Written by Matt Phillips@MatthewPhillips
He's almost certainly carrying cash. Fabrizio Bensch
September 17, 2014
As
banks, technology giants and would-be disruptors such as Square
scrummage over the payment system of the future, German consumers seem
perfectly happy with the payment system of the past. Germany remains one
of the most cash-intensive advanced economies on earth.
No
one knows precisely why Germans have such a strong preference for cash,
though survey data offer some hints. German respondents suggested that
using cash makes it easier to keep track of their money and spending [pdf].
“A glance
into one’s pocket provides a signal about the extent of expenses and
the remaining budget. With a large cash share of expenditures, the
quality of the signal is high. We conjecture that for some consumers
this signal is of value and hence they choose to use cash,” wrote ECB
analysts who studied the phenomenon.
Other responses suggest Germans like the anonymity of cash, in keeping with their general enthusiasm for tightly protecting privacy.
But,
of course, their attitudes toward currency must owe something to
Germany’s tumultuous monetary history. During the Weimar-era
hyperinflation that peaked in 1923, prices rose roughly a trillion-fold,
as Germany attempted to pay its onerous war reparations with devalued
marks.
The sheer lunacy of the sums involved make this everyone’s favorite hyperinflation.
At the end of it, a loaf of bread cost 428 billion marks, a
kilo of butter would run you roughly 6 trillion. Employers would halt
work in the middle of morning to pay out bales of banknotes to
workers—who sometimes collected them in laundry baskets—and
the workday would be suspended for an hour or so as employees were
given time to run around and purchase as much as they could before the
money became worthless. (They would barter it later.) And, of course,
people were using the worthless banknotes for all sorts of silly things,
such as wallpaper, furnace fuel and kites.
But this wasn’t
the last time Germany’s currency was rendered worthless in the 20th
century. After World War II, the reichsmark was again in
disarray. Hitler had largely financed the war by printing money, keeping
inflation at bay through a uniquely fascist policy of strict price
controls and violent threats. (“Inflation is a lack of discipline,” Hitler once said. “I’ll see to it that prices remain stable. That’s what my storm troopers are for.”)
During
the postwar occupation, the Allies kept wage and price
controls and rationing in effect. But more and more economic activity moved to the black market.
Packs of Camels and Chesterfields, nylon stockings and Parker
pens—which US servicemen stationed in Germany could easily buy at
their bases—became de facto currencies.
The currency
reform of June 20, 1948, in which Germans were forced to convert their
cash into the newly introduced deutsche marks at a rate of more than 10
reichsmarks to the D-mark, was painful too, vaporizing more than 90% of an individual’s savings (paywall).
But
the new currency help pull hoarded goods back into shops and tamped
down on the enervating effects of the black market. It was widely viewed
as a tough, but necessary step that put Germany’s post-war economic
resurgence in motion.
As
such, the deutsche mark became a point of pride, first for West
Germany, and in 1990 for those who lived in the former Communist east as
well. (They were able to exchange their worthless ostmarks for deutsche
marks at a generous rate of one-for-one.) It was with some
consternation that Germany changed over to the euro in 2002.
So what role does this history play in the preference for cash?
One explanation is that, as researchers have found, memories of hyperinflation have quite a bit of staying power.
People in countries that suffered banking crises quite sensibly often
prefer to save in cash—though typically in foreign currencies such as
US dollars—rather than put money in the bank. (Federal Reserve Bank of
New York economists found that demand for US dollars rises for at least a generation
in countries after they suffer a searing experience with high
inflation.) And countries such as Bulgaria and Romania, which have
recent histories of currency instability and financial crises, also are
quite heavy users of cash.
But the real point isn’t that Germans love cash. It’s that—for the same historical reasons—they loathe debt. (Armchair anthropologists have also long noted that German word for debt—Schulden—comes from the word for guilt, Schuld.)
Levels
of consumer debt in Germany are remarkably low. German aversion to
mortgage debt is part of the reason why the country has some of the lowest homeownership rates in the developed world.
Just 33% of Germans said they had a credit card back in 2011. And most
of those hardly ever get used. In 2013, only 18% of payments in Germany
were made via cards, compared to 50% in France and 59% in the UK.
The
national preference for cash, then, seems to be the flip side of
aversion to debt, which, in turn, can be interpreted as a sign of
deep-seated doubt about the future. (German businesspeople are also notorious for their pessimism about the future.) And fear of the future, of course, is rooted in the past.
In
other words, the German tendency to settle up in cash undeniably
reflects the fact that for much of the last century, Germany has been
either on the brink of, in the midst of, or struggling to recover from,
disaster. And traumas like that are bound to leave, if you’ll excuse the
pun, a mark.
To me, it makes a lot of sense to use cash over credit cards since you see how much you are spending and are aware of what you have decided to spend. Credit cards, however, can be convenient when making big purchases since you might not want to carry around that much money. But since they do tend to make people think they have more money with them than they actually do and you are traceable through your purchases, I would say that using cash does have more of an advantage.
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