Don Quijones: Power & Profit Fuel War on Cash in Europe

By Don Quijones, Spain & Mexico, editor at WOLF STREET. Originally published at Wolf Street

In the wake of the attack on the Christmas market in Berlin in December, the European Commission granted customs and police authorities sweeping new powers to seize cash or precious metals carried by “suspect individuals” entering the EU. People carrying more than €10,000 euros in cash already have to declare this at customs when entering the EU. The new rules would allow authorities to seize money (or precious metals or bitcoin) below that threshold “where there are suspicions of criminal activity.”

It was the latest step in the War on Cash. The powers that want to kill off cash include private and central banks, fintech firms, Silicon Valley magnates like Tim Cook and Bill Gates, telecom behemoths, credit card giants, assorted NGOs, a bewildering alphabet soup of UN agencies and many national governments. They all have their own disparate motives for taking out physical money.

They already have vital technological and generational trends firmly on their side, as well as the the added bonus of widespread public ignorance, apathy, and disinterest. As such, cash’s days as a commonly used payment method may well be numbered anyway. But it could take decades for it to die a natural death, if indeed it does. Cash’s enemies would much rather accelerate its demise.

In Europe authorities continue to escalate their War on Cash by passing increasingly draconian laws that make it harder and harder for people — law-abiding or not — to hold or transact with physical currency. Early last year the European Central Bank announced its decision to end the production and issuance of the €500 note from 2018. 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.

In Greece, the government has taken a somewhat different tack, by fiscally punishing those who use cash for all their daily transactions and rewarding those who don’t. To qualify for tax credits each citizen must spend a certain fraction of his or her earned income using electronic money. For incomes of less than €10,000 the minimum threshold is 10%, though expenditure on utilities, rent, phone bills or loan repayment do not count. The limit rises to 15% for incomes of between €10,000 and €30,000 and reach as high as 20% for incomes of over €30,000. These kinds of (dis)incentive schemes are going to become an increasingly common tactic in the War on Cash.

The Greek government also dropped the maximum cap for cash transactions by two-thirds, from €1,500 to €500. In simple terms, any legal purchase of a good or service over €500 will need to be done with plastic or mobile money. It’s the lowest cap on cash in the Western hemisphere.

But Spain is not far behind. During the Christmas period, its government also quietly reduced the maximum limit on cash transactions from €2,500 to €1,000, which brings Spain in line with its northern neighbor, France, which was one of the first countries to introduce a €1,000 cap on cash transactions. At the time, it was a statistical outlier but could soon become the norm.

Spain has also become home to a rather curious open-air experiment in cashless economics. The northern region of Cantabria is in the process of launching a pilot scheme across numerous localities aimed at simulating a cashless society. In the localities chosen to take part in the scheme, the use of cash will not be completely banned but it will be strongly discouraged.

The scheme is being led by the region’s somewhat Orwellian-sounding Modernization Forum and is inspired by the pioneering efforts of the governments of Sweden and Denmark to erode the role of physical currency in payment transactions. In an interview with Spain’s Cadena Ser, Emilio Ontiveros, the director of the Monetization Forum (and president of Analistas Financieros Internacionales, a major financial consultancy group, and former director of bankrupt savings bank Caja de Ahorros del Mediterráneo), explained why he thought cash urgently needs replacing:

  • Cash is dirty, both literally and figuratively.
  • Cash is expensive to print and administer.
  • Cash is for criminals and tax evaders. A purely digital payment system would allow for much greater transparency, making it much easier to trace and tax funds.

An added bonus of the scheme is that it would force older generations to take a crash course in digital literacy, whether they want to or not, said Cantabria’s regional president, Miguel Ángel Revilla. Either they get with the program or they jump through hoops just trying to buy their weekly groceries. Ontiveros also mentioned, without elaborating, that cash can place unwelcome limits on the monetary policy of central banks — an oblique reference to the ECB’s beloved NIRP.

