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Cash: Down but not Out

Categories : Cash is trust
June 30, 2016
Tags : Consumers, Regulation, Unbanked, Universality, Usage
Mordechai Fein, former Director of the Currency Department at the Bank of Israel, discusses the dangers of imposing restrictions on cash usage and the need for true empirical evidence to support any such legislation - something that is not the case today.

“Severe restrictions on the use of cash have become almost a matter of routine worldwide” states Mordechai Fein, former Director of the Currency Department at the Bank of Israel in his paper “Cash: Down but not Out”.

There is a growing trend across the globe to impose restrictions on cash transactions, supposedly to curb the financing of terrorism, money laundering and tax evasion. These decisions are solely  based on assumptions.

A real debate on the subject has yet to be launched to clearly analyse the social and economic repercussions on the public. The lack of empirical data is evident when simply analysing the level of discrepancy in cash-transaction ceilings between countries (ranging from €1,000 in Italy to 15,000 in Slovakia).

Unlike Italy, France and other European countries, the US have not implemented a formal legislation or exact limit to cash transactions causing even greater confusion and unnecessary red tape. In fact, commercial banks are required to file reports on any suspicious activity to law enforcement authorities and these reports are subject to minimum quotas, forcing banks to regularly submit them – regardless of the number of truly suspicious cases – to avoid sanctions or fines.

The benefits of cash are many, including its universal acceptance, anonymity, convenience, ease of use and facilitation of budget management. In Israel, 7% of the population above the age of twenty does not own a bank account. That number goes up to 20% when observing the Israeli-Arab population, clearly proving the socioeconomic consequences of growing restrictions on cash transactions.


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