observed increase in German banknotes in circulation during
the pandemic once again impressively demonstrated this. But it is also true that, in many
countries of the world, people are using banknotes and coins less and less.
A Bundesbank study shows that in 2020 6 out of 10 transactions in Germany were settled in
cash during the survey period. This is a relatively high value by international standards. Cash has
thus remained the most widely used means of payment in Germany during the pandemic.
We have observed that, before the pandemic, the use of cash as a means of payment in
Germany was decreasing by about one percentage point every year. This trend has accelerated
at least temporarily since the beginning of the pandemic.
This may be partly due to the fact that many areas in Germany where people often pay in cash,
such as restaurants and public festivals, were closed for a long time due to the pandemic. But it
is also due to the fact that consumers have an ever-growing choice of non-cash payment
methods at their disposal, some of which are heavily advertised.
We cannot and do not want to interfere in individual payment habits. That is the personal decision
of each and every individual. For the future, however, we must ensure that access to cash and
the acceptance of cash payments are maintained as cash use declines. To ensure that
consumers continue to have a free choice between different means of payment, cash must
continue to be available and generally accepted.
Thus, not only the coronavirus crisis but also advancing digitalisation and infrastructure changes
are already challenging us to look ahead. The cash infrastructure will prove reliable in the future if
the responsible actors develop strategies and consider possibilities today to ensure a
disruptionfree cash supply - far beyond the pandemic.
4 A look into the future
And that, ladies and gentlemen, brings us to the core of my speech - the future of cash. We
want cash to remain an attractive, reliable and competitive means of payment in the future. But
payment transactions will continue to change, that is certain. Is it enough if we central banks
merely passively accompany this change and only react to developments?
No. When we think about the future of cash, we cannot simply wait and be surprised at the end.
We have to hold the reins in our hands and actively shape the future.
But before we can think about what course we should set, we first need to get an idea of what
the future might even look like. What is possible, what is realistic? How will cash user groups
develop in the future? What social trends will shape the future?
We do not have a crystal ball to hand to answer these questions. Instead, we at the Bundesbank
have decided to work with methods of future research.
Let me first shed some light in the darkness and explain what this means. According to Rolf
Kreibich, a German physicist and future researcher, future research is "the scientific study of
possible, probable and desirable future developments, the options for shaping them, and their
roots in past and present".
This is not about forecasting, which is predicting the future precisely. Forecasting tends to derive
short-term conclusions from developments and often assumes that developments from the
recent past will continue.
In our case, however, it is about foresight. So it's about keeping the big picture in mind. Taking an
overall look at societal trends and keeping in mind that there are multitudes of possible future
paths - and long-term consequences associated with these different paths.
Because, and you will know this from your own lives: depending on the path you take, the
landscapes to the left and right can differ greatly. And your perspective is sometimes quite
different depending on your position.
Thinking through these different paths and applying a broad mix of methods is an important part
of future research. It is about strategic foresight and the creation of different scenarios for
possible futures.
You can imagine the future as being like a funnel. The further the time horizon is in the future, the
more possibilities can occur. These may not necessarily be desirable but they must be plausible.
Alternatively, to paraphrase Kreibich: scenarios can only be "indicators of a spectrum of
possibilities". We therefore need to consider more than one scenario in order to be prepared.
With the knowledge gained in the scenarios, we can then take measures and decisions to steer
the future in the desired direction. The insight into possible cash futures is thus intended to
provide orientation for our actions today.
5 Practical examples
This may all sound very abstract at first. Let me give you some practical examples where these
foresight techniques are already being used.
One of the pioneers from the private sector is Shell, one of the world's largest mineral oil and
natural gas companies. Shell has been developing possible visions of the future since the early
1970s. The challenge here is to create plausible and challenging descriptions of the future
economic environment.
Especially in times of uncertainty and upheaval, energy and environmental issues play an
important role for society as a whole. In the past, Shell was prepared for crises and changes
because decision-makers were already confronted with such items in future scenarios.
In the meantime, strategic foresight is also used in public and political contexts. One example is
the 2020 Value Study of the Federal Ministry of Education and Research in Germany. In order to
have a preview of possible future value landscapes, the Federal Ministry commissioned the study
"The Future of People's Value Perceptions in Our Country".
