“It would be fatal if citizens got the impression that cash is gradually taken away from them”: Bundesbank President Weidmann.
By Don Quijones, Spain & Mexico, editor at WOLF STREET.
Over the last couple of days, bureaucrats at the European Commission and European Central Bank have expressed a keen interest in withdrawing the €500-note from circulation – barely a week after former Standard Chartered CEO Peter Sands published a report calling for the exact same measure. Allegedly the currency of choice for organized crime outfits around the world, the so-called “Bin Laden bill,” accounts for close to a third of the total amount of cash in existence in the Eurozone.
Then on Tuesday, Larry Summers, in an effort to keep his name in the media by hook or crook, called for the death of the $100 bill, though he lamented that removing existing notes was probably “a step too far”:
But a moratorium on printing new high denomination notes would make the world a better place. In terms of unilateral steps, the most important actor by far is the European Union. The €500 is almost six times as valuable as the $100. Some actors in Europe, notably the European Commission, have shown sympathy for the idea and European Central Bank chief Mario Draghi has shown interest as well.
We have warned for over two years (here, here, here and here) that a loose, albeit powerful, coalition of governments, central banks, big banks, credit card companies, fintech firms, NGOs, and large corporations seeks to pull the plug on cash, for their own disparate motives.
Those motives include sustaining and even intensifying the central banks’ nightmarish experiment with negative interest rates, increasing public dependence on big banks, destroying the last vestiges of personal financial freedom and anonymity, expanding government surveillance of and control over the economy, and in the case of credit card companies and fintech firms, doing away with their biggest competitor, physical currency.
The powers that want to kill off cash already have vital technological and generational trends firmly on their side, as a result of which cash’s days as a commonly used payment method may well be numbered anyway. They also have the added bonus of widespread public ignorance, apathy, and disinterest.
Yet despite all the factors stacked in the favor of cash’s would-be executioners, there is a danger of overstating their prospects. All too often we hear about the countries in Europe and elsewhere that are furthest along the path toward a completely cashless existence — countries with high levels of public trust in public institutions such as Denmark, Sweden, Australia and Singapore. By contrast, we hardly ever hear about countries where public trust is low in government and financial institutions and physical cash is still revered. They include many of the nations of the Global South as well as two of the world’s biggest, most advanced economies, Germany and Japan.
In Germany, recent government proposals to ban cash payments above €5,000 have triggered a fierce public backlash, reports The Guardian. The country’s bestselling newspaper, The Bild, published a scathing open letter on Monday titled “Hands Off Our Cash,” while a broad spectrum of political parties has condemned the proposed measures as an attack on data protection and privacy.
“Cash allows us to remain anonymous during day-to-day transactions. In a constitutional democracy, that is a freedom that has to be defended,” tweeted the Green MP Konstantin von Notz. Even the head of the Bunderbank, Jens Weidmann, criticized the government’s proposals, telling Bild (emphasis added): “It would be fatal if citizens got the impression that cash is being gradually taken away from them.”
According to a recent Bundesbank study, approximately 80% of payments in Germany are made in cash. Even among millennials, two-thirds say they prefer paying in cash to electronic means.
Germany’s neighbor to the south, Austria, has similar reservations about the EU’s plans to suppress cash. The Deputy Economy Minister Harald Mahrer recently said that Austrians should have the constitutional right to protect their privacy.
“We don’t want someone to be able to track digitally what we buy, eat and drink, what books we read and what movies we watch,” Mahrer said on Austrian public radio station Oe1. “We will fight everywhere against rules” including caps on cash purchases, he said.
Meanwhile, in tech-obsessed Japan, the country that first popularized mobile wallets and smartphones, cash is king. It is offered and excepted reverentially even when paying for groceries. Every ¥10,000-note is treated with utmost care. As a rule, they’re pristine. Demand for cash remains solid, to the increasing consternation of global credit card companies. In a 2013 report, MasterCard estimated that 38% of the total value of the country’s retail transactions were in cash. That’s almost twice the rate in the U.S. and five times the rate in France.
At ¥90 trillion ($885 billion), or about a fifth of gross domestic product, the value of banknotes in circulation is the highest in the world as a proportion of the economy. Indeed, many small businesses — including two of Tokyo’s 13 restaurants with the highest rating of three stars in the famed Michelin guide — don’t even take plastic, the Wall Street Journal reported a couple of years ago.
It’s impossible to identify, at least with any great precision, the exact reasons for two of the world’s most advanced economies’ continued love affair with cash. In Japan safety appears to play an important role, claims the FT. Given that muggings are rare, people feel quite safe carrying around the equivalent of hundreds of dollars in their pockets or handbags. According to a recent survey in Germany, many people believe that using cash is a better way of keeping track of their personal finances as well as protecting their privacy and anonymity.
As the survey points out, the real point isn’t so much that Germans love cash. It’s that they loathe consumer debt. This is one thing that the people of Japan and Germany both have in common, as is their relatively fresh memory of economic crises and brutally repressive political dictatorships. Perhaps this partly explains their reluctance to embrace some of the more dystopian implications of a cashless society.
But at the very least it may serve as a rallying call for cash lovers around the world as well as a timely reminder that the global technocratic dream of a cashless nirvana is by no means a foregone conclusion. By Don Quijones, Raging Bull-Shit.
The war on cash has been escalating. But now there’s the first major offensive. Read… It’s Official: Cash is Now Public Enemy Number One