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Spain : 86% of the Population Considers Cash is Important but not the Government

Categories : Cash has legal tender status, Cash is a contingency and fall-back solution
June 16, 2020
Published in : Cash Payment Limitations, Legal tender, Regulation, Spain
A survey shows that the majority of Spaniards view access to cash as important in times of crisis. Meanwhile the government is proposing to lower the limit on cash payments and advocate its elimination altogether.
Guillaume Lepecq

Cash is essential in times of crisis

86% of people consulted consider that access to cash in times of crises is very important, important or more important than before, according to a Social Perception Survey of Leadership in the fight against Covid 19 carried out by the Factual Institute for Advanced Sociological Research on a sample of 1,000 respondents.

Over 20% of the interviewees consider that the use of cash is even more important in crisis situations and only 16% of the respondents consider that it is not important to have cash in these circumstances. Looking ahead to the coming months, the survey reveals that 82% of the interviewees consider that it will be important to have cash. The joint use of cash and cards is considered the best formula by 63% of respondents.

 

Lowering the limit on cash payments

Meanwhile, the PSOE, the ruling socialist party has submitted to Congress a draft law which would lower the existing threshold on cash payments in Spain from €2,500 to 1,000 but ultimately aims at eliminating cash altogether. The law aims at reducing tax evasion but appears radically countercyclical at a time when most governments around the world are trying to stimulate their economies. The Indian demonetisation in 2016 wiped 1.5% of the country’s GDP and cost over 1.5 million jobs, according to a 2018 report from the Reserve Bank of India.

As for the argument that cash fuels the shadow economy, it is commonplace and far from new. It has been used by Kenneth Rogoff, Larry Summers and Peter Sands and many others. On the other hand, for Yves Mersch, Member of the Board of the European Central Bank “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.” In a separate study, Prof. Friedrich Schneider, an internationally recognized expert on the shadow economy, reached the conclusion that “cash has a minor influence on the shadow economy, crime and terrorism, but potentially a major influence on civil liberties.” In March 2019, the Deutsche Bundesbank concluded that “there is still a lack of empirical evidence as to whether measures such as abolishing large-denomination banknotes or introducing upper limits for cash payments would, in fact, be an effective means of combating tax evasion and other criminal activities.”

 

Cash is the sole legal tender in the EU

But the Spanish proposal also challenges a number of European Treaties and Regulations. On 15 May, Christine Lagarde, President of the European Central Bank wrote to Member of the European Parliament Marco Zanni: “As previously stated by the ECB, any limitation on cash payments needs to comply with the legal tender status of euro banknotes enshrined in Articles 128(1) and 282(3) of the Treaty on the Functioning of the European Union. Limitations need to be both effective and proportionate as regards the achievement of the public objectives that are being legitimately pursued. In this regard, authorities need to take into account the implications of having limits on cash payments in place and the potential consequences thereof for citizens’ regular transactions in certain market segments. In this context, the ECB has noted in previous opinions that setting limitations on cash payments at certain levels may be associated to difficulties in implementing the limits in practice.”  The letter mentions limitations to the use of cash, not banning it.

On 20 November 2019, the European Central Bank (ECB) addressed an opinion to the Greek Ministry of Finance on a draft bill requiring taxpayers to settle a certain amount of their expenses by means of electronic payments and lowering the limitation on cash payments from €500 to €300. The ECB wrote that “the existing limit on cash payments of EUR 500 for consumer-to-business transactions, and the new tax incentives discouraging companies from spending cash in excess of EUR 300, are disproportionate in light of the potentially adverse impact on the cash payment system.”

 

Cash is a form of protection against bad government behaviour

In 2018, after a two-year consultation, the European Commission decided not to impose EU wide limitations on cash payments and concluded that “While tax fraud and the use of cash are often associated, the study demonstrates that the relationship between the two is not always clear-cut.”  The European Commission Recommendation 2010/191/EU states that the acceptance of payments in cash should be the rule, but acknowledges that cash may be refused for reasons related to the ‘good faith principle’, without this constituting a breach of the legal tender status of cash.

The European Court of Justice is expected to rule on the conditions under which governments may restrict the use of the legal tender of the euro area, as part of the Häring vs. Hessischer Rundfunk case.

During a recent CashEssentials webinar, Prof. Franz Seitz, stressed that cash was also a protection against bad government behaviour.

 

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