Why do companies and institutions rely on such methods? The aim is to show policymakers
what futures are possible. It is about anticipating developments, pointing out interdependencies
as well as opportunities and challenges, and stimulating discussions. And all of this on different
levels: social, economic, political.
Future developments are not monocausal, but are created by all of us. We need to involve
relevant stakeholders and their knowledge in the process at an early stage. The development of
strategies and scenarios enables conscious, value-oriented action - based on evidence.
6 Scenario process in strategic foresight
Ladies and gentlemen, we have an idea of what strategic foresight means and have heard about
some practical examples. How can we now transfer these techniques to our cash strategy? How
can we create scenarios?
In order to better assess the payments landscape of tomorrow and to derive measures, we at
the Deutsche Bundesbank are currently working together with a research institute. Foresight
experts and experts in the field of cash are coming together throughout the process to ensure
fruitful cooperation. It is important that no ideas are off-limits, especially at the beginning. And
now we will look together at how we proceed with this study.
The whole process is summarised as the scenario process. The first phase of the scenario
process consists of setting the scenario field. At this stage, we define the topic that the scenarios
will later describe. We also need to determine basic questions as well as the scope of the study.
These include questions such as: what needs to be integrated into a scenario, and what does
not?
In our case, the overarching theme is clearly defined: Cash in Germany in 15 to 20 years. Within
this theme, we focus on two main groups: the potential users of cash and the cash cycle with all
its stakeholders.
Consumers and their future needs are of particular importance. After all, cash will have no future
if there are no more people who use cash.
Specifically, we ask ourselves: who exactly is the user group, what are their values, where do
they pay in cash? And what is their motivation to use cash in the future? What are the future
needs of consumers? In summary, under the given conditions in a defined scenario, we want to
explore who uses cash, where, why and for what kind of transactions.
The second group we take a closer look at are the stakeholders in the cash cycle: the producers,
banks and cash-in-transit companies. Without a functioning cash cycle, cash cannot be used.
What will these stakeholders need in the future to continue to ensure a functioning cash
infrastructure? Will new players possibly enter the cycle?
You see, to proactively manage the cash cycle, the first step is to understand the possible
changes and developments in the entire cash cycle.
After we have mapped out the scenario field, the second phase is about identifying and analysing
key factors. In this phase, an interdisciplinary team of researchers experienced in future research
and strategic foresight identifies key factors that have a strong influence on future developments.
Key factors can be parameters, trends, developments or events. Computer-assisted literature
research makes it possible to identify even weak signals for future key factors that are not yet so
important. The key factors play a central role in the further course of the scenario process.
During the key factor analysis, researchers explore what range of outcomes these key factors
could produce. This leads to an expansion of the scenario funnel. The further into the future the
scenario lies, the more possibilities arise.
If the key factors only describe linear trends, the result is a scenario that describes a "business
as usual" situation. However, the experiences of the last few decades, with several crises and,
especially, two years of a pandemic, show us that "business as usual" is often not the most
sensible approach for planning the future in reality. Therefore, the scenario process also takes
into account disruptive key factors or possible sudden changes and developments.
7 Digitalisation as megatrend
Ladies and gentlemen, let us look at one of the most obvious key factors: megatrends.
Megatrends affect all aspects of a society: Social aspects, but also economic factors and
political decisions.
Of course, the future use of cash is not monocausal. This means that there are several
megatrends, each of which will have a major impact on our future approach to cash. Among all
the megatrends already known, there is one that stands out in particular: digitalisation.
Digitalisation has already changed all of our daily lives and will certainly continue to do so. The
changes are not only of a purely technical nature. Digitalisation also has direct and indirect
effects on everyday objects such as cash and our everyday behaviour.
The motivation behind technological progress is often the desire to make our lives easier and
more convenient and to make processes more efficient. In our houses and flats, the heating, air
conditioning, lights and sound system can be switched on and off via an app - and digital
payment systems are attracting more and more users.
In recent years, however, we have also learned that complete dependence on the digital world
can leave us vulnerable. This can happen in various situations. I would like to give you two
examples.
