OREANDA-NEWS. November 06, 2014. Before the adoption of the euro, a large amount of cash is deposited in bank accounts, savings are brought to the bank to facilitate the exchange of these for euros, so the amount of cash in circulation decreases at the adoption of the euro, as appears from the new Baltic Household Outlook prepared by SEB.

Historically, the ratio between cash and bank deposits in Latvia has been one of the highest compared to other European Union Member States. Three months before the euro changeover, cash balance made up 25 per cent of the volume of deposits in Latvia. At the moment of the changeover, however, the situation had significantly changed: At the beginning of 2014, cash made up only 7.6 per cent of the deposits in Latvia, which is lower than the average of the eurozone (9.9 per cent).

“The dynamics of the deposits in Latvia shows that during the first few months some of the money that was brought to banks was withdrawn again, but the decrease in the balance of deposits was temporary and was instead related to seasonal factors,” Edmunds Rudzitis, SEB Latvia’s social economy expert commented.

The ratio between cash and deposits in Lithuania is currently the highest compared to the other Baltic States. However, there is reason to believe that by the end of the year, this difference will decrease significantly as the current rate of growth of deposits in Lithuania is faster compared to that in Estonia and Latvia before the adoption of the euro. In the first quarter, an average of 2,190 litas (EUR 634) in cash was at the disposal of each person in Lithuania, whereas in Estonia and Latvia, an average of EUR 297 and EUR 680, respectively, was at the disposal per person in the first quarter of the year preceding the adoption of the euro. “We can assume that the adoption of the euro will make Lithuania more similar to other eurozone countries with regard to the proportion of cash deposition and cash transactions and that this effect will be long-term,” Julita Varanauskiene, economist at SEB Lithuania, speculated.

In Estonia, the ratio between cash and bank deposits at the moment of the euro changeover was extremely low – only 2.9 per cent. Over the past three years, this number has increased again. In the first quarter of 2014, cash was used in 12 per cent of the volume of bank deposits in Estonia. “The change in this ratio has not been caused by the decrease in the balance of deposits, but the increase in the amount of cash as a result of the increase in income. At the same time, the interest rates of the deposits are very low, which is not a good motivator for keeping one’s money in a bank. Which proportion of their income families continue to keep in cash depends on the general economic situation, the attraction of capital investment solutions offered by banks, the general attitude towards cash and cash transactions as well as other factors,” Triin Messimas, Development Manager of Private Loans at SEB Estonia, added.

Read the full Baltic Household Outlook, in English, here: www.seb.ee/BHO_okt_2014_esitlus and view the presentation here: www.seb.ee/BHO_okt_2014