Should the use of cash be limited?

Payment habits have changed over the last twenty years. In Austria, cash is still the most popular means of payment at the point of sale (POS). But card payments have become more important, which is largely due to technological progress. The COVID-19 pandemic has likewise amplified the trend toward cashless payments. Additional pressure on cash also results from an initiative of the European Union (EU): The EU plans to introduce an EU-wide upper limit for cash transactions, namely EUR 10,000. The respective regulation is currently being discussed as part of a package of measures to combat money laundering and terrorist financing. Cash ensures anonymity and protects privacy. Cash works even when technology fails. In terms of inclusion, cash is important for people whose self-reported income is in the lower income brackets as well as less technically versed people. During the pandemic, cash enabled them to satisfy their basic needs. Given its tangible nature, cash moreover allows people to keep track of their financial resources. The flip side of anonymous cash are illegal activities. This is why the EU proposed to put a uniform ceiling on cash transactions. To this effect, the European Central Bank (ECB) had already in 2016 decided to stop producing the 500 euro banknote and to exclude it from the second euro banknote series. Austria has not imposed any legally standardized ceilings for cash payments – in contrast to 10 of the 19 euro area countries. The restrictions range from EUR 500 in Greece to EUR 15,000 in Slovakia. Worldwide, upper limits for cash payments are rare, existing only in 9 non-European countries to our knowledge. Such ceilings are just one way of combating crime and money laundering. As a matter of fact, national cash ceilings have had little effect so far. What speaks against restricting cash payments? An EU-wide limit on cash payments might distort competition and redistribute illegal activities within the euro area. Stricter national limits would be likely to continue to apply. Illicit activities have already started to shift to alternative, i.e. digital, means of payment, so-called crypto assets. Limiting cash payments without introducing accompanying measures could thus prove ineffective – as could restricting a single means of payment. Last but not least, an absolute, uniform measure does not do justice to the EU’s subsidiarity principle, given that wage and price levels differ substantially across EU countries.