Cash balance hits new record

According to data by the National Bank of Hungary (MNB), the amount of cash in circulation in Hungary exceeded HUF 6,600 billion last December. See the chart below.

Source: MNB

The current level of currency has accumulated over a long period of time and will take some time until it drops, said Márton Nagy, vice president of MNB. Government Security Plus (MÁP Plus) of Hungary will play an important role in assisting this process. In fact, MÁP Plus plans to stabilize household savings rates at around 10%.

Incentives

Consider the measures that would support a constant decline of the ratio of cash.

For example, scrapping the financial transaction duty, which makes using current accounts considerably more expensive for both banks and their clients, would be a large incentive.

Using bank transfers for only paying salaries could also help decrease the amount of cash in the economy.

In the meantime, free cash withdrawals from ATMs could be abolished. Today, clients can withdraw money from ATMs up to HUF 150,000 two times a month free of charge. Limiting cash use beyond a certain amount, or making bank card acceptance/use mandatory for stores, would also help shrink the cash balance.

Financial awareness and MÁP Plus

Raising people’s financial awareness is of utmost importance. This would further support the restructuring of savings. With the introduction of the new retail government security, MÁP Plus, the costs of holding cash hassignificantly increased. MÁP Plus guarantees on average a 5% risk-free yield on a 5-year tenor.

The overall premium paid for 5 years 27.35%. In other words, one who holds their savings in cash would lose HUF 270,000 on every million during the same period of time. Thanks to favorable redemption conditions, MÁP Plus can be suitable for short-term investors as well.

Easy access should be provided for those holding their savings in the form of cash, so that their investment habits are changed.

MNB expects that, by getting Magyar Posta and other sales channels more involved, people living in the countryside whose only alternative for saving has been holding onto cash will have greater access to alternative savings vehicles.

Whitening the economy

Reducing black markets and the grey economy would be important as well. This can be done through increased investigations, stricter penalties and, a further reduction of taxes on labor. The above listed measures could also help curb tax evasion, which is a hotbed of cash use.  

Announcing a tax amnesty program could help too. Besides a lump-sum payment of tax, any income not yet charged to tax could be converted into scriptural money. 

Property boom

Last March, György Barcza, then head of the National Debt Management Agency (ÁKK), said that the end of the property boom has created the cash equivalent of HUF 1,000 billion that is currently looking for a place to settle. At a macroeconomic level, this amount would cover all property purchases and renovations.

With the introduction of MÁP Plus, the price increase in the property market would slow down, as the security is filling a big niche and offers a very good alternative for property investors as well.