The Irreplaceability of Cash and Recent Limitations on Its Use: Why

The paper questions whether cash payments, in any post-industrial economy, are merely a barbarous relic of the past and whether they should be replaced by e-money. Our analysis aims to demonstrate that, being faster and more ‘expendable’ than bank transfers, cheques and other forms of credit, liquid money represents a natural drive towards economic flexibility and growth. From a behavioural perspective, cash resources entail reassuring as well as emotive components, which have ancestral origins and cannot be simply rooted out by law. Another major critical issue in today’s academic and political debate is the alleged contribution of cash transactions to avoiding capital traceability. In the same way as not every hard-copy letter can necessarily be tracked, there is no specific economic need for limiting cash payments. Nevertheless, in several European countries (Belgium, Italy, Portugal, Slovakia, and Spain) a clear trend has emerged towards setting a limit to the use of cash, based on the wrong assumption that it can curb capital flight and tax fraud. Instead, not only are these upper cash ceilings mostly introduced in crisis year 2012 unlikely to have a negative impact on consumption (depending also on economic and local factors), but they may also cause panic waves in times of economic trouble. These phenomena are all the more plausible given the imperfect substitutability of cash by other payment instruments. Bad communication by economic bodies combined with the increasing taxation of intangible financial assets (see: the Tobin Tax) and the risk, albeit occasional, of haircuts on bank accounts (see: Cyprus banking crisis) do not represent a coherent marketing strategy in support of e-money and dematerialized payment instruments. Upper limits on the use of cash, therefore, threaten economic agility and are also likely to have recessionary repercussions. However, as the Swedish case shows, accepted means of payment may be restricted by agreement, since no physical or juridical person should be obliged to accept cash unlimitedly, provided this condition is clearly stated before closing the deal.