Germany: Last European Country with Lots of Cash Under Matresses

Do You Know Where German Excess Reserves and TARGET2 Claims Are Lying?
Under German Mattresses!

In June 2014, the ECB decided to introduce negative rates on the excess reserves of banks. We explain that German banks had already removed most excess liquidity before the ECB meeting of June 2014, and they will continue to do so. Hence hardly any German bank will pay negative rates after the recent ECB decisions at that meeting.

Most parts of the German TARGET2 surplus and banks’ excess reserves are already lying as cash under German mattresses; and there will be lying more.

Money under German Matresses TARGET2 claims are an asset in the balance sheet of  the German Bundesbank (BuBa). They have not declined at lot since the highs of 2012.  What is even more interesting is that the BuBa possesses cash liabilities for nearly the same amount, either in cash issued by the Bundesbank or issued by other NCBs, namely BuBa’s liabilities inside the euro system.





target balance

click to expand


Based on these BuBa “TARGET liabilities” it implies that the 510 bln.€ are only Germany’s Gross TARGET2 Claims, while German private sectors already extracted 224 bil. € in cash out of the euro system as advance for the German claims. (See also Karl Whelan’s 2012 paper1 )

The German Net TARGET2 Claims are hence only 286 bln. €.

Still, given the current low yields for the European periphery, it implies that these 286 bln. € are now a 100% representation of German current account surpluses with the periphery and France, a big part of the German Net International Investment Position in the Eurozone (“€NIIP”). Like the NIIP in general, it has an assets part, namely Buba’s claims (510 bil. €) and a liabilities part, namely the Buba’s euro system debt (224 bln.€).


Hardly any German banks will pay negative rates, Most Funds Already Lie in Cash under German Matresses

The 510 bln. € Bundesbank claims in the Target2 system – Bundesbank assets – correspond to the following BuBa liabilities:

  •  237 bln. are cash in circulation emitted by the Bundesbank
  • and 224 bln. € German euro system liabilities because Germans hoarded bank notes and coins emitted by other European national central banks.

The small difference between the 510 – (237+224) will soon end up under German mattresses, too.

ECB Excess Reserves May 2014

monthly Bundesbank May 2014 report (page 42* in the annex)

According to the Handelsblatt , the German Commerzbank will avoid negative rates completely. In March 2014, German banks held 27.4 bln. € minimum reserves and 31 bln. €  excess reserves at the ECB.

This is slightly misleading: in general, commercial banks maintain their ready-to-use liquidity at the NCB (national central bank), here at the Bundesbank.

Then the Bundesbank provides liquidity to the euro system (Target2) or directly to the ECB (for example ELA).

The total liquidity of German banks in the form of excess sight deposits at the Bundesbank, point (i) in the ECB statement above, had already fallen long before; and from 47.8 bln. at the end of 2013 to 31 bln. in March 2014.  The Handelsblatt did not speak of the deposit facility. However this kind of liquidity had already fallen from 41 bln. in 2012 to 10 bln € at the end of 2013.

Cash in Circulation 1998-2014

Use of cash increases in Germany and Italy, but not in Sweden, source FAZ

We reckon that most other German banks will circumvent negative rates, too: the easy way is the ever rising customer demand for cash. Cash in circulation in Germany has increased by 179% since 2001 (graph).



The following is an overview of the Bundesbank’s most important balance sheet items. In 2013, cash in circulation emitted by the Buba edged up by 5%, cash emitted by other NCB by 10%. But since the latter cash (number 9.2.) is owned by the German private sector, the Bundesbank is liable for it.


Bundesbank Balance Sheet 2013 versus 2012 (most important items)

Assets(End 2013) in bln. €(End 2012) in bln. €Liabilities(End 2013) in bln. €(End 2012) in bln. €
1. Gold94.9137.51. Cash in circulation237.3227.2
2. Claims not in €2. Liabilities in € against banks/MFI
2.1 Claims on IMF20,822.32.1. Sight Deposits of banks/MFI83.9129.6
2.2 Claims on non-euro Deposit Facility10.740.5
5. Claims in € for monetary policy4. € Liabilities vs. others in euro area10.539.9
5.1. Main refinance38.22.95. € Liabilities vs. others outside euro area52.083.3
5.2. Longterm refinance13.769.78. IMF rights13.514.1
7. € denominated securities9. Liabilities inside the euro system
7.1. Securities for monetary policy55.867.5 9.2. Liabilities due to bank notes distribution 224.2 200.3
8. Claims against German State4.44.412. Provisions19.218.9
9 Claims inside the euro system (TARGET2)13. Adjustment due to revaluations88.1132.6
9.1. Claims against ECB2.02.014. Owners' equity55
9.2. Claims caused by transfer of currency reserves to ECB10.910.915. Profit4.60.6
9.4. Other claims inside the eurosystem510.5 654.9
11. Others
11.3. Financial Assets11.812.1
Total Assets8011025Total Liabilities8011025
Source Bundesbank Balance Sheet 2013

For completeness here is the Bundesbank’s balance sheet of 2011 where cash emitted from Buba or other NCBs was up 25% against 2010 and stood at 392 bln€.


When Fed’s Fischer now says that Draghi is the real European president, then we ask why?

Maybe because he managed to remove 400 billion € out of the European banking system and to convert it into cash?


  1. At the same time, the Bundesbank’s Intra-Eurosystem liabilities relating to excess banknote issuance have also been steadily increasing in recent years. Standing at €192 billion at the end of September 2012, these liabilities represent a significant offset to Bundesbank’s TARGET-related liabilities. source []
George Dorgan
George Dorgan (penname) predicted the end of the EUR/CHF peg at the CFA Society and at many occasions on and on this blog. Several Swiss and international financial advisors support the site. These firms aim to deliver independent advice from the often misleading mainstream of banks and asset managers. George is FinTech entrepreneur, financial author and alternative economist. He speak seven languages fluently.
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