European Central Bank working paper finds SMEs hold more cash and identifies higher holdings in hotels and Austria

The European Central Bank published a Working Paper analysing cash demand by European non-financial corporations using a new ECB survey conducted during a COVID-19 stress period. The paper finds that firms’ physical cash holdings are inversely related to firm size, while cash-intensive sectors and “cash-friendly” countries show higher cash holdings, consistent with cash being used as a store of value for firms, particularly in crisis conditions. Using survey responses from 10,141 firms interviewed in October to December 2021 and interval regression to estimate point values from bracketed holdings data, the study estimates that adding one employee is associated with around EUR 4.5 lower average cash holdings, with the negative relationship robust to controls including turnover, sector, country, employee size class, payments activity, payment mix, respondent role, legal type and expectations for future cash acceptance. Distributional comparisons indicate statistically higher mean holdings for hotels versus cash-poor sectors across several holding brackets, and higher mean holdings for Austria versus selected peer countries in the lower brackets, with some differences becoming statistically insignificant in higher brackets. Beyond the micro evidence, the paper points to aggregate patterns during the pandemic where both cash in circulation and overnight deposits accelerated, and residuals from a currency demand model spike at the onset of COVID-19, which it interprets as suggestive of a precautionary component. It also flags implications for central bank digital currency design, including the calibration of holding limits for businesses, and notes that repeated surveys and additional data would be needed to test precautionary and financing-constraint explanations more directly.