One is a situation where people are exposed to a natural disaster. With climate change, we will
all experience even more extreme weather conditions that can cause severe damage to
infrastructure. This can lead to power outages - sometimes not just for a few hours, but for a few
days or weeks.
This is where cash has proven in the past to be a means of payment that works even without
electricity and therefore has a high resilience in this situation. Cash can also provide quick and
direct assistance to those who are affected. Because with cash they are able to help themselves
in an autonomous way.
The second example is the danger of criminal misuse or theft of digital data. Cases of
cybercrime have increased in recent years. Hackers attack private individuals, companies and
banks by stealing data and identities, blackmailing them or installing malware.
In some cases, immense financial damage is caused thousands of kilometres away at the touch
of a button. And we are talking about incredible sums of money here - a criminal could not even
carry that many suitcases of physical money.
Both examples show the growing need for security in various areas and the importance of
building resilience.
In addition to digitalisation, the needs of users are certainly another key factor for the cash of the
future. For example, the age structure will be different in the future to how it is today. If
necessary, we will have to take the needs of older cash users into account in a completely
different way, for example in the design of banknotes.
I will give you other examples of key factors, apart from cash. Just think of the change in values
in the 80s regarding fur clothing. What is chic one moment can be frowned upon the next.
There can be also disruptive events. The majority of people in Europe would not have thought it
possible that the United Kingdom would actually leave the European Union. Or, most recently,
the coronavirus pandemic, which has affected and changed almost every aspect of our public
and private lives. You see the wide range of possible key factors.
What happens now with the key factors in the scenario process? The key factors are bundled in
the phase called scenario generation. The aim here is to generate a relatively small number of
meaningfully distinguishable scenarios. A total number of three to five scenarios is envisaged.
The finished scenarios will not only be described in text form, we also plan to show them in
graphical form in order to make it easy to visualise this specific part of the future. This makes a
scenario more tangible.
The last step, scenario transfer, is actually no longer part of the scenario process. In this final
phase, we as decision-makers can use the finished scenarios for specific purposes, such as
strategic planning.
Now we have learned a lot about the methodology of strategic foresight and the scenario
process, looked at practical examples and identified the megatrend of digitalisation as a key
factor for the future development of cash. For us at the Bundesbank, it is now a matter of putting
theory into practice.
This year we will compile the key factors and prepare the scenario generation. In spring 2023, we
expect to have completed the core of the scenario process and produced the scenario transfer
and reporting.
Incidentally, being able to present the results of our study next year or the year after - possibly at
this wonderful conference - is, in my view, a plausible and realistic scenario.
8 Conclusion
Ladies and gentlemen, when we talk about cash against the backdrop of an increase in new
digital payment methods, one might get the impression that it is about the "old world versus the
new world". This supposed duality is not new.
If we think back, around the turn of the millennium there was a real hype about everything that
was called the New Economy. New Economy was a term used to describe internet start-ups,
which often relied on little physical capital to generate, at times, staggering market valuations.
This was in contrast to the Old Economy. Think of brick-and-mortar car plants, for example.
With the passage of time, we can say that "the new has become a bit old and the old a bit new".
Economic structures have become integrated. The basic market forces still apply: the
companies that survive are those that are competitive and offer a unique product that meets the
needs of consumers.
I view the cash of the future in this light. To me, digital payments offer exciting prospects.
However, that does not necessarily imply that existing payment methods will become extinct.
Financial inclusion and maintaining social cohesion will continue to be important challenges in
our societies. Cash offers unique features, so it is clear to me that it will continue to enjoy great
popularity - also and even more so in the digital age.
However, as central banks, we should not stand passively on the sidelines. To the extent that the
decline in cash usage is not due to demand-side but supply-side adjustments, central banks
need to pay close attention. Being neutral with respect to consumer choices does not mean that
we remain passive.
Rather, we must do our part today to steer the future of cash and be prepared for future
challenges. Because, as we heard at the beginning of my speech, the best way to predict the
future is to shape it ourselves.
With our study on the cash of the future, we are laying an important foundation stone for this. So
that cash will remain an attractive and reliable means of payment - for all parts of society.
Let us create the future of cash - now!
I am looking forward to a fruitful discussion with you.