Why do we still use old-fashioned paper money? When everything else in society is going digital, shouldn’t paper and metal cash be consigned to the history bin? Electronic payments are quick, efficient, and don’t weigh down your wallet. In forward-looking Sweden, for example, only 20% of payments in shops are made using cash (well below the global average of 75%).
Proponents of a “cashless society” argue that paper money facilitates corruption, organised crime, and even terrorism. However, critics point out that electronic payments cannot be made without leaving digital traces, potentially allowing the government to snoop into our business even more than it already does. Also, transaction fees for small amounts can be prohibitive, and some people worry we would be making ourselves more vulnerable to cybercriminals and hackers.
Saving with cash is easier for many than with a credit card, the current right to a basic account in Europe can not prevent high fees for card payments and those in need do not have a card reader. However, the European Commission is planning a European-wide law to limit cash in 2018. Why? Are there reasons for this?
In 2016, the European Central Bank stopped producing 500 euro banknotes. In 2017, the Commission proposed an initiative to restrict cash payments in order to help tackle money laundering and organised crime. So, where does the Commission stand on this issue? We reached out to the European Commission for comment, and a spokesperson gave us the following statement:
[…] The Commission believes strongly that our economy needs and will continue to need cash. That said, it is true that certain high nominal value banknotes – most of which citizens never see in their daily lives – are particularly attractive to criminals. Some 30% of the bank notes in circulation are EUR 500 bank notes, although these are rarely used by citizens and businesses. The European Central Bank, which has exclusive competence in this matter, decided in May 2016 to phase out these notes, a useful instrument in the fight against money laundering, tax evasion and organised crime. The Commission is currently evaluating whether any action is potentially needed at EU level on limiting cash payments of very high value, as part of its Action Plan to strengthen the fight against the financing of terrorism. Several Member States already have such limits. If it were to be decided that action is taken on this matter, this would by no means limit the possibility of normal citizens to pay with cash.
What do our readers think? We had a comment from Marc, wondering why cash should be abolished. We took his question to Dorothea Mohn, who works as a team leader on financial services at the Consumer Center, a German consumer protection organisation. What would she say?
We, as a consumer protection society, see no good reasons for the abolition of cash but, of course, there are stakeholders who are interested in such a thing, such as banks. If we imagine there was no cash then, in the case of a financial crisis, consumers could not come up with the idea of simply withdrawing their money and then placing it under their pillow or in a safe… The “bank runs” we have seen in other countries would no longer be possible. Negative interest rates also become more attractive if consumers cannot withdraw cash…
Of course, some businesses also support this idea, because if everything can only be paid digitally – and because digital transactions are not anonymous – you can harvest a lot of important and interesting data, from which you can build advertising and marketing strategies.
There are, therefore, many stakeholders in the economy interested in abolishing cash for their own benefit.
For another perspective, we also spoke to Carl-Ludwig Thiele, a member of the Deutsche Bundesbank’s board of directors who is, among other things, responsible for cash. What was his take?
Some economists argue that with cash transaction limits, monetary policy could be more effectively enforced, especially with regard to negative interest rates. For example, interest rates could be cut below zero, which would allow for additional stimulus to the economy, because people would spend their money rather than make it shrink. This argument may be correct, but the underlying intention is flawed: fundamental problems such as the growth and earnings weakness of economies cannot be remedied by cash transaction limits. To achieve this goal, other solutions must be found; the abolition of cash for monetary policy reasons is flawed.
Another reason to introduce a limit on cash transactions is reportedly to curb crime, tax evasion, and undeclared work. The Deutsche Bundesbank is not aware of any studies which have demonstrated the benefits of cash payment restrictions convincingly. The German Bundesbank is also not aware of the fact that there is less crime in countries which cash transaction limits than in Germany.
Should cash be abolished? Does it it help facilitate corruption and organised crime? Let us know your thoughts and comments in the form below and we’ll take them to policymakers and experts for their reactions!