It should come as no surprise to our readers that Europe is at the forefront of the global war on cash.
In part 1 of our series, we reported that in May 2016, the European Central Bank announced that it was halting production and issuance of the EUR500 bill, which is the second highest denominated bill in the whole continent, behind only the Swiss CHF1,000 banknote. Fortunately, Switzerland, which is a member of the European Free Trade Association but not a member of the European Union, has emphatically stated that it has no such plans of eliminating its highest denomination banknote, with a spokesman for the Swiss National Bank stating that ‘the size of the banknote had no impact on efforts to combat crime’.
This of course runs counter to the narrative being pushed by other governments and banks which use efforts to combat crime, terrorism, and money-laundering as the main justification for their escalating efforts against the use of cash. While the statement by Switzerland is comforting, and perhaps not so surprising given their reputation as a bastion of financial privacy, it appears that they are quite alone in this fight among their European counterparts.
Italy was one of the first European nations to fire a salvo in the war on cash; all the way back in 2011, the government, then led by Prime Minister Mario Monti banned cash payments over EUR1,000, via a wide-ranging emergency decree. This was despite the widespread use of cash in Italy, the region’s most frugal savers, who prefer cash due to their distrust of non-cash payment methods; just another example of a government acting against the will of the populace in order to serve its own ends.
France, which has been the unfortunate victim of various radical Islamist attacks, used the Charlie Hebdo attacks, which occurred in January 2015, as a justification for imposing a similar EUR1,000 cash payment limit. The ban came into effect in September 2015, and in addition to the cash limit, any cash deposit or withdrawal over EUR10,000 within a month will be automatically signaled to the anti-fraud and money laundering agency. Further, changing over EUR1,000 into other currencies will also require proof of identity. Of course, such controls would have been unlikely to make a difference, as the terrorist acts were likely low-cost and self-financed.
In Germany, where 79% of transactions are made with cash, the government proposed similar measures back in February 2016 to ban cash payments in excess of EUR5,000. Fortunately, it appears that these measures would not be passed, at least for the time being, as it has faced a broad range of opposition from both political parties and common citizens. As an MP from the Green Party so saliently put it:
Cash allows us to remain anonymous during day-to-day transactions. In a constitutional democracy, that is a freedom that has to be defended
As we mentioned in part 2 of our series, it is not just governments who are clamoring for further controls on cash; banks are too, as they would benefit from higher deposits and thus higher profits. Norway’s largest bank, DNB, has called for cash to be completely phased out, stating that “There are so many dangers and disadvantages associated with cash, we have concluded that it should be phased out,” Fortunately this is not a view that is being shared by the Norwegian Finance Ministry, at least for now. The fight looks to be an ongoing on, however, as both DNB and Nordea, Norway’s second largest bank have already stopped handling cash at their branches.
And finally, in Sweden, its central bank, the Riksbank is looking at launching its own digital currency, a decision which it would make within the next two years. We can only speculate as to the level of financial privacy that each citizen would be entitled to in a fully digital environment; however based on current global trends regarding privacy in general, let’s just say that we are not optimistic.
Cash is often thought of as the safest asset class there is, and is one of the few remaining options that citizens have for financial privacy and anonymity. Yet, as a fiat currency, the governments and the central banks still retain ultimate control over it, which is why it is important for intelligent investors to diversify their portfolio into assets that can actually be a hedge against cash, such as gold, silver and other precious metals.