Burkhard Balz: Foundations of Resilience - the Role of Cash and the Digital Euro

Why It Matters

A dual‑track approach safeguards the euro area’s payment infrastructure, protecting consumers and the monetary system from digital disruptions and future crises.

Key Takeaways

• Cash demand spikes during crises, reinforcing its resilience role
• Digital euro design includes offline payments for network outages
• EU legislation couples digital euro rollout with stronger cash mandates
• Bundesbank’s extensive ATM network keeps cash within 1.4 km of users

Pulse Analysis

The resilience of a payment system is no longer a theoretical concept; it is a strategic imperative for central banks and policymakers. While cash has long served as the ultimate fallback—offering no credit risk, privacy, and independence from electricity—recent research shows that demand for banknotes surges during financial shocks and pandemics. In Germany, for example, the Bundesbank maintains roughly 51,000 ATMs and 21,000 bank branches, ensuring that the average citizen lives within 1.4 km of a cash‑access point. This dense physical network provides a tangible safety net when digital channels falter, underscoring why cash remains a cornerstone of monetary stability.

At the same time, the rapid shift toward electronic payments introduces new vulnerabilities, such as reliance on power grids, internet connectivity, and complex processing platforms. The digital euro is being engineered to address these gaps by offering offline transaction capability, 24/7 availability, and a European‑controlled infrastructure that limits dependence on foreign tech providers. By integrating the digital euro through existing banks and payment‑service providers, the Eurosystem preserves continuity with current financial relationships while extending central‑bank money into the digital realm. This hybrid model aims to protect the euro’s credibility against competing private stablecoins and foreign digital currencies.

Legislative momentum is building through the Single Currency Package, which simultaneously codifies a legal framework for the digital euro and reinforces the obligation to accept cash across the euro area. With the European Parliament’s decision expected soon, the next phase will involve a real‑world pilot that tests person‑to‑person, point‑of‑sale, and e‑commerce use cases, including the critical offline feature. The projected 2029 launch gives regulators and technologists ample time to fine‑tune security, user experience, and crisis‑management protocols. Ultimately, the coordinated development of cash and the digital euro promises a more robust, inclusive payment ecosystem capable of withstanding both everyday demands and extraordinary shocks.