Cash is king no more in Germany as cards gain ground

A German debit card is seen in the slot of an ATM in Berlin. (File Photo: AFP)
Updated 14 February 2018
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Cash is king no more in Germany as cards gain ground

FRANKFURT: Cash no longer makes up most of the money spent in Germany, a Bundesbank study showed on Wednesday, denting a historical supremacy over other means of payment rooted in the country’s longing for privacy and freedom.
The Bundesbank has been a staunch advocate of cash in the face of a global shift to electronic forms of payment such as debit cards and an international debate about the idea of digital-only money issued by central banks.
But a survey of about 2,000 people by the German central bank showed debit and credit cards were gradually gaining ground in the country, even if cash remained the country’s favorite form of payment.
“Cash remains the most popular, but card payments are increasing,” Bundesbank board member Carl-Ludwig Thiele said.
Cash accounted for 47.6 percent of German transactions by volume last year, down from 53.2 percent three years earlier and below the half mark for the first time since polling started in 2008, the survey showed.
Cards grabbed a 39.4 percent market share last year compared to 33.4 percent in 2014, mirroring a global trend that has long taken hold in many other countries including Sweden and Britain.
Internet payments also grew but still accounted for a modest 3.7 percent of total volume.
Germans and Austrians are the biggest users of cash among countries in the euro zone’s richer “core,” according to a recent study by the European Central Bank (ECB).
This preference has been associated with worries about privacy and a deeply ingrained diffidence toward the state, which some trace to the era of the Nazis and of communist East Germany.
The Bundesbank survey found most Germans thought that cash was useful to teach children about the use of money and to ensure a better control of one’s personal finances.
The vast majority also believed the abolition of notes and coins would cause problems to parts of the population, such as the elderly, while only just over a third saw it as a way to fight tax evasion and money laundering.
Speaking at the same conference, the Bundesbank’s president Jens Weidmann said getting rid of cash or replacing it with digital money issued by central banks would be the “wrong response” to the challenges faced by central banks at times of low inflation.
The idea of a digital currency giving holders a direct claim on the central bank is under study by Sweden’s Riksbank and has been touted by some academics as a way to extend the reach of monetary policy when interest rates on deposits are below zero.
But Weidmann rejected it and defended the use of cash and means of payments that go through commercial banks.
“(Getting rid of cash) would be the wrong, completely disproportionate response to the policy challenges of the zero lower bound,” he said.
“The same goes, obviously, for the introduction of digital central bank money with the aim of crowing out cash and enforcing negative rates across the board.”
He echoed the ECB’s view that giving depositors an option to hold money directly at the central bank would worsen bank runs at times of trouble. Weidmann added that it was up to central banks to promote more efficient payment systems that would quash the appetite for private digital tokens such as Bitcoin.
A German government plan to push for an upper limit of €5,000 to cash payments met fierce resistance two years ago, including by the country’s own central bank.
And the Bundesbank mounted a lonely opposition around the same time to the ECB’s move to retire the €500 note, its highest denomination, due to suspicions it was used by criminals. Thiele said on Wednesday he still hoped the purple bill would make a comeback when a new series of euro banknotes is unveiled.


Dubai property developers put bond plans on hold

Updated 44 min 35 sec ago
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Dubai property developers put bond plans on hold

  • Dubai property prices have fallen since a mid-2014 peak, hurt by a period of weak oil prices and muted sales
  • Residential prices fell 6 to 10 percent in 2018 and are expected to drop 5 to 10 percent more this year

DUBAI: Dubai’s Emaar Properties and state-owned developer Nakheel have put on hold plans to issue US dollar-denominated bonds, Emaar and sources familiar with the bond issues said, amid a real estate downturn and volatility in emerging markets.
Emaar told Reuters that it had put on hold a planned bond issue, blaming rising interest rates but did not elaborate. Nakheel declined to comment.
Three financial sources said the firms had planned dollar-denominated sukuk, or Islamic bonds, and would have had to pay a yield premium to attract enough investors due to concerns about Dubai’s property price slide and emerging market volatility.
Dubai property prices have fallen since a mid-2014 peak, hurt by a period of weak oil prices and muted sales, although the slide has not come close to the more than 50 percent plunge seen in 2009-2010, which pushed Dubai close to a debt default.
Residential prices fell 6 to 10 percent in 2018 and are expected to drop 5 to 10 percent more this year, according to Savills. The drop has hurt developer earnings.
Emaar, developer of Burj Khalifa, the world’s tallest building, reported a 29 percent fall in the third quarter last year, while Dubai’s second-largest listed developer DAMAC reported a 68 percent drop.
The financial sources said Emaar and Nakheel hired banks a few months ago to issue Islamic bonds but shelved the plans.
An Emaar spokesperson said its decision to put its plan on hold was not linked to the property market performance.
“The bond was considered more than a year ago and was put on hold due to increasing interest rates. The decision was not based on market conditions,” the spokesperson said.
Dubai government owns a minority stake in Emaar.
Nakheel, developer of palm shaped islands off Dubai, was one of the worst hit by Dubai’s 2009-2010 real estate crash, forcing it into a massive debt restructuring. It has not issued public debt since it nearly defaulted in 2009.
The market downturn has put pressure on property companies’ existing bonds, which investors use as a parameter to establish the price of new debt sales from borrowers in the same sector.
In secondary debt markets, yields of bonds issued by Dubai developers have risen significantly over the past few months, underperforming corporate debt from other sectors.
DAMAC’s $500 million sukuk due in 2022 and $400 million Islamic paper due in 2023 saw their yields spike by over 200 bps and 150 bps, respectively, since early November.
BofA Merrill Lynch last week forecasted weaker booked sales and gross margin for DAMAC, saying it was likely to be pressured by the property market and upcoming debt and land payments.
DAMAC did not immediately respond to a request for comment.
Yields on a $600 million sukuk issued by private developer Meraas, due in 2022, have jumped by around 120 basis points in the same period. Meraas declined to comment on the move.