“Cash Must Not Be Made the Scapegoat”

By Don Quijones of Spain, the UK, and Mexico, editor at Wolf Street. Originally published at Wolf Street

The proposed EU-wide cash restrictions could come into effect as early as this year. But defenders of physical cash have an unexpected ally in their struggle: Yves Mersch, a member of the European Central Bank’s executive board. In a speech hosted by the Bundesbank last week, the Luxembourgian central banker exalted cash’s value as legal tender and heaped scorn on the oft-heard argument that its anonymity only helps criminals.

“Protection of privacy matters to all of us. Privacy protects people from the risk of a surveillance state and thought police,” he told his audience. “No particular link can be established statistically between cash and criminal activities. The focus must be on the fight against crime. Cash must not be made the scapegoat.”

One of the world’s biggest issuers of notes and coins, the Bundesbank was a fitting location for a speech on the virtues of physical money. In total, €592 billion of the €1.1 trillion of banknotes in circulation at the end of 2016 were issued by the Bundesbank.

Judging by recent statements, the Bundesbank wants to preserve this arrangement. Bundesbank president Jens Weidmann, who is hotly tipped to replace Mario Draghi as ECB president in 2019, has warned that it would be “disastrous” if people started to believe cash would be abolished — an oblique reference to the risk of negative interest rates and the escalating war on cash triggering a run on cash.

That didn’t stop five national governments — Cyprus, Bulgaria, Belgium, Portugal and Denmark — from approaching the ECB last year to consult on measures to limit the use of cash, according to Mersch. Meanwhile, Sweden is widely regarded as the most cashless society on the planet. “No cash accepted” signs are a common sight in shops and eateries as payments go digital and mobile, Bloomberg reports. A full 36% of the population never use cash, or just pay with it once or twice a year.

But the pace at which cash is vanishing is beginning to worry Swedish authorities. If it disappears too quickly, it could be difficult to maintain the infrastructure for handling cash, one Swedish official warned. Most of the country’s bank branches have stopped handling cash altogether and many shops and restaurants now only accept plastic or mobile payments. As a result, many people who struggle to navigate the digital system, in particular the elderly, are finding themselves increasingly locked out of the country’s payment system.

This dystopian trend underscores one of the oft-ignored benefits of physical cash: its universality. “The easy accessibility to cash, especially for the elderly, the socially vulnerable or minors, allows people to participate in society and, for example, allows children to learn how to handle money,” said Mersch. “In particular, when socially vulnerable people use cash, they face none of the barriers involved in applying for a credit card or, despite all their efforts, opening a current account.”

Mersch’s speech at the Bundesbank was not the first time he had publicly defended physical money. In an April 2017 article for Project Syndicate titled “Why Europe Still Needs Cash” he lambasted advocates of a cashless society, which he divided into three main camps:

The first camp, the alchemists, wants to overcome the restrictions that the zero lower bound (ZLB) imposes on monetary policy. The second, the law and order camp, wants to cancel the primary means of payment for illicit activities. And the third camp, the fintech (financial technology) alliance, anticipates major business opportunities arising from the elimination of the high storage, issuance, and handling costs of cash that the financial industry currently faces.

But most of the arguments for going cashless wilt under scrutiny, Mersch says. Negative interest rates, which “should be understood as a specific non-standard monetary-policy instrument” (i.e. a short-term emergency measure), have worked without triggering a massive flight to cash, he says. Meanwhile, harming the decent majority of people who continue to use cash in order to punish a misbehaving minority would be like “cracking a nut with a sledgehammer – and breaking the table it is on in the process.”

Ultimately the most pertinent argument against imposing a cashless society in Europe is that most people don’t want it. In the summer of 2017, 95% of respondents to a European Commission survey said they were opposed to a cash ceiling at EU level. Less than 1% of the more than 30,000 people consulted were able to think of a single benefit of the EU unleashing cross-regional cash limits.

There are plenty of reasons to worry about living in a cashless (or “less cash”) society, including the vastly increased power it would grant to political and monetary authorities as well as the near-impossibility of ever escaping from the clutches of the banking system or central banks’ monetary experiments.

