The amount of cash in circulation reached HUF 4,572 billion at the end of last year, up 6% compared to the end of 2015, analysts from the National Bank of Hungary (MNB) said in a research paper on Friday, as reported today by Hungarian news agency MTI.
Cash in circulation has been steadily growing in Hungary since 2009. The annual pace of growth was around 17% in 2013 and 2014, slowing to 15% in 2015, and was down even further last year.
The growth of cash has outstripped the pace of GDP growth. Cash in circulation amounted to a little over 7.5% of GDP in 2005, but the ratio was near to 13.5% by the end of 2016.
According to data from the European Central Bank, in 2015 Hungary had the second highest cash-to-GDP ratio in the EU at 12%, behind only Bulgaria with a ratio of 13%.
The rapid rise in cash in circulation can be partly explained by falling deposit interest rates and yields between 2012 and 2017, which presented a weakening incentive to keep savings in bank accounts or in other savings instruments rather than cash. The pace slowed in 2016 as interest rates did not fall significantly further and no individual effects occurred, the MNB noted.
MNB analysts said the rise of cash in circulation has been lifted by several one-off factors such as payments from the private pension funds which were renationalized in 2011, compensation to clients relating to FX-denominated loan conversions by banks, under legislation passed in 2014, and payments to consumers from the National Deposit Insurance Fund (OBA) after the failure of several brokerages in 2014.
Banks must guarantee retail clients the option of two free-of-charge cash withdrawals a month since 2013 as part of government moves to lower individualsʼ banking expenses. The move has not had any additional effect on the rise of total cash in circulation, according to the MNB research note. It said that the value of cash withdrawals has risen but at a far slower pace than total cash has grown, and the number of cash withdrawal transactions actually fell between 2012 and 2016.
Although the transaction duty introduced on most money transactions at the start of 2013 is twice as much on cash withdrawals than on other payment methods, it could in fact rather encourage the use of cash in cases when economic players have revenue or income in cash, the MNB researchers noted.
Overall, the research found that householdsʼ payment habits have not changed significantly following the introduction of free cash withdrawals and the transaction duty. They referred to a recent MNB study that revealed no rise in cash-based payments of households.
In Hungary banknotes make up an overwhelming majority of cash in circulation by value, accounting for as much as 98%. The two biggest-value banknotes (HUF 20,000 and HUF 10,000 notes) accounted for 92% of value last year.
Based on electronic payment statistics, the analysts said that a greater part of cash in Hungary is used for savings purposes while a smaller part is used for making payments.