Wednesday, April 28, 2010
TAKE it out from under your mattress and spend it!
That’s the message from the European Central Bank, which has revealed that in the wake of the financial crash, Europeans are hoarding a whopping €40 billion.
Since the recession hit home, member state banks have seen a high demand for the withdrawal of savings, with customers turning them into cash.
But nervous Irish consumers were warned last night that while they may be cautious about letting cash out of their sight after the banking scandals, it was important to take it out from under the mattress.
It has emerged that Europeans have emptied their accounts and are reluctant to put their hard-earned cash back into the banks.
At the end of last year, there was some €806bn circulating. But it is thought up to 5% of this is being hoarded away now.
Whether it is the fear of banks themselves collapsing or the depressingly low interest rates remains unclear.
Following the collapse of Lehman Brothers and the subsequent financial crisis, savings accounts were turned into cash and this boosted the circulation of euros by €35 billion to €40 billion, says the ECB report.
But this money was never put back in the banks, it has emerged.
The ECB report, published yesterday, added: "The additional bank notes in circulation had not been returned by the end of 2009, suggesting that they are being hoarded both inside and outside the euro area."
The reports warns that such hoarding of notes is being fostered by the current low interest rates, which reduces the amounts consumers get for investing cash in banks.
And it is not that we Europeans are hiding away our cash in small change anymore.
The strongest growth in bank notes circulating was the €100 note, up 6.6% in a year, followed by the €500, which grew by 6.4%.
According to Fine Gael MEP Gay Mitchell, it was likely that the increased demand for higher denomination notes and the hoarding of cash was linked to criminal activities.
"I have raised the question of why there is a need for so many €500 bank notes. There is reasonable suspicion that not all these are used for lawful purposes as most businesses, for example, do not settle in cash."
Mr Mitchell suggested that the hidden cash in large notes was being spent on drugs or even being kept away from the searching eyes of the taxman.
He added: "Furthermore it appears that many who did very well in the boom years are keeping their cash ‘under the bed’ and awaiting a return to growth and confidence in the banking system." So who are the ones keeping those billions of euro hidden away?
The ECB report suggests that demand for euro bank notes in the wake of the financial crash "increased in particular in eastern European countries, where the national currencies depreciated against the euro".
Economist Austin Hughes last night said that the amount of money being hoarded in Ireland was relatively small and possibly less than 1% of the total cash in circulation nationwide.
The KBC economist added: "Given ongoing concerns about the banking sector, it would be normal that some element would be hoarded in terms of people putting the money in mattresses or holding onto it."
But he said that if businesses were to get access to lending, consumers needed to put their money into banks or spend it rather than storing it away as "dead cash".
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