As some countries record growing usage of alternative payments, governments are starting to worry about the risks related to a potential drop in cashMoney in physical form such as banknotes and coins. More usage. Indeed, as in the case with Sweden where cash payments in retail dropped from 40% in 2010 to 15% in 2016, there is a concern that the proper functioning of the cash cycleRepresents the various stages of the lifecycle of cash, from issuance by the central bank, circulation in the economy, to destruction by the central bank. More might be at risk.
On June 5th, 2018, the Dutch National Bank (DNB) published its 3-year strategy where it made clear that it will invest its energy into strengthening the cash cycle. In fact, the Dutch government is concerned about the most vulnerable echelons of society being excluded: “To make sure that everyone can continue to participate, paying in cash must remain an option. At the same time, the accessibility and ease of electronic paymentA transfer of funds which discharges an obligation on the part of a payer vis-à-vis a payee. More systems should be improved.”
The Dutch are following the same strategy as the Swedes, where cash usage is currently the lowest in Europe. The Swedish Central Bank, the Riksbank, published a report in June where it unveiled its new policy requiring that cash’s position in society be safeguarded via a strengthened cash managementManagement and control of cash in circulation. More infrastructure. “The Riksdag [Swedish Parliament] has decided that everyone in society must have access to basic payment services at reasonable prices. This includes the opportunity to make cash withdrawals, payment processing, and the possibility for associations and businesses to deposit their daily receipts”. (Riksbank Committee report, p. 22).
Interestingly, the Swedish report was published only a month after the government’s countrywide campaign to inform the population about what to do in the event of a war. The information pamphlet, which was sent to 4.8 million households, guides the reader through a series of disaster scenarios, all elegantly illustrated, recommending to stock up on canned foods, water, warm clothing and cash, preferably in small denominations. Germany did something similar in 2016 as part of its revised national defense strategy.
The timing for these measures coincides with the European Commission’s decision not to impose restrictions on cash across the EU, published on June 12th. In its report, the EC found that limiting the use of cash would have no effect on terrorism financing. Also, it stated that although restrictions could limit the scope of money launderingThe operation of attempting to disguise a set of fraudulently or criminally obtained funds as legal, in operations undeclared to tax authorities, and therefore not subjected to taxation. Money laundering activities are strongly pursued by authorities and in most countries, there are strict rules for credit institutions to cooperate in the fight against money laundering operations, to declare and report any transactions that could be considered suspicious. More, it is not quantifiable and therefore cannot be the foundation for imposing limitations.
These positive policy developments are a clear indication that governments are well aware of the vital role that cash plays in society. Cash is central to the proper functioning of today’s payments system while also being the only tool that is accessible to all and not privately managed. As with all payment methods, cash’s use is not always legitimate or legal, but the marginal side effects are by far surpassed by the benefits, as the EC, Sweden and Holland have realized.