Pro & Cons for Abolition of Cash Payments
Cash is already on its way out in Sweden, and now in Germany the government is fighting to define limits for cash payment, either as a European decision otherwise also single-handedly. Even though single-handedly is relative here, because in fact, many European countries have already introduced a limit defacto. So what in Germany is still emotionally charged public debate, has already been reality in many other European countries. In France and Portugal the ceiling on financial transactions with cash is at 1000 €, in Poland at 15,000 €.
The German consumer is definitely against the limit, while the German retailers are still striving to find creative concepts to lower the costs of cash handling, without risking turnover.
Time for us to look at expert opinions. Frank Rehme and Kathrin Mussmann have led the discussion.
Who needs cash money nowadays? The answer is difficult to answer from a rational point of view. The business areas that benefit from cash at most are often criminal in nature. Informal economy, money laundering and even extorting ransom is made possible only through cash money. The shadow economy (and only in Germany) has a money volume of over € 350 billion€, money that goes untaxed and is not used for social functions. The transfers to tax havens and money washes from criminal activities are not even included. Moreover, cash is a great value destroyer: Cash disposal (or cash handling) is an enormous cost factor, thus destroying value and a significant risk of loss.
Every sector is affected by this destruction of value:
- Retail: Interest losses, expenses at the PoS through expensive cash processes, high infrastructure costs in the back office through security systems, cost for security service companies, insurance costs, general cash handling monitoring.
- Central Bank: Production costs, complex distribution.
- Banks: Cash handling and processing, insurance costs, interest losses and charges for security services companies.
- Citizens: expenditure for acquisition, interest losses.
The Steinbeis Research Center for Financial Services identified following costs for the use of cash money in a study in 2013
- Macro Economy: € 8 billion per annum
- Private sector costs: € 12 billion per annum
- Cash costs for the banking sector: € 4.5 billion per annum
- Cash costs Retail: € 7 billion per annum
The per capita cost of the cash system for our citizens amount to 150, – Euro per year.
Finally, the study concludes that the economic costs of card payments are significantly lower. The shift away from cash could reduce the cost of the underground economy annually by 35 billion euros. The end of cash money could also increase the tax revenue of the State and significantly strengthen the social systems.
Of course, there is a fear that might suffer trade turnover including – but actually show examples from countries such as France and Sweden, that this is not the case. The consumer gets used to it rather quickly and lost sales himself the luxury trade in France after the introduction of the 1,000 € limit for cash transfer is not listed.But why was cash ever invented? The original task was also a rational founded: to find an alternative to barter, who at that time was more elaborate. With the introduction of electronic transfer of currencies this task has become superfluous, it only takes a long time to condition the people again. But it makes sense!
Of course, there is a fear of loosing trade turnover – but actually examples from countries such as France and Sweden show that this is not the case. The consumer gets used to it rather quickly and even the luxury trade in France did not suffer substantial losses after the introduction of the 1,000 € limit for cash transfer.
Since – why was cash ever invented? The original task was also rationally founded: to find an alternative to barter, who at that time was more elaborate. With the introduction of electronic transfer of currencies this task has become superfluous, it only takes a long time to condition the people again. But it makes sense!
Is the desire for privacy and freedom of choice of payment method irrational? The fear of criminal abuse is often consulted by many supporters as an argument. It seems questionable whether the limitation or elimination of cash would really cut short the imagination of criminals. And, especially in these days we need to answer, how much freedom we are willing to sacrifice that people exploit this for criminal purposes.According to a study of BITcom (www.bitkom.org) two thirds of Germans prefer payment by cash. The reason is this often stated, “that they can control their own finances better.” Thus, if two-thirds of our society take the liberty of self-determination to do business with their cash money, it’s not time to abolish this form of payment.
But there are also numerous other arguments against the abolition of cash:
- The experiences with money in childhood have a direct impact on the future financial behaviour. Digital transactions can not be recognized as tangible money value by young children. Or can you imagine the stories from the first candy-buying without cash?
- The trend towards always younger people falling into debts could be negatively affected. Cash delivers to many people – especially in low-income groups – the ability to keep track of their spending without much effort.
- Cash leaves no digital tracks and protects the privacy of consumers. To meet this need of customer groups, a variety of alternative payment solutions and currencies such as individual vouchers or coupons would probably evolve.
- Experts believe that the creeping expropriation by negative interest rates will threaten the consumer, if payments only can be processed by banks and third-party. See also: die-schleichende-enteignung-der-buerger
- Self-determination! The choice of means of payment should be left in the hands of enlightened and decisive Consumers. And they should not be forced to always carry technical aid – just because they want to buy an ice cream after jogging.
Economically, there are certainly many reasons to move away from cash. Yet are really only market-based arguments of rational nature?