[Dave Birch] Peter Jones wrote a typically excellent piece called “Commission’s Four Year Delay in Cost Study Impacts Cash Displacement Benefits” for Payment Cards and Mobile magazine (April 2013). In it, he says plainly that “Europe’s cash mountain