This is the key. The only way that central banks can effectively maintain negative interest rates is by abolishing cash altogether. As long as cash exists, depositors will be engaging in the logical counter measure: taking their money out of the bank and parking it where the erosive effects of NIRP can’t reach it. Therefore, central banks and governments see cash as an impediment to their power; and the tech and finance industries, which take a cut at every transaction, see cash as an impediment to their profits. And that’s what will continue to fuel Europe’s escalating War on Cash. By Don Quijones, Raging Bull-Shit.

The banking crisis in Italy and the bailout now underway conform to a well-established script. Read…  Who Exactly Benefits from Italy’s Ballooning Bank Bailout?

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25 comments

  1. BecauseTradition

    The only way that central banks can effectively maintain negative interest rates is by abolishing cash altogether. Don Quijones [bold added]

    Too strong. Petty amounts of cash can still be allowed without significantly impacting the ability to impose negative interest on fiat.

    As long as cash exists, depositors will be engaging in the logical counter measure: taking their money out of the bank and parking it where the erosive effects of NIRP can’t reach it. Don Quijones

    That’s simply solved via, say, a $250,000 individual citizen exemption from negative interest via such accounts at the central bank itself or equivalent.*

    Also, sovereign debt (except for physical fiat which can be lost, stolen or destroyed) is inherently risk-free so the absolute MOST it should yield is 0%. Otherwise we have welfare proportional to wealth, an obvious evil. And 0% is for the longest maturity sovereign debt; shorter maturity sovereign debt should yield even less, hence negative yields on short term sovereign debt. Fiat account balances (aka “reserves”) at the central bank, having no maturity wait at all, should naturally have the highest negative interest imposed on them except for the aforementioned individual citizen exemption from negative interest.

    *e.g. a Postal Checking Service forbidden to lend.

    1. OpenThePodBayDoorsHAL

      That’s all fun and games but you’ll need a new word to describe it, the word “money” would no longer apply. A financial instrument that locks in a guaranteed loss from inception (NIRP) does not meet the definitions: it’s no longer a store of value or a unit of account. You can call it “credits” or something like that, from a dystopian sci-fi movie.

      1. BecauseTradition

        It’s not fun and games; it’s the elimination of welfare proportional to wealth while:
        1) Allowing individual citizens to have risk-free, negative interest-free liquidity/savings up to, say, $250,000 US.
        2) Preserving the ability of the central bank to sterilize fiat creation with the sale of sovereign assets – negative yielding sovereign assets to avoid welfare proportional to wealth.

        Would the value of the dollar fall when foreigners can no longer buy welfare with it? Yes, quite likely, imo, but that should boost exports and employment. Note also that negative interest removes fiat from the economy and, by itself, would make remaining fiat more valuable because scarcer. This would lead the rich THEMSELVES to demand deficit spending so they could pay the negative interest on their accounts with cheaper or at least not more expensive dollars.

        Dystopia? My bet is that it is injustice that leads to such and to Divine Judgement not long after. I suggest we repent to avoid a lot of unpleasantness. Let’s start with welfare for the rich.

    2. Jim

      Re: $250,000 exemption : this will be lowered over time to about 0, a la the argument “The Income Tax rate will never exceed 4%” from the income tax debate in the 1910’s.

      1. BecauseTradition

        Maybe, but my bet is that eliminating welfare for the rich will greatly reduce the need for big government to ameliorate the consequences thereof.

  2. Teddy

    “An added bonus of the scheme is that it would force older generations to take a crash course in digital literacy, whether they want to or not, said Cantabria’s regional president, Miguel Ángel Revilla. Either they get with the program or they jump through hoops just trying to buy their weekly groceries. ”

    Why do these technophiles don’t even try to avoid an impression of comic book supervillains? Either Grandma starts generating profits for Silicon Valley, or she should starve, who needs her anyway.

    1. Katharine

      I’ve always been skeptical about the actual digital literacy of younger generations anyway. Sure, they virtually all know far more than I about various apps and media, but from things I read online I get the impression a lot of them are clueless about security. Does that kind of knowledge really qualify as literacy? And when techies insist we all just have to use technology, when they surely know the majority even of those using it are not using it wisely or safely, should we assume nefarious ulterior motives?

  3. TomDority

    Digital security being so good, what could go wrong.
    Good thing electric grids are immune from stoppage.
    Good thing information systems and manipulations by 3rd parties is a thing of the past.
    What a marvelously redundant and stabile system

    1. TimOfEngland

      If the grid went down & therefore the Internet with it for any length of time greater than a few days then the only “currency” you would need would be ammunition, whiskey,tobacco ,gold, water, food etc. (choose your order).

  4. Disturbed Voter

    Just because someone can profit from some change, doesn’t mean we should allow that change. Unregulated profit is white collar crime, particularly given how political campaigns are financed. Only full on totalitarianism supports the move to digital cash controlled by the State (as opposed to Bit Coin). If people want to freely use debit cards, credit cards or Bit Coin … I see no problem, nothing is risk free, including Bit Coin. The intent is for the tax code to require full accountability to the last penny, where minor tax avoidance is impossible. This can be fought by radical simplification of the tax code, including eliminating taxes on individuals, for income or sales. The corporations are in cahoots with the State anyway, and they have lawyers and accountants. Let them pay all the taxes. I would pay higher costs in the market, to avoid dealing with the tax man directly. This also simplifies the number of entities the tax man has to deal with, to entities they are already dealing with, minus the little man. Of course, simplify the tax code for the corporations too, but tax them, because that promotes the flow of credit out of the market, back into the State, who created it in the first place. It takes both carrot and stick to make credit flow … and regulate monetary induced inflation.

  5. bengt gunnar

    Digital payments are really good for big brother to control what his small brothers and sisters do.

  6. olga

    As usual with similar schemes, no one is thinking through the full, possible consequences.
    Wonder whether this may lead to more barter between the unfortunate citizens?

    1. OpenThePodBayDoorsHAL

      Yes what could go wrong? Considering that 85% of the world’s financial transactions are cash, Visa/MC, SWIFT, ACH, FedWire, Paypal, China UnionPay, Alipay and all other electronic forms represent 15% of transactions

  7. McWatt

    “All we are asking for, gentleman, is for 2.75% of every transaction on the planet, and all the government
    wants is complete access to monitoring every transaction on the planet for taxing purposes. What is so terribly wrong with that?”

    Every time I deposit or withdraw cash at my bank I have to present my driver’s license. It is all ready happening.

  8. PaulHarvey0swald

    “This note is legal tender for all debts, public and private.”

    At the risk of sounding naive, doesn’t this count as a contract? An agreement, at least, between counter parties and the federal government.

    Of course that won’t stop TPTB. But Olga has the right idea. People will always find a way. When “cash” transactions cost more than an straight up trade it makes sense to make the trade. Or, for $101 I’ll set up a $100 “throw away” card linked to an anonymous temporary person. For 25 cents per card, it won’t be all that hard to find an anonymous temporary person — if even a real person is necessary.

    1. ABasLesAristocrates

      Why steal a social security number when you can just tell the feds’ database that your fictional identity has always existed and is a fine, upstanding citizen to boot?

  9. andyb

    The ultimate in a cashless society will be the theft of your money through a bail-in when your TBTF bank’s balance sheet begins to implode. It is fairly obvious that in the absence (5 years now) of GAAP accounting rules for banks, the big ones are all technically insolvent. Be afraid, be very afraid.

    1. flora

      TBTF banks calling for the elimination of cash restores my faith in the TBTF banks’ financial soundness. /s

  10. Tom Paine II

    Telling comparative statistics regarding the evolving uses of US cash are the number of $20 and of $100 bills in circulation per $1 bill in circulation. It is reasonable to suppose that the lower denominations reflect the usage of cash in day-to-day transactions, whereas $100 bills (for most people, even today) reflect relatively few payday-type transactions, plus off-the-record big-time wheeling and dealing/storage.

