Recent developments suggest the trend away from cash and toward central bank digital currencies (CBDCs) may not be quite as smooth or seamless as some may have wished.
Last month, as readers may recall, cash payments in the UK rose for the first time in more than a decade. This week, the findings of a survey by the market intelligence company Mintel have confirmed that the use of cash is indeed on the rise again as the British public’s priorities shift from (largely manufactured) concerns about hygiene during a global pandemic to making ends meet amid soaring inflation. Crucially, cash is regaining popularity across all age groups, with half of Britons aged 16-34 years-old reportedly now using it on a weekly basis:
During the COVID-19 pandemic, hygiene was suddenly a priority focus for most people. The idea of a pound coin or a ten pound note covered in the bacteria from all those who’ve handled it before put many people off using cash. Use fell dramatically as people opted for the more hygienic option of contactless payments. But as the pandemic fades into memory, the cost of living crisis has replaced it at the forefront of consumers’ minds.
Mintel has found that the decline in cash use has slowed as consumers navigate the ongoing economic crisis, with many finding it easier to budget and keep track of spending when using cash. This is reflected in two-thirds of people saying cash importance has increased during the cost of living crisis, while almost nine in ten say it is important to keep cash as a precautionary measure. While cash may no longer be king, it is not ready to renounce its claim to the throne just yet.
ECB Defending Cash. What Gives?
There has also been some surprising albeit welcome news for cash lovers in Frankfurt. On Monday, the European Central Bank announced that it is pushing for an explicit ban on unilateral cash exclusions by businesses in the Euro Area. The central bank is calling for a regulatory crackdown on all businesses and public bodies in the Euro Area that refuse to accept cash. This is in stark contrast with the position of the European Commission, which is calling for governments to merely monitor cash exclusion.
The move comes as concerns rise about the legal-tender status of euro banknotes and coins amid declining cash acceptance across the eurozone. From the Irish Independent:
The European Central Bank (ECB) is seeking a “clear” ban on no-cash policies in shops and public bodies, including hospitals and museums across the euro area.
The move would make it illegal for shops and other business not to accept cash.In an opinion on a draft EU law to regulate the use of cash, the ECB said the spread of card-only policies “would seriously undermine” the status of the euro as the bloc’s legal tender.
The ECB says the draft law, which was tabled in June, should “clearly indicate that ex-ante unilateral exclusions of cash are prohibited” even if retailers put “no cash” signs at shop entrances or check-outs.
The ECB is also seeking fewer exemptions to the rules, including for public bodies such as hospitals and museums.
The news comes a month after the Irish Independent reported that Finance Minister Michael McGrath told ministerial colleagues to ensure that all public bodies continue to accept cash, following an attempt by NCT car testing operator, Applus, to block cash payments.
Card-only policies are currently allowed in Ireland if a business specifies the policy at the shop entrance or check-out area, or in standardised contracts.
The ECB wants to outlaw those practices.
Which probably comes as a bit of a surprise to many readers, just as it did to me. After all, the ECB just announced on Wednesday that it is proceeding in its digital euro project from the “investigation phase” to the “preparation phase.” This new phase is scheduled to last two years, at the end of which the ECB will decide whether to proceed to the next stage of preparation — the issuance and roll-out of a digital euro. It’s safe to assume it will.
It was only a few months ago that European Central Bank (ECB) President Christine Lagarde candidly admitted in a recorded phone conversation with one of a pair of notorious Russian pranksters, whom she thought was Ukrainian President Volodymyr Zelensky, that one of the main objectives of the digital euro is control and surveillance of people’s spending habits (something we have been warning about for the past couple of years).
Lagarde also said the following:
“Now we have in Europe this threshold. Above €1,000 you cannot pay cash. If you’re do you’re in the grey market. You take your risk. If you get caught, you get fined or you go to jail.”
This, as far as I can tell, is simply not true — at least not for most Euro Area economies (France and Spain being notable exceptions). In March this year — the same month Lagarde had her video chat with the fake Zelensky — MEPs agreed to set limits of “up to €7000 for cash payments and €1000 for crypto-asset transfers, where the customer cannot be identified.” And even a limit of €7000 is likely to face stiff opposition in Germany and Austria, two of Europe’s biggest cash-loving nations.
So, what gives? Why is the ECB, which is intensifying its development of a CBDC and whose president appears to have little fondness for physical money, determined to protect the right of Euro Area citizens to use cash in all offline retail transactions?
There are a number of possible reasons.
Cash Still King
First, cash is still the most frequently used payment method in the Euro Area. And even if, or when, the digital euro is launched, it will presumably coexist with cash for some time, at least until the digital euro gains a strong enough foothold. Yesterday, Lagarde herself said during the launch of the preparation phase of the digital euro that “cash is here to stay,” adding that European citizens “will have both options: cash and digital cash.” How long it stays that way will remain to be seen. My guess is that if the digital euro does gain a strong foothold, the ECB will begin financially incentivising its use while decentivising the use of cash…
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Nick Corbishley 