LDN - Business

Europeans stack up $1.1 trillion in cash as economic worries grow

[February 11, 2016] By John O'Donnell

FRANKFURT (Reuters) - The amount of cash across the euro zone rose to more than 1 trillion euros ($1.1 trillion) last year, with almost 30 percent of it hoarded in 500 euro notes, ECB data has shown, as nervous individuals keep more of their money at home or in a vault.

Cash in circulation is almost double the amount of 10 years earlier and has risen steadily throughout the debt crisis, a trend that reflects fears about the euro zone and its banks as well as exasperation with low returns on savings.

Cash across the 19-country bloc climbed to 1.08 trillion euros at the end of last year, roughly 8 percent higher than at the start of 2015.

The supply of money has also increased over this time, partly due to quantitative easing or money printing, although by nothing like the same amount.

The rush for cash effectively reduces deposits at banks, thereby weakening them. As cash in circulation rose last year, deposits edged up at only a quarter of the pace.

The phenomenon is partly due to nervousness about the euro zone and its banks. Capital controls prohibit large withdrawals in Greece, where savers have hoarded tens of billions, after big depositors lost money in the country's financial bailout.

One Cypriot central bank official told Reuters of a woman who had burnt cash in an oven after forgetting she had hidden it there. Other Cypriots stashed their lucre in washing machines and later sought to replace soggy notes at the central bank.

But the scale of the increase shows that hoarding is not limited to financially troubled countries.

"There are two issues: lack of trust in the banking system and concern about where to invest your money," said Stavros Zenios, an academic and former member of the Board of Directors at Cyprus's central bank.

The data comes amid a debate about scrapping the 500 euro note. The head of the European Anti-Fraud Office has suggested banning it because it is used by fraudsters. Benoit Coeure, an ECB policymaker, told Le Parisien newspaper on Thursday that the central bank was considering the future of its largest denomination.

Ditching the note, which could only be gradually phased out, may prompt savers to dissolve the more than 300 billion euros stored in 500-euro notes.

"It has a major impact on the economy," said Zenios. "This hoarding is working against what the ECB is trying to do - get more liquidity into the system."

(Additional reporting by Michele Kambas in Athens; Editing by Hugh Lawson)


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