August M
Rising geopolitical tensions and economic shocks are pushing many Europeans to rethink how they manage money. Concerns about blackouts, cyber attacks and wider conflict have revived interest in one old-fashioned financial safeguard.
A new analysis from the European Central Bank suggests that during periods of uncertainty, people often turn back to physical cash, reports The Express.
Surges in demand
According to reporting by The Express, the European Central Bank (ECB) says major crises repeatedly trigger a rush to withdraw cash.
The bank pointed to several recent events including Russia’s 2022 invasion of Ukraine, the global financial crash of 2008, Greece’s debt crisis in 2014 and the Covid-19 pandemic.
In a report cited by The Express, the ECB said: “Russia’s full-scale invasion of Ukraine in February 2022 triggered a significant surge in cash demand, concentrated in several neighbouring countries.”
The report added: “This is a common response to the pervasive uncertainty that armed conflicts and geopolitical tensions introduced regarding institutional stability, state capacity and the resilience of critical infrastructures.”
Suggested reserve
The ECB noted that countries closest to the Ukraine conflict saw some of the biggest spikes in withdrawals.
Demand rose particularly in Estonia, Latvia, Lithuania, Slovakia and Finland, according to the bank’s findings.
Authorities in some places have therefore suggested households maintain a modest emergency supply of physical money.
The ECB says guidance in several countries places that amount between €70 and €100. The bank explains: “Cash offers certainty concerning its nominal value, immediate access and privacy. Heightened loss aversion during crisis, coupled with varied individual perceptions of stability, make cash a tool for satisfying risk-averse individuals’ demand for direct liquidity insurance.”
Limits of cash
Evidence from a major blackout in the Iberian Peninsula last year also highlighted how dependent many payments are on digital systems.
The ECB said card usage fell by 54 percent during the outage, while demand rose for banknotes including €10, €20 and €100 bills.
Cybersecurity specialist Juan Carlos Galindo told the Spanish newspaper LaRazon that keeping some physical money available is sensible preparation.
However, he warned that most modern banking is digital and that financial institutions typically hold only 10 to 20 percent of deposits in cash. If everyone tried to withdraw money simultaneously, there would not be enough banknotes available.
The ECB stresses that emergency cash is meant only as a precaution that could help households manage for roughly 72 hours while key infrastructure is restored, not as a replacement for the wider financial system.
Sources: The Express, European Central Bank, LaRazon
