Table of Content

1. Introduction

Cash ban is the restriction use of cash after certain limits when transacting. Governments restrict the use of cash to encourage the use of cheques or electronic transactions. Over the years, Germany has been planning to ban the use of cash above €5,000 to fight terrorism financing and money laundering. However, the plan saw criticism from different political groups as they argued it is a violation of data privacy and protection[1]. Cash allows individuals to remain anonymous, but most countries in the European Union have introduced a cash ban on certain amounts. In Germany, a cash ban clashes with deep-rooted social attitudes and habits. A recent study by Bundesbank shows that 79% of Germans use cash payments, and most prefer cash to electronic payments[2]. In attempts to combat crime syndicates, the Australian government has introduced a cash ban for transactions above $10,000. Consumer groups claim the cash ban bill may hurt bushfire victims and small businesses. Introducing a cash ban in any country may have effects that may be favourable or unfavourable to the economy.

1.1. Problem Statement

Many countries globally are used to cash transactions, particularly in developing nations. Other developed countries have particular control measures like limits on cash transactions, like Italy and France. In economics, cash control is vital due to cash demand, payment limits, and fiscal controls. In addition, cash ban measures reduce fraud, shadow economy, and tax evasion. As much as governments desire to control cash usage, the measure is not effective enough to combat illegal cash usage. Besides, most citizens object to those measures terming them oppressive and against social norms. Thus, the government should find rational solutions that benefit everyone to ensure cash use does not affect the economy adversely.

1.2. Research Questions and Objective

A cash ban is a useful tool in controlling illegal cash usage like terrorism financing and money laundering. Also, states aim to control tax evasion mostly from wealthy individuals. The paper’s objective is to investigate the economic effects of a cash ban. Various research questions to assist in achieving the objective include; how does a cash ban affect economic activities in countries? What are the positive and negative economic impacts of the cash ban?

2. Overview of the cash ban

2.1. Cash ban in Germany

In Germany, there is an old saying “cash is king,” and the belief “nur bares ist wahres.” It is not easy to get around Berlin using a credit card and thus has frustrated many Germans. Different shops have “cash only” signs on their front doors and have not adopted the use of credit card technologies. Germany is Europe’s largest economy, and its neighbours have swapped physical money for electronic money[3]. However, Germans still love their euro bill arguing cash is efficient and easy to transact with. Also, it keeps payments private, indicates personal spending, and is widely accepted in Germany. A study by Bundesbank shows an average German carries €107 in their wallets, which is three times compared to €32 carried by a French person. In the USA, the situation is worse as some carry less than $10. Also, the point of sales cash transactions was 80%. However, this does not imply Germans dislike modern payment systems as they transacted more electronically than bills in 2018[4]. German’s relationship with its cash is attributed to its currency’s universal usability, need for confidentiality, security, and personal data protection.

In 2017, the country proposed a bill to eliminate cash payments for transactions above 5000 euros to combat financial crimes[5]. Germans opposed the bill, although its neighbours are going cashless like Sweden. An online survey was conducted to evaluate national attitudes on a cash ban, of which 90% of respondents rejected the proposition. Citizens argued the state would have more access to public information hence violating their constitutional rights. Freedom is superior to liberty, but supported by the cash ban argues to the government’s cash ban bill can curb drug dealing and tax avoidance. As more Germans stay reluctant to go cashless, change is inevitable as advancing technology continues to revolutionise the business world.

2.2. How the future looks for cash payments

Since the emergence of the coronavirus pandemic, many people globally have adopted measures to protect themselves. One measure includes going cashless to avoid contact with infected surfaces. It has been months since the pandemic struck the world as millions of people become infected and others dead. This fear has pushed many individuals, including Germany, to prefer electronic payments. A study conducted by First Data on 2000 German consumers shows that fifty-four per cent of consumers believe soon cash transactions will become obsolete. Forty-two per cent believed cheques and electronic payments are convenient. Fifty-two per cent preferred card payments, and sixty-one per cent agreeing card payments will intensify. The cashless future is closing in faster each day the coronavirus pandemic increases, and hygiene concerns force individuals to pay with cards[6]. Continued technological advancements have enabled retailers and consumers to pay using apps for even smaller purchases.

