Politicians left and right have begun calling for a ban on large-denomination banknotes and restrictions on cashMoney in physical form such as banknotes and coins. More payments as a means of fighting crime, 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 and terrorism. Their argument is flawed.
A ban on €500 banknotes or on $100 bills is unlikely to have any effect on serious crime or on the financing of terrorist groups.
If anything, such a move will push criminal finances even deeper into the dark and away from government control and interception. And honest citizens will see their liberties and privacy restricted and their hard-won savings at risk. The cost and complication of doing business – or just buying stuff – will increase.
Cash is for honest citizens. Serious criminals avoid it as something as unwieldy as it is risky.
Banknotes have serious drawbacks for the serious criminal. They are numbered and traceable. Their use and transportation is regulated by government and intergovernmental regulations. And they are bulky and heavy. The technology and the processing of banknotes mean that it’s difficult to get any significant quantity of cash back into the legitimate financial system without running the risk of getting caught.
A banknoteA banknote (or ‘bill’ as it is often referred to in the US) is a type of negotiable promissory note, issued by a bank or other licensed authority, payable to the bearer on demand. More is a highly efficient payment instrumentDevice, tool, procedure or system used to make a transaction or settle a debt. More. It’s mobile; it’s interoperable; it works in real-time; it’s secure; it’s always on; it cannot be hacked; it’s accepted everywhere, at no cost. Banknote usage is growing, alongside that of competing electronic paymentA transfer of funds which discharges an obligation on the part of a payer vis-à-vis a payee. More instruments. But cash is much more than a payment instrument.
A banknote is a store of valueOne of the functions of money or more generally of any asset that can be saved and exchanged at a later time without loss of its purchasing power. See also Precautionary Holdings. More – just like gold, stocks and bonds or real estate. It’s a prudent store of value if issued by a responsible government authority: a banknote won’t fluctuate unpredictably in value and it’s totally liquid.
This is why a significant share of the cash issued by European Central Bank in Frankfurt and the Federal Reserve in Washington is hoarded in bank safes and mattresses or held abroad. Take the euroThe name of the European single currency adopted by the European Council at the meeting held in Madrid on 15-16 December 1995. See ECU. More: only one third of the €1 trillion in banknotes currently in circulation are used for payments in the euro-area, while 40% is held as a store of value. The remainder is held overseas.
The euro is used as a stable store of value in Africa, Russia and the Middle East. The dollarMonetary unit of the United States of America, and a number of other countries e.g. Australia, Canada and New Zealand. More is a traditional safeSecure container for storing money and valuables, with high resistance to breaking and entering. More haven in Latin America and Asia. The United Arab Emirates and China are major international trans-shipment centres for goods; African retailers and consumers make purchases there – often paid for in reputable foreign currencies. Merchants worldwide value the euro and dollar as stable, internationally accepted means of payment.
MoneyFrom the Latin word moneta, nickname that was given by Romans to the goddess Juno because there was a minting workshop next to her temple. Money is any item that is generally accepted as payment for goods and services and repayment of debts, such as taxes, in a particular region, country or socio-economic context. Its onset dates back to the origins of humanity and its physical representation has taken on very varied forms until the appearance of metal coins. The banknote, a typical representati... More laundering involves injecting criminal proceeds back into the legitimate financial system by buying real estate, stocks and bonds or other assets. It’s of little use to a criminal to be sitting on a mattress stuffed with cash. Any ordinary oligarch or “ultra-high-net-worth” individual worth his or her salt knows that sophisticated legal constructions, shell companies and complacent legal systems are the best way to launder dirty money or hide untaxed gains.
Terrorists likewise avoid using cash. The Islamic State terrorists last November in Paris knew enough to use prepaid bankcards to cover their tracks while preparing their deadly attacks. African warlords use so-called blood diamonds to finance their activities.
Cash isn’t the cause of terror or criminal behaviour. Criminals use mobile phones, but no one pretends that telephones are a cause of crime.
Critics will point out that cash is anonymous. Cash indeed provides a certain level of anonymity – but the anonymity is actually quite limited, much more limited than with largely unregulated assets such as gold, diamonds, bitcoinBitcoin is commonly said to be a cryptocurrency, a digital means of exchange developed by a set of anonymous authors under the pseudonym of Satoshi Nakamoto, which began operating in 2009 as a community project (Wikipedia type), without the relationship or dependency of any government, state, company or body, and whose value (formed by a complicated system of mathematical algorithms and cryptography) is not supported by any central bank or authority. Bitcoins are essentially accounting entries i... More and prepaid cards.
Criminals avoid cash for the same reason they avoid unencrypted phone calls and messaging: they don’t want to get caught.
There has been no formal decision in Frankfurt or Washington about large banknotes. But all the talk is sending a powerful message in the market and among the public that these notes may at some point be removed from circulation.
Although cash is ubiquitous, its role in society and in the economy is often misunderstood – particularly by politicians looking for easy talking points. The euro and the dollar are reserve currencies; they are trusted globally as a safe store of value. It is a matter of public concern if politicians are undermining such hard-earned trust with foolish talk.
This article originally appeared on EurActiv.com