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This paper explains and forecasts the demand for banknotes issued in Germany. For small and large denomination notes we estimate vector error correction models (VECM). The results suggest that the long-run demand for German small denomination notes is mainly driven by domestic transactions and demand from outside the euro area. The transaction motive in the rest of the euro area is part of the short-term dynamics. The long-run demand for German large denomination notes is mainly driven by foreign demand both from the rest of the euro area and outside the EMU. The global financial crisis led to a one-time increase in the (real) demand for these notes. Our results are in line with estimates according to which the level and dynamics of banknote demand are mainly determined by foreign demand. Additionally, we present RegARIMA models for the medium denominations as it was not possible to build a VECM for these denominations.

This paper models the demand for banknotes issued in Germany. It highlights that all motives for holding banknotes are present in this case. Inter alia, special attention is paid to the role of card payments. For small and large denomination notes we are able to establish meaningful vector error correction models (VECM). The results suggest that the long-run demand for German small denomination notes is mainly driven by domestic transactions and demand from outside the euro area. The transaction motive in the rest of the euro area and non-cash payments are part of the short-term dynamics. The long-run demand for German large denomination notes is mainly driven by foreign demand both from the rest of the euro area and outside the EMU. The global financial crisis led to a one-time increase in the (real) demand for these notes. Our results are in line with estimates according to which the level and dynamics of banknote demand are largely determined by foreign demand. It was not possible to setup a VECM for medium denominations for which we resort to a singleequation approach. Card payments do not play any role for the medium and large denomination categories.

According to estimates using the seasonal method, the volume of euro coins held for transaction purposes in Germany in 2011 stood at €2.3 billion; this corresponds to around 36% of the total volume of German (ie issued by the Deutsche Bundesbank) euro coins in circulation. 76% of the total volume of coins held for transaction purposes was accounted for by €1 and €2 coins. Only in the case of €2 coins has the cash stock held for transaction purposes made a significant contribution to the growth in the volume of coins in circulation in recent years. Therefore, structural models are the most suitable method of determining the demand for this denomination. Given the overall weakness in the growth of the cash held for transaction purposes, coin processing costs have, all other things being equal, risen less sharply than the volume of coins in circulation. Small denomination coins (1 and 2 cent coins) account for comparatively low shares of the coins held for transaction purposes (less than 30%). This is because they are hoarded to a greater extent in order to lighten one’s wallet or purse, or are lost. This could be used as an argument for applying a rounding rule (to nearest five cents). It is presumed that abroad German euro coins are, on balance, only held outside the euro area. There they are being hoarded on a permanent basis. Due to the inadequate data availability, the cash balance held for domestic transactions by sector cannot be fully recorded. Estimates for 2011 put them at between €0.7 billion and €1.0 billion. Households and credit institutions accounted for the largest share.

In dem vorliegenden Papier versuchen wir, den Bestand der Euro-Banknoten zu ermitteln, der sich von der deutschen Banknotenemission im Ausland befindet. Dabei unterscheiden wir nach Beständen, die außerhalb des Euro-Währungsraums umlaufen, und solchen, die in anderen Ländern der EWU zirkulieren. Die Auswertung basiert auf verschiedenen verfügbaren Statistiken und Befragungen, die hilfsweise verwendet werden (direkte Ansätze). Der Untersuchungszeitraum geht von 2002 bis 2009. Wir finden heraus, dass insgesamt ca. 220 Mrd. € an deutschen Euro-Banknoten im Ausland umlaufen. Der größte Teil, etwa 160 Mrd. €, befindet sich außerhalb des Euro-Raums, der Rest - 60 Mrd. € - läuft in anderen EWU-Ländern um. Damit entspricht der Inlandsumlauf von Euro-Banknoten in Deutschland Ende 2009 (rd. 130 Mrd. €) nur rund einem Drittel aller von der Deutschen Bundesbank in Umlauf gegebenen Banknoten (350 Mrd. €).