The pandemic has brought change to German’s payment behaviour compared to previous technologies. Experts anticipate young Germans to change the cash norm since they look for new payment options. A UK survey shows 50 per cent of individuals have already embraced cashless payments since the outbreak as 57% use cards than before. Cash is not dead, but it is hard imagining cash to take back its throne from other payment means[7]. The coronavirus has proved changing to electronic means is not a challenging change; however, people need feasible reasons to go back to cash payment. The German Payment System Initiative forecast more card usage, where cash transactions would be an exception and not a custom, and hence the government can reintroduce its cash ban bill without trouble.

3. Economic effects

3.1. Positive economic effects

The cash ban can be linked to various positive economic impacts. For instance, limiting cash use up to a certain amount can curb money laundering. Economic growth depends largely on financial sectors, which can be damaged by money laundering. The illegal activities promote corruption and crime hence slowing economic growth, decreasing efficiencies in the real economy sector. Money laundering is also liked by terrorism financing and drug trafficking that result in more violence and crime. Money demand, exchange rates, and international capital flow fluctuate. The cash ban can thus reduce money laundering than declines government revenues by undermining political and economic stability[8].

Cash ban can also combat tax evasion leading to more government income. Individuals may use illegally acquired cash to purchase products. Such cash is not tracked and taxed. Governments lose billions through tax evasion, and introducing limits forced people to use taxed electronic means, hence increasing government revenues. Cash ban can facilitate international payments effectively, and tourists can comfortably spend in other countries without foreign exchange handles. This can enhance tourism, especially in Germany, where card payment is not common.

3.2. Negative economic effects

The cash ban has different negative impacts on the economy since it controls consumer spending. With the use of cards, consumers can control their spending as they avoid high credit debts. With cash, consumers can spend any amount on products that are taxed to increase government revenues. The cash ban, therefore, reduces spending, thus reducing government revenues. Most people have problems with cash ban due to access to private information. Cards provide vital information to banks which is vulnerable to hacking. As a result, individuals may lose their savings, resulting in bankruptcy.

Retailers and consumers may also be affected as they rely much on cash transactions to simply business transactions[9]. If many consumers use cards to transact, retailers may lack an adequate cash flow to run business operations, as they would be required to go to the bank. Furthermore, banks charge withdrawal charges which limit the actual amount transacted by customers. Such a process may interrupt business operations and sometimes retailers lacking adequate cash flow to restock. Cash limits force consumers to purchase products below the limit to avoid using their credit cards. Therefore, revenues for businesses selling products above the limit may suffer revenues decline. Loss of revenues translates to decreased taxes for governments and slow economic growth.

4. Summary

Germany is still rooted in the use of cash linked to cultural norms. The country is among the top users of cash. In fact, many stores lack card processing systems with signs indicated cash only. Germans value their euro bill; the main reason they have reluctant to become a cashless society. By 2023, Sweden, Germany’s neighbour is aiming to become a cashless country. This implies cards and cheques payment will be most popular. Germany’s chancellor introduced the cash ban proposal in 2016, limiting cash payments of over 5000 euros. The cash ban was to eradicate money laundering among terrorists and drug dealers and also curb tax evasion. Germans opposed this proposal terming it an invasion of privacy. Most people value confidentiality and data privacy; the reason they still embrace cash. The cash ban has various effects on the economy. For instance, the government can recover money lost through money laundering. Moreover, money can be tracked digitally hence reducing tax evasion. However, a cash ban can result in less consumer spending since individuals evade extra taxes on electronic payment. Consumers and retailers may also limit their purchases to avoid the accumulation of debt. Lower consumer spending decreases government levies and income.

