Europe’s Cash Restrictions: A Recipe for Home-Made Economic Instability

Edoardo Beretta

Applied Economics Quarterly (formerly: Konjunkturpolitik), 2015, vol. 61, issue 4, 373-390

Abstract: Are cash payments, in any post-industrial economy, only a barbarous relic of the past? And should they be replaced by dematerialized payment methods? According to our analysis, cash represents a natural drive towards economic dynamism and growth. From a behavioural standpoint, resources hold in cash entail reassuring components, which have ancestral origins and cannot be eliminated by law. That notwithstanding, in several European countries a clear tendency has emerged towards imposing a limit to the use of cash, based on the supposition that it may reduce capital flight and tax fraud. Not only are these cash acceptance thresholds - mostly introduced around the crisis year 2012 - likely to have detrimental repercussions on consumption as well as GDP growth levels, but they may also cause panic waves in times of economic uncertainty. These outcomes seem particularly probable given the imperfect replaceability of cash by other payment alternatives. In addition, inadequate communication by policymakers combined with the (growing) taxation of intangible financial assets and the menace, albeit infrequent, of haircuts on bank accounts are the opposite of any coherent marketing strategy in support of cashless economies.

Keywords: cash limitations; e-money; European Union; money; (inter)national payments system (search for similar items in EconPapers)
Date: 2015
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