If anything, recent efforts to make it harder to use cash in Europe are having the opposite effect. According to data cited by Mersch, growth in overall demand for cash is outpacing nominal GDP growth.

In the last five years, the average annual growth rate of euro banknotes was 4.9% by value and 6.2% by piece. This rise includes denominations that are predominantly used for transactions, rather than for savings.

In other words, despite the preponderance of digital alternatives, most Europeans do not seem ready to give up notes and coins just yet. According to Mersch, they have nothing to worry about: printed euro banknotes “will retain their place and their role in society as legal tender for a very long time to come. There is no alternative to euro cash.”

It sure would be nice if he’s right. But many very important people, institutions, and companies — especially those that process electronic payments and take their cut on each transaction — think differently. By Don Quijones.

What happens if cases like this prove to be the rule rather than the exception? Read…  On Closer Inspection, Debt of Bankrupt Spanish Construction Firm Grows Four-Fold

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  1. cripes

    It may not be total, everywhere, at the same time, but it’s coming at us anyway.

    And how many ways will we be required to “participate” by incurring mandatory debts, various insurances, mandating the houseless without the funds to be housed on pain of legal sanction?

    Annnd, the millions (billions?) of people already living at the margins of market society who scrape by in the gray economy? Fuck ’em.

    Welcome to another level of surveillance, ratcheted ever higher.

  2. homeroid

    I always carry cash. If for some reason the machines don’t work,be it power or natural disaster, cash will help in the interim. Our systems break. Cash will get you through times of no plastic readers better than plastic readers will get you through times of no cash.

    1. Jean

      Can vouch for that. Power failure recently where we live. At our local market the registers didn’t work and neither did the credit card readers.

      People packed the place to buy supplies before it got dark. CASH or LOCAL CHECKS ONLY. The management and owners, being right there, handled the situation beautifully. “Ice cream-half price!” People bought it all as it was melting. Some deep human need to avoid waste? A corporate store would have shut.

      The look on the face of the techbros and Yoga Princesses that got to the head of the line and realized that their credit cards, Apple Pay, Google Swipe or whatever the hell it’s called didn’t and couldn’t work was priceless. They left empty handed and lucky for them the power was on a few hours later.
      Just remember Puerto Rico and their power failures anytime some idiot talks about the convenience of cashless systems.

      Make sure and keep a small stock of 1’s, 5’s and 20’s. Hide some in your car for emergencies. Never leave on a long trip without them–and water, enough for a couple days if you’re stuck somewhere.

  3. The Rev Kev

    A few idle thoughts from an idle fellow. The arguments by a younger generation that cashless is the way to go is not particularly impressive to me. I remind myself that this the same generation who happily traded away any and all privacy for the sake of ‘convenience’ so you forgive my looking askew at this idea. On thinking it over, I would say that in a society that favours ‘savers’, then cash is great for encouraging this but in a ‘consumer’ society, it will favour digital payments to both encourage debt and discourage savings for the sake of consumerism. I once saw British officials boast about this idea.
    A known philosophical question has been what sound a tree makes if it falls in a forest unobserved. I would counter with the question of what sound an economy makes in a cashless society when either the power or phone lines go down (crickets). When our area lost power during a major flood a few years ago, the cash that I had enabled us to buy essentials that we had trouble getting. Our local chemist was still open being a vital service but it was all being done by hand and in semi-darkness until power returned a few days later. Cash still made an economy for essentials possible.
    Cash forms the lubricant in any society to smooth the running of the wheels of the economy and though a cashless society appears to run seamlessly without it, it can only be done by abandoning both sections of the economy and those not in a position to be able to use it. Think of all those millions of Indians who did not even have any access to banks whatsoever in their villages finding that 86% of all their cash was being abolished. It is not surprising that the Germans are resisting this trend. The German word for debt is Schuld. And so is the German word for guilt. Its a cultural thing based on history.
    And who has access to all the information about purchases in a cashless society? OK, the government, but would not a neoliberal government want to sell that info to the private sector for profit? And who would love to know exactly what you buy? I heard one bloke describe this trend as herding people into digital slaughter-pens and you wonder how far off the mark he is. Look at it this way. It costs governments money to print and distribute cash & coins, right? Going cashless and forcing people to invest resources into bank accounts, cards, mobiles, etc means that the cost have been shifted from the government over to people with the gravy of a massive database of info on exactly what people are doing with their lives.

    1. charles 2

      It is technically possible to have electronic cash that has exactly the same anonymity level for the consumer than physical cash. I.e. you retrieve it at the bank, you spend it at a merchant where the merchant doesn’t know your name and gives you an anonymous receipt. What is lacking is the political and commercial will to implement it.

        1. human

          Just load, or receive, a gift or cash card anonymously, however, this is currently considered money-laundering when done by a consumer.

          1. polecat

            The use of a gift or cash ‘card’ is still predicated on the power grid functioning in a reliable manner, in order to process and distribute whatever ‘assets’ are digitally contain therein … I would posit that, due to ongoing crapification of most systems, be they wares, soft or hard, ‘reliability’ will be wanting !

            ‘If you want your card, you can keep your card’ …. it just may not work as intended …

      1. Jim A.

        Of course the government COULD put a real hurting on the anonymity of cash by mandating that banks scan the serial numbers of bills. In fact, if cash becomes regarded by most people as “for criminals,” I could easily imagine this being done.

  4. Ignacio

    Talking about criminality, if societies were to be cashless and all electronic transactions registered and traceable, criminal activities could easily move to criptocurrencies specifically designed for those activities. Heroinecoin and Bombcoin.

    Regarding the arguments exposed in the article, the strongest one against cashless societies is the social exclusion of certain minorities.

    1. Yves Smith Post author

      *Sigh* Look at Bitcoin. As Mark Carney said, it’s a failure as currency. You can’t use it in transactions and it is not a store of value. Your Heroincoin would be like taking payment in baseball cards. The only people who’d take them are other baseball card aficionados. Why would I sell valuable heroin for nearly-useless chits?

  5. Ook

    Middlemen taking their cut in electronic payments is a cost, but cash transactions are not free, and at some point the electronics become cheaper.
    For the swipe system I use, I estimate the cashier saves about 20 seconds per transaction (no change required ever). Multiply that by a few thousand transactions a day and you start talking about real money for a convenience store, plus you don’t need to start the day with a float of cash in the register to handle the inevitable string of customers that come in with large bills and small purchases.
    Importantly, China regulates transactions so WeChat charges a commission that is normally 0.6%, but which can be as low as 0% (for school fees and medical institutions), with settlement at T+1. compared to the much higher commissions our institutions are allowed to charge for credit card transactions.

    1. Yves Smith Post author

      Um, have to disagree. Chip cards are very slow to validate in the US. Takes time to fish out a card, pretty much never less than cash. And I don’t know what the deal with ApplePay etc is, but getting the app lined up and then getting the device to recognize it is slower than a card, which I don’t see as any faster than cash and often slower (plenty of times I have to do multiple swipes or chip inserts on top of the slow authentication). And most stores with swipe and even chip cards over a certain amount require a signature.

      1. JCC

        Two other issues:

        1) merchant fees on credit cards are infinitely higher than merchant fees on cash
        2) no protection (in the U.S.anyway) for stolen debit cards

        Am I missing something here?

        (I mention #2 based on a co-worker who had some cards lifted from his wallet. He immediately turned in a report. The bank covered the credit card charges but told the co-worker to take a hike on the debit card – no proof that he didn’t give the thief his pin, i.e., he couldn’t prove a negative)

        1. cripes


          You have to report stolen fraudulent charges to the debit card issuer bank within 72 hours
          (Consumer Debit Card Protection Act)

          Although it took me months to get the money back from my crappy bank.

          I expect on those loading cards at the bought at the checkout line, you’re SOL.

          1. JCC

            Which is exactly what he did and the Bank covered the credit card, but unfortunately for him his bank would not cover the debit card.

            Since the thief had also gotten his pin from his computer that was also stolen and was left logged in (according to him) and she got the PIN off his system, he could not prove that he did not give her the PIN.

            I asked someone in the know about this sort of thing and was told that many banks do not cover debit cards for this reason – there is no way to prove that the victim did not give up his/her PIN voluntarily.

            The funny (not so funny, actually) thing about all this is that he should have known better considering a PIN is essentially 2-factor identification – 1) What You Have and 2) What You Know – and he is a Sys Admin that deals with this sort of thing daily.

            The point/lesson being “NEVER write down your PIN anywhere!” If you write it down it can quickly becomes 1) What Somebody Has and 2) What Everybody Knows. Then, if you don’t have it …

            It literally stalled his career, and probably stalled it permanently.

            But it is also a strong reminder to all that Debit Cards are risky and Guard your PIN.

            1. polecat

              I quit, many years ago, from using a debit card because I had a tendency to over-draw, and of course got dinged w/ bank charges for my impulsiveness ! So I changed my spending habits, and either use cash, or a ( only 1) ccard if able to payoff balance when bill is due each month (rarely over two months !).
              The point I’m trying to make is that it’s not just young folk who get caught-up in the siren song of CONvenience … and, for many, it’s a hard addiction to shake off !

      2. visitor

        Last time I looked into it, ApplePay is actually a software layer for managing, authenticating and performing electronic transactions with a mobile phone, which uses an underlying virtual prepaid card issued by Discover, which is bound to a bank account at Green dot Bank, which itself must be topped from the end-user own bank account.

        With so many players involved in that cumbersome construction, the resulting payment scheme cannot be cheap, and I doubt cash would be more expensive.

        As for transactions being inherently as fast as other kinds of cards, I have no idea.

        1. perpetualWAR

          In addition, using your PHONE to conduct BANKING is actually insane. Those phones can be hacked so easily. And taking a picture of your check to deposit? Never! The laziness of Americans will be our downfall.

          I just heard from a local realtor that title/escrow companies are attempting to push clients to “e-sign” their closing documents. Someone please tell me how you can ensure that your “e-signature” will not be used for several “notes.” Signing anything using e-sign is a terrible idea. In fact, my suggestion is to actually SIGN the promissory note and buy an item that will emboss your signature onto the original document. Those of us who have gone through this last round of phony promissory notes have tales to tell. Those of you who choose to ignore our hard-learned education….beware.

        2. Harrold

          ApplePay can be linked to any credit card you own. The Vendor does not see that credit card, only a 1 time cypher provided by your IPhone.

        3. Tony Wright

          Also, the more moving parts the more that can go wrong. The KISS principle should always rule when function is the intended outcome.
          Not to mention the increasingly paranoid and authoritarian governments inextricably “embedded”(sorry, that is the polite term only…) with the financial elites.
          And as for Sweden, f… ‘Em. They are off my bucket list.
          And how about this for an idea- currency consolidation as France did in the early 1960s- one new franc = 100 old francs? So 1 for 10 with USD, CAD, ASD, Euro etc, and 1 for 100 for lower value currencies like Yen, Rupees, and 1 for 1000 for really low value currencies like Dong and Rupiah? Save a bit on printing all those zeroes.
          And surely hacking electronic accounts can do far more damage quicker than forging banknotes. E.g the recent bitcoin hack of over $500m?
          Then back all currencies to the safe anchor of gold, – and then find something useful to do for all those overpaid forex traders, maybe trying to fix the planet before we completely F… It up.

    2. lyman alpha blob

      I disagree. All those time-saving swipes come with a cost too. There’s a reason small convenience stores like the one across the street from me don’t allow card payments for small purchases – the card fees eat up most of their profit margin.

      This gets to the crux of it –

      And the third camp, the fintech (financial technology) alliance, anticipates major business opportunities arising from the elimination of the high storage, issuance, and handling costs of cash that the financial industry currently faces.

      Already we are seeing fintech companies inventing new systems to insert themselves into the electronic payment process, not just as a third party but as a fourth or more. Each of those parties takes their cut from any transaction. Turn these companies completely loose, and merchants will be wishing they could still pay somebody to count the cash.

    3. Doug Hillman

      A merchant yesterday told me plastic is a k’ching ding of 3%, which is 50% more than local muni sales tax — without a farthing of public service. Plus, they have to pay a card reader subscription fee on top. AND, merchants are contractually prohibited from offering cash discounts if they subscribe to the service. A classic monopoly racket, facilitated by banksters’ in-pocket legislators.

      I smiled and I told him it was so very kind of them not to pass that cost on to me. He smiled back and said, “that’s why it’s called swiping.”

    4. davidly

      Not once in these last several years of card, chip, or app payment technology have any of the people in front of me completed their transaction more quickly than I did. I can only conclude that cash is faster.

  6. Disturbed Voter

    Inverse totalitarianism is still totalitarianism. The desire to enslave people, will always crash and burn, eventually. Why allow greed and convenience drive us to that? I still use some cash, just to keep that option open. A debit card, even more than a credit card, encourages mismanagement of one’s impulse expenditures. Apparently we need to return to the way the household was managed … by my grandparents. You don’t let convenience tempt you to spend like a drunk sailor.

    1. jrs

      Yes but people are also using electronic payment systems to save money or so they perceive. So it often has nothing to do with wanting to spend like a drunken sailor. If you are chasing after small points or cash back from a card,what is that? Penny wise and pound foolish? Yes on a decent income that’s kind of what it seems. But it’s the kind of over the top frugality thinking that financial hardship and financial fear more than anything could drive one to (assuming they can still get a credit card etc. which of course is hardly everyone).

      1. Disturbed Voter

        Middle class people have it good (if you are still middle class). So nothing to worry about, Big Corp or Big Gov will take care of you. Chasing fractions of a cent? Mindless optimization, much like accounting in Big Corp or Big Gov. It is all about quantity, not quality. But quality can’t be quantified.

        Back in the late 80s, when you could first use a credit card at a grocery store … I could see the writing on the wall. We are lucky the Soviet Union collapsed first (but it won’t be the only one).

  7. lyman alpha blob

    What happens in Vegas stays in Vegas. Well not if you pay with a card. When I worked as a bank teller, I could get a very interesting profile of anyone who had made too many purchases with their debit cards.

    Next time you go to the bank and the teller lights up into a big grin as they’re viewing your bank account, it may not just be because they’re glad to see you.

  8. Teddy

    Argument about the supposedly unbearable costs of maintaining cash is certainly one of my favourites. Handling banknotes is a cost to eliminate, but I guess card and fintech fees are a value added to the economy? Something something disruptive enterpreneurship?

    Also, wouldn’t the rise of purely cashless economies create a massive profit opportunity for central banks that would resist the trend? If even North Korea can’t stop its subjects from using foreign exchange, then Western governments (at times uncapable to enforce even their most essential laws) certainly couldn’t.

  9. DJG

    Many interesting points in the article and in the comments: The most remarkable is that 95 percent of those in the poll don’t want cash restricted and it is happening anyway. So who benefits? As we see with so many systems, digitization is a way of skimming–those endless convenience fees. No one ever seems to question how much organizations truly spend on the back end, which means we don’t have any sense of why an e-portal is insisting on a $2.00 fee to issue a theater ticket or accept payment of your electric bill.

    Another point is that kids should learn how to handle cash. Someone behind the counter at a liquor store joked to me the other day that the younguns don’t know how to make change. Making change is a basic skill (mathematical and social).

    I also agree with Yves Smith that U.S. chip cards are remarkably clunky and slow. So are U.S. ATM transactions.

    I’m also wondering why Cyprus and Portugal would restrict cash. Those countries both have regions that aren’t exactly hotbeds of digitization and a cashless Republic of Cyprus is going to have trouble reuniting with the Turkish pseudo-state up north once it collapses under the weight of Erdogan’s follies…

  10. perpetualWAR

    I will never ever use a debit card/credit card again. All anyone has to do is become a party in a lawsuit wherein the other party subpoenas your bank statements. My right to privacy demands that NO ONE, including tellers or bank managers, know what I buy and where.

    Cash is king.

    1. jrs

      this would also mean never using checks or electronic transfer. I can’t even imagine paying all bills in cash though. So I went over to the health insurer and gave them a few hundred for this months premium, then I gave my landlord a big stack of hundreds for this months rent …

      1. perpetualWAR

        You go to the post office, get a money order and send them the payment. Easy peasy.

        If we don’t USE cash, we LOSE cash.

        Interesting story, though. I went to pay a business I owed through USBank (the businesses account, I would NEVER use these [family blog]) and USBank insisted on obtaining my SSN and the place I worked. I asked “Is this the war on cash?” They said “Absolutely not, its to comply with Bank Secrecy Act.” I then pulled up BSA and read to them that unless I was depositing $10,000 cash or being ‘suspicious,’ their actions were not in compliance with BSA. I then went back and googled “USBank and Bank Secrecy Act.” I found this link:


        Which made me laugh so hard. So, USBank got popped by the Feds for continued unreporting of billions of dollars in suspicious cash deposits, but is now worried about my $789 cash payment? LOL

  11. Chauncey Gardiner

    While a global cashless monetary system where every transaction can be tracked and controlled might be a wet dream of totalitarian political leaders, mega-banks, fintech companies, and monetary economists everywhere, policy makers might reflect on the massive failure of Modi’s demonetization policy in India which resulted in contraction of that nation’s economy. It particularly damaged small business, the lower middle class and the poor, but received scant attention in the US business press although covered here on NC.

  12. DolleyMadison

    As someone who had their entire online transaction history wiped out by BofA for having the audacity to provide these records as proof of payment, this seems very sinister. On hold right now regarding 2,000 deposit that was made 2 weeks ago but is still not credited to my account. I have receipt with picture of check, and the phone system acknowledges the deposit yet it is not reflected in my balance. Letting the banks, who have proven themselves corrupt beyond all measure, decide who has “money” and who doesn’t is suicide for all but the 1% and their cronies and servants.

    1. DolleyMadison

      Its getting worse…my paycheck was direct deposited on the 21st, yet not showing up in my balance either. So one paper check and one direct deposit – gone.

  13. Tony Wikrent

    The more the digerati push to impose their techno-utopias, the uglier they look. They utterly fail to consider things from the perspectives of other people.

    Get rid of cash, and never again send your ten-year old to the store for milk. No time-cost there, hmmm?

    And forget about the heart warming stories of kids saving their coins to but mommy a present, or to save some beloved animal at the zoo, or to help some charity.

  14. sharonsj

    As someone who takes part in the underground economy, it’s obvious to me that a cashless society would result in many more poor people and many more people in debt. It also makes it very easy for us to be controlled by not only the state and federal governments but by the corporations. It sounds as though the “powers that be” are afraid of a very angry citizenry and they are looking for every possible means of quashing a revolt.

  15. Carey

    “Mmm, there seems to be a ‘glitch’ with your account… we should have this straightened out by, oh, Friday after next.”

    Likely, or not, depending on who you are, and what you might say or think?

  16. redleg

    Back when I was in the financial sweatbox (previous article) as a 20-something, I got out w/o bankruptcy by going to nearly all cash. Cash can’t be garnished. I wasn’t the only one doing this in my circle of friends.
    Eliminating cash with the current US bankruptcy laws will kill people.

  17. Pespi

    Yves (Mersch) is correct. Crime is the scapegoat.
    And even if we accept the false premise, that paper money allows crooks to do their evil deeds and to lift value tokens off of others, we have to ask the question, who will have the ability to use stolen funds in a cashless society?
    Who will be able to launder money in a cashless society?

    My answer, sophisticated organized crime syndicates.

    Going cashless will force criminals to join hierarchal or cell based transnational groups that are fluent in false identities, shell companies, gaming subsidies and taxes. That sounds like transnational corporations, but it’s equally fitting for the most sophisticated of “regular” criminal groups.

    Go cashless, promote petty criminals to mafia recruits, that’s a great slogan. Maybe the whole EU can go cashless and the various mafias can create an organized crime union, write a maastricht treaty of their own!

    Prematurely banning cash would cause the same problems re: lack of interoperability of cash machines in Europe pre Euro. Or it could force emergency issuances of notes that would be equally stuck in a locality. That might be good for some regions.

    But like every other technocratic idea, the tiny kernel for good is dwarfed by the massive potential for graft and misery.

    1. ewmayer

      I treat the phrase “enough said” as a red flag for an argument deserving of extra scrutiny because in so many cases the need to try to close off any debate via such rhetorical artifices accompanies a specious claim. In your case, the speciousness comes in form of strawmanning, because this piece is not about the “can” in your example, but about the elite-vested-interests’ relentless push to turn that “can” into a “must”.

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