5. Conclusion

5.1. Outlook

In the contemporary business world, technology is changing swiftly, changing different things, including means of payment. Many Germans forecast increasing the adoption of card payment in the near future. This norm is changing due to many young citizens looking for alternative means of payment. Also, young individuals have adopted contemporary societal behaviours that require the use of credit cards. Therefore, a cash ban can play a vital role in changing the ways countries have been doing things and thus improve the economy. Currently, we can all say we are going cashless due to the coronavirus pandemic. To ensure social distancing and maximum hygiene, people have switched to card payment to avoid infections. No other technology has ever made the world shift to card payments than the current pandemic. By the time the pandemic ends, people would be used to payments through mobile apps, cheques, or electronic means. It may be high time for countries with cash ban plans to enforce it since the change currently seems normal. However, as much as cash ban has significant effects on the economy like combating tax evasion and money laundering, it has adverse effects as well.

6. Bibliography

Arango-Arango, Carlos A., Yassine Bouhdaoui, David Bounie, Martina Eschelbach, and Lola Hernandez. “Cash remains top-of-wallet! International evidence from payment diaries.” Economic Modelling 69 (2018): 38-48.

Belke, Ansgar, and Edoardo Beretta. “Nicht die Zeit für digitales Notenbankgeld. Warum Cash weiterhin unersetzbar ist,” pp.1-11, (2020).

Jetzke, Tobias, and Stephan Richter. “Welt ohne Bargeld–Veränderung der klassischen Bezahl-und Bankensystemene,” pp.1-12, (2017).

Oltermann, Philip. “German plan to impose limit on cash transactions met with fierce resistance.” The Guardian. Retrieved from: https://www. theguardian. com/world/2016/feb/08/german-plan-prohibit-large-5000-cash-transactions-fierce-resistance (2016).

Riccardi, Michele, and Michael Levi. “Cash, crime and anti-money laundering.” In The Palgrave Handbook of Criminal and Terrorism Financing Law, pp. 135-163. Palgrave Macmillan, Cham, 2018.

Sands, Peter, Benjamin Weisman, Haylea Campbell, and Tom Keatinge. “Limiting the use of cash for big purchases: Assessing the case for uniform cash thresholds,” pp.1-33, (2017).

Trütsch, Tobias. “Wird das Bargeld bestehen bleiben?.” Die Presse Online online, pp.1-4, (2016).

Uzun, Levent. “Die Auswirkungen einer möglichen Bargeldabschaffung auf die Geldfunktionen.” PhD diss., uniwien, pp.5-64, (2017).

[1] Oltermann, Philip. “German plan to impose limit on cash transactions met with fierce resistance.” The Guardian. Retrieved from: https://www. theguardian. com/world/2016/feb/08/german-plan-prohibit-large-5000-cash-transactions-fierce-resistance (2016).

[2] Belke, Ansgar, and Edoardo Beretta. “Nicht die Zeit für digitales Notenbankgeld. Warum Cash weiterhin unersetzbar ist,” pp.1-11, (2020).

[3] Jetzke, Tobias, and Stephan Richter. “Welt ohne Bargeld–Veränderung der klassischen Bezahl-und Bankensystemene,” pp.1-12, (2017).

[4] Sands, Peter, Benjamin Weisman, Haylea Campbell, and Tom Keatinge. “Limiting the use of cash for big purchases: Assessing the case for uniform cash thresholds,” pp.1-33, (2017).

[5] Riccardi, Michele, and Michael Levi. “Cash, crime and anti-money laundering.” In The Palgrave Handbook of Criminal and Terrorism Financing Law, pp. 135-163. Palgrave Macmillan, Cham, 2018.

[6] Trütsch, Tobias. “Wird das Bargeld bestehen bleiben?.” Die Presse Online online, pp.1-4, (2016).

[7] Arango-Arango, Carlos A., Yassine Bouhdaoui, David Bounie, Martina Eschelbach, and Lola Hernandez. “Cash remains top-of-wallet! International evidence from payment diaries.” Economic Modelling 69 (2018): 38-48.

[8] Riccardi, Michele, and Michael Levi. “Cash, crime and anti-money laundering.” In The Palgrave Handbook of Criminal and Terrorism Financing Law, pp. 135-163. Palgrave Macmillan, Cham, 2018.

[9] Uzun, Levent. “Die Auswirkungen einer möglichen Bargeldabschaffung auf die Geldfunktionen.” PhD diss., uniwien, pp.5-64, (2017).