By Tom Sims, Marta Orosz and John O’Donnell

FRANKFURT (Reuters) – German authorities are stepping up preparations for emergency cash deliveries in case of a blackout to keep the economy running, four people involved said, as the nation braces for possible power cuts arising from the war in Ukraine.

The plans include the Bundesbank, Germany’s central bank, hoarding extra billions to cope with a surge in demand, and possible limits on withdrawals, one of the people said.

Officials and banks are also looking at distribution, discussing for example priority fuel access for cash transporters, said others, commenting on preparations that accelerated in recent weeks after Russia throttled gas supplies.

The planning discussions involve the central bank, its financial market regulator BaFin, and multiple financial industry associations, said the people, some of whom spoke on condition of anonymity about plans that are private and in flux.

Although German authorities have publicly played down the likelihood of a blackout, the discussions show both how seriously they take the threat and how they struggle to prepare for potential crippling power outages caused by soaring energy costs or even sabotage.

They also underscore the widening ramifications of the Ukraine war for Germany, which has for decades relied on affordable Russian energy and now faces double-digit inflation and a threat of disruption from fuel and energy shortages.

Access to cash is of special concern for Germans, who value the security and anonymity it offers, and who tend to use it more than other Europeans, with some still hoarding Deutschmarks replaced by euros more than two decades ago.

Roughly 60% of everyday purchases are paid in cash, according to a recent Bundesbank study that found Germans, on average, withdrew more than 6,600 euros annually chiefly from cash machines.

A parliamentary report a decade ago warned of “discontent” and “aggressive altercations” in case citizens were unable to get their hands on cash in a blackout.

There was a rush for cash at the beginning of the pandemic in March 2020, when Germans withdrew 20 billion more euros than they deposited. That was a record, and it worked without a hitch.

GRAPHIC: German dash for cash in crisis (https://graphics.reuters.com/UKRAINE-CRISIS/jnvwyeggevw/chart.png)

But a potential blackout raises new questions about possible scenarios, and officials are intensively revisiting the issue as the energy crisis in Europe’s largest economy deepens and winter nears.

If a blackout struck, one option for policymakers could be to limit the amount of cash individuals withdraw, said one of the people.

The Bundesbank processes cash moving through Germany’s shops and economy, removing fakes and keeping circulation orderly. Its massive stocks make it ready for any spike in demand, that person said.

NO JUMPING THE LINE

One weakness that planning exposed involves security firms that transport money from the central bank to ATMs and banks.

The industry, which includes Brinks and Loomis, is not fully covered by law guiding priority access to fuel and telecommunications during a blackout, according to the industry organization BDGW.

“There are big loopholes,” said Andreas Paulick, BDGW director. Armoured vehicles would have to line up at petrol stations like everyone else, he said.

The organization hosted a meeting last week with central bank officials and lawmakers to press its case.

“We must preventively tackle the realistic scenario of a blackout,” Paulick said. “It would be totally naive to not talk about this at a time like now.”

More than 40% of Germans fear a blackout in the next six months, according to a survey last week published by Funke Mediengruppe.

Germany’s disaster office said it recommended people keep cash at home for such emergencies.

German financial regulators worry that banks are not fully prepared for major power outages and view it as a new, previously unforeseen risk, said an official with direct knowledge of the matter.

Banks consider a full-scale blackout “improbable”, according to Deutsche Kreditwirtschaft, the financial sector’s umbrella organization. But banks nevertheless are “in contact with the relevant ministries and authorities” to plan for such a scenario.

It said finance should be considered as critical infrastructure if energy is rationed.

At times politics can get in the way of blackout planning.

In Frankfurt, Germany’s banking capital, one city council member proposed requiring it to present a blackout plan by Nov. 17.

The politician, Markus Fuchs of the right-wing AfD party, told the council it would be irresponsible not to plan for one. But the other parties rejected the proposal, accusing Fuchs and his party of inciting panic.

Fuchs later said in a phone interview: “If we found a solution for world peace, it would be rejected.”

The issue also underscores the dependence of commerce on technology, with transactions increasingly electronic, and where most cash machines have no emergency power source.

Cash would be the only official payment method that would still work, said Thomas Leitert, chief of KomRe, a company that advises cities on planning for blackouts and other catastrophes.

“How else will the ravioli cans and candles be paid for?” Leitert said.

He said that he has long been warning authorities of blackout risks but that planning has been inadequate.

(Reporting by Tom Sims, Marta Oroszko and John O’Donnell; Editing by Tomasz Janowski)

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