Renegotiating the relation between the EU, State, society, our wallets and our cash is a sensitive issue. Within the Eurozone, bail-ins and capital controls have eroded trust in the social contract, national and European.
Still, less than a week ago, the European Commission published a proposal to limit the sum of money that can be paid in cash transactions.
The regulation of the monetary media brings to the fore questions as ancient as power itself. In ancient times, feudal lords and would be emperors minted coins to pay soldiers, diluting the silver to pay them less as the war was prolonged. Once their power was secured, they moved to proclaim monopoly over the issuance of a legal tender.
With the introduction of electronic means of payment, there is now a massive renegotiation between banks, state, and society for the means of payment, with profound implications for the global economy.
Reducing anonymity in the name of transparency
For the moment, the EU’s stated objective is to disrupt organized crime financing, terrorism, and money laundering by limiting the anonymity of transactions. Some states have also moved to limit cash payments to fight tax evasion. To make large payments more difficult, the European Central Bank is phasing out the €500 banknote.
It is not certain policy makers are ahead of the curve in their fight with organize crime. Competing with the private sector initiative, Bitcoin, national central banks are considering their own electronic legal tender, which thus far has not become an exclusive legal tender, as in material reality.
The Swedish central bank (Riksbank) announced it is examining the issue of an e-Krona; China is considering an E Yuan; the US is considering a FEDCOIN; Britain is considering an e-Sterling.
The Single Market does not have a Single Social Contract
How a monetary medium prevails depends on trust. The trust of citizens to the state and, implicitly, the ability of institutions to regulate society in a manner that is considered predictable and safe.
Sweden is one of the most advanced economies in promoting electronic payments. The Swedish Central Bank suggests that less than 15% of Swedes most of their payments in cash. Transactions in cash represent less than 2% of Sweden’s GDP.
That is sharply different than Greece and Cyprus, which had cash-dominated economies traditionally but went to a 100% cash-based economy when capital controls were introduced, at which point all electronic forms of payment were suspended.
There are now businesses in Sweden that do not accept cash payments; even Swedish homeless people sell their magazines with card terminals. There are numerous businesses in Greece that will not accept electronic payment.
Human rights opposition
The European Commission reports suggest “there is a case for action at EU level, as the existence of cash payment limitations in some member states, and their absence in other member states, allows activities to be moved across the border to elude the cash restrictions.”
In sum, unless we streamline regulation on cash-transaction, crime will take advantage of national regimes to conduct transactions in real and untraceable cash.
But, there are also arguments that cash is a preserve of citizenship that protects individuals against the exercise of the arbitrary authority of the European Central Bank (ECB), the commission, and nation-states. The state can limit cash withdrawals, while the European Commission and the European Central Bank can intervene in the way saving are used, by introducing negative interest rates.
Once again, the state does not acquire absolute control and the individual relying on state-issued legal tenders does not have absolute sovereignty. But, make no mistake, the debate is about power.