Asset euroization

Euro cash holdings

One dimension of asset euroization is the use of foreign currency cash as a safe store of value or as a secondary means of payment. The OeNB Euro Survey provides unique direct evidence on foreign currency cash Holdings. For a comprehensive overview on the use of euro cash as a store of value in CESEE since 1997 see Bittner and Scheiber (2022).

• Frequency of euro cash holdings among residents; biannual averages across time.

• Amount of euro cash holdings per capita; averages

• Currency substitution index, i. e. the ratio of euro cash holdings to total currency in circulation; averages

The three main findings of the OeNB Euro Survey on euro cash holdings are:

• First, the share of respondents holding foreign cash is substantial in some CESEE countries and varies considerably across countries.
• Second, the currency breakdown reveals the predominant role of the euro in all the countries analyzed.
• Third, in particular Southeastern European countries which had exhibited a rather high share of euro cash in total currency in circulation in 2007 (currency substitution, see Scheiber and Stix 2009) witnessed a substantial decline both in the relative importance of euro cash holdings in individual portfolios and in the absolute value of euro cash holdings.

• Share of respondents who have a strong cash preference

Studying the phenomenon of cash preference in greater depth, Stix (2013) shows that a lack of confidence in the banking system (in particular a perceived lack of deposit security) is a key factor in explaining individuals’ strong preference to hold sizeable shares of their assets in cash at home rather than with banks. The recollection of past banking crises aggravates this effect. Furthermore, weak institutional frameworks, e.g. the poor quality of legal enforceability or tax collection, as well as a low penetration of banks, constitute significant factors that explain the strong preference for cash. Finally, Stix (2013) provides empirical evidence that the preference for cash is stronger in euroized economies.

Savings

Back in 2007–08, saving in cash was common in CESEE. Half of the CESEE population did not have a bank account or savings deposit back then. While financial inclusion has increased since 2007–08, owing a current account or a savings deposit does not necessarily imply that a person holds any savings. In 2020–21, less than half of the respondents on balance reported any savings, i. e. cash, deposits or other financial assets. On average, only 22% of CESEE residents have savings deposits with banks. The OeNB Euro Survey also provides information on alternative forms of investment, e.g. life insurance, mutual funds, bonds and shares, which play only a minor role.

• Share of individuals who have any savings (cash, deposits, life insurance, bonds, stock or exchange traded funds); multi-annual averages

Monetary statistics show that a substantial part of household deposits at banks are denominated in foreign currency, predominately in euro. The share of foreign currency deposits in total household deposits has decreased substantially in Southeastern Europe over the past 10 years, except for Albania and Romania, where the deposit substitution index continued to rise. Currency preferences for savings deposits remained largely unchanged in five countries, while in Croatia, Bosnia and Herzegovina and Serbia, the preference for deposits in local currency increased and in Romania and Poland, it decreased.

• Frequency of savings account among residents; multi-annual averages

• Deposit substitution index, i.e. ratio of foreign currency deposits to total deposits of the household sector, annual averages

• Hypothetical savings decision: respondents were asked in which currency they would deposit a certain amount of money (comparison of 2011/12 with 2021/22)

Overall extent of euroization

Combining micro data from the OeNB Euro Survey on euro cash holdings and macro data on households’ foreign currency deposits allows researchers to derive an overall measure for the degree of euroization in CESEE economies. This measure is calculated as the sum of euro cash holdings per capita and foreign currency deposits per capita over the total sum of per capita cash holdings and savings deposits (see Scheiber and Stix, 2009). The euroization index turns out to be quite stable, which indicates that persistence of individual savings behavior is high.

• Euroization index, i.e. ratio of euro cash holdings and foreign currency deposits to the total sum of cash holdings and savings deposits, annual averages