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Finance and Economy

The Case Against Phasing Out Cash

By Juan Behrend

A bizarre idea has sprouted in Europe: the need to remove hard and cold cash and permanently replace it with electronic money. It started with a discussion launched by the European Central Bank, with Draghi at the head, who wants to remove banknotes of 500 euros. The reason is that it is the preferred bill of all mobsters, money launderers, drug barons, arms dealers, con artists and big tax evaders.

Apparently (at least, according to a study referred to by all these days), these less-than-honorable people use the 500 Euro bill to bring from one country to another, and from one city to another, huge sums of money. We are talking about one hundred billion euros. If they had to be transported in notes of 50 and 20, each time it would take enormous suitcases, or trunks of the type used by our grandparents. The transfer would not only be much more expensive, but obviously easier to detect by the police, customs and tax agents; that is to say, by such officials determined that the law be respected. Add to this the argument that cash is the panacea of terrorists, whatever their rank. Another argument put forward by those touting the elimination of cash is that all of our cash-filled pockets are a hard-to-resist temptation for all criminals that are out there, dreaming  of emptying them. This is not to mention the popular sport of breaking into machines and apparatus operating with cash in order to ransack them.

With this discussion playing in the background, a spark of inspiration has suddenly ignited in some of the very vigilant minds in banks and in certain circles who spend their time imagining how to increase state tax revenues. The author of the present note is not able to identify who can claim the primacy. He only vaguely remembers that a director of the Deutsche Bank, some time ago, predicted that we were heading into an era where cash would disappear and that all transactions would be made electronically. Anyway, in a very short time, from some vague inspiration, we have entered into a formal discussion on the level of the European Commission, where a team of officials, in a very serious manner, as is usual in these circles, are already losing sleep about how to reduce the role of cash in our daily lives.

How might cash become a thing of the past?

The method is quite simple: just impose a ceiling on the amount of transactions that can be performed with our dear banknotes and coins. The amount which seems to conquer the greatest number of supporters is 5,000 Euros. Some favour 3,000. Others admire the amount of 1,000. And finally, there is no shortage of the most draconian, which are in favor of taking decisive steps towards the outright abolition of cash. For them, payments, whatever their amount, must be made from now on with cards, on-line, with cell phones or devices sensing our fingerprints, the iris colour of our eyes, or even the size of our feet.

When you talk to any one of the fanatics of this last category of thinkers about the future of our wallets, with every second sentence they whip out the example of Sweden, which is, today, already a country with virtually no cash. It is the same country where I can go to the nearest tax administration headquarters and ask to see my neighbour’s tax return without any restrictions and without the necessity of a court order.

The author recognises that the topic causes hives and chills. It is for that reason that he is asking to be indulged if he cannot help but mention some suspicion. It is clear that in a period of practically negative interest rates and the extreme instability of the financial system, a lot of people have put their small or medium savings, if they have them, under the pillow or mattress. Those with more foresight, if they have a nest egg, guard it like treasure. This practice does not sit well at all with the bankers. The reason is simple: this money has escaped the banking circuit, so it does not bulge or leverage the banks’ existing financial resources nor even cover the usual costs required by banks commensurate with the amount deposited. The equation is not complicated: if customers do not deposit their money in their accounts, the bank does not earn commissions; nor can it inflate their creditworthiness. The losses are immense.

Privacy under threat

It is also understandable why the eyes of all tax agents are glistening. From the moment cash is eliminated, the weekly pocket money kids get for their daily spending will be recorded as part of eligible transactions, as they so elegantly say, to be taken into account when fixing the taxable amount. The same applies that, from that moment, every movement, every bouquet, every dinner, and every gesture of solidarity will be recorded and will be controllable.

The era of the see-through man and woman will come. It will never be possible to have a lover or an unexpected encounter with a friend from the old days, the child of an encounter with a stranger or an anonymous gesture of friendship, without the treasury and banks being aware and being witness. Not to mention diseases which are better left unknown, unsavory payoffs to resolve an unforeseen problem, and so much more, and although it is not illegal, people may prefer to remain anonymous or unknown.

The same would apply to all donations, gifts, presents, alms and tips. And, by the by, any attempt to create a local currency will have to face insurmountable obstacles. In general, any attempt to use your money to launch whatever alternative project would have to suffer the humiliation of transparency and public control.

Nevertheless, it is possible that, for the moment, we can hope that this is just a mirage; a nightmare that will soon disappear. Our only guarantee, although it sounds paradoxical, is the corruption of our politicians. While it continues – which seems a safe bet – the elimination of cash has no chance of being adopted, no matter the number of the experts testifying on its behalf. As long as bribes, bribery, kickbacks and corruption continue to exist, hard cash will continue to exist.

The Case Against Phasing Out Cash