In June, Poland’s M3 money supply surged by 38.5 billion zlotys, far exceeding economists’ forecasts. What caught their attention even more was the sharp rise in the amount of cash in circulation. According to analysts, Poles are increasingly holding physical money outside the banking system, motivated largely by safety concerns.
The National Bank of Poland reported that the annual growth rate of M3 reached 11.8 percent, above the consensus estimate of 11.1 percent. However, the composition of the increase proved most intriguing: cash played a dominant role. Analysts at Bank Pekao noted that the so-called „cash paradox” – the growing importance of physical currency despite advances in digital payments – remains firmly in place.
The jump in demand for cash seen during 2020-2022, equivalent to about 2.5 percent of GDP, was considered temporary by many. Yet the long-term trend shows that cash in circulation has been rising consistently faster than nominal economic growth would suggest. The current acceleration appears to be driven by a combination of factors.
The cash paradox persists
– The phenomenon we are dealing with may have many causes: from behavioral, through economic and demographic – said analysts from Bank Pekao. Behaviors include holding cash reserves for security reasons. Economic factors involve the shadow economy. Demographics play a role as older people and migrants often have limited access to digital financial services.
Another possible reason, the analysts added, is insufficient awareness of alternatives. Last year, total annual sales of retail treasury bonds equaled only one month’s inflow of deposits into the banking sector. This suggests that many households are not aware of, or do not trust, alternative savings instruments.
Behind the trend: behavioral and economic drivers
The data underscores a shift in how Poles perceive financial safety. While bank deposits are still the dominant form of savings, the rising share of cash indicates a cautious stance. The spike in cash holdings first observed during the pandemic and then after Russia’s invasion of Ukraine has not fully subsided. Instead, it appears to have become structural.
Some economists warn that a continued preference for cash could complicate monetary policy and reduce the effectiveness of interest rate transmission. However, for now, the trend is being driven by household choices rather than any systemic weakness in the banking sector. The Polish banking system remains stable and well-capitalized.
Observers note that the phenomenon is not unique to Poland. Many European countries have seen similar patterns since 2020, though the pace in Poland has been relatively high. The combination of geopolitical tension, inflation concerns, and a still-developing digital financial infrastructure likely contributes to the sustained demand for physical currency.
Źródło: WNP.PL, Fot. Shutterstock/Sheviakova Kateryna