    In 1995, there were 67% as many $20 bills as $1 bills; by 2015 this had risen to 75%. By contrast, in 1995 there were 38% as many $100 bills as $1 bills; by 2015 this had risen to 95%. Despite their far greater shelf-life, today about as many new $100 bills are printed as new $1 bills.

    In billions of dollars, the relative growth of the proportion of cash held in $100 bills is dramatic. In 1995, the circulating amounts held per $1 bill in circulation were, for $20, and $100 bills respectively, $13 and $40. In 2015, the amounts were $15, and $95.

    See https://www.federalreserve.gov/paymentsystems/coin_currcircvolume.htm.

    1. flora

      Go to the grocery story and see how much a single bag of regular groceries costs today.

      The US has the world reserve currency. It used that status to curry favor in far away places by, say, air dropping pallets of shrink wrapped $100 bills onto the plains of Afghanistan and elsewhere. Wonder if air dropping pallets of prepaid debit cards would create the same level of good will and influence among the locals. ;)

      1. flora

        In Iraq alone the US dropped $12 Billion (yes, with a ‘B’) dollars in $100 bills.
        https://www.theguardian.com/world/2007/feb/08/usa.iraq1

        “The US flew nearly $12bn in shrink-wrapped $100 bills into Iraq, then distributed the cash with no proper control over who was receiving it and how it was being spent.

        “The staggering scale of the biggest transfer of cash in the history of the Federal Reserve has been graphically laid bare by a US congressional committee.

        “In the year after the invasion of Iraq in 2003 nearly 281 million notes, weighing 363 tonnes, were sent from New York to Baghdad for disbursement to Iraqi ministries and US contractors. Using C-130 planes, the deliveries took place once or twice a month with the biggest of $2,401,600,000 on June 22 2004, six days before the handover.”

        I’m sure this sort of thing has something to do with the increase in $100 bills printed. Nothing to do with the idea that “off-the-record big-time wheeling and dealing” here at home in the US is causing a rise in the number of bills printed. 3 bags of groceries is not big-time wheeling and dealing. I shouldn’t be ‘de-cashed’ because the military snafued.

        1. cnchal

          In Iraq alone the US dropped $12 Billion . . .

          Imagine it as dropping two Nimitz class aircraft carriers from the sky plus the bare hull of a third.

  11. cnchal

    Cash is for criminals and tax evaders. A purely digital payment system would allow for much greater transparency, making it much easier to trace and tax funds.

    When the peasants look at criminals, who do they look at and who are the real criminals in this story?

    Bernie Sanders: the business of Wall Street is fraud and greed.

    . . .Therefore, central banks and governments see cash as an impediment to their power; and the tech and finance industries, which take a cut at every transaction, see cash as an impediment to their profits. . .

    It’s actually a criminal conspiracy, by the elite. The only way for the peasants to fight back is to use cash as much as possible, even if it’s inconvenient or especially when it’s inconvenient.

    What the French, Spanish and Greek governments are doing by arbitrarily limiting the maximum transaction amount one can use cash for is a government crime wave.

  12. Ohnoyoucantdothat

    One issue not really discussed here but very relevant … your money stream can be cut off without notice. I know this from first hand experience. Russian sanctions came out of nowhere. One day I went to the bank to get money from the ATM and was denied. Phone call to card issuer informed me that president has signed new order shutting off access to all funds in US banks. No notice, nothing. Just dead card. I had to fly back to states and fight to get my money. So cashless is also major weapon to be used against those who displease their overlords. Now I have to grab large wad of cash every year when I’m in states so we can live. Very inconvenient and makes for nervous nights. And I only carry $100 bills as they are the only bills currency exchanges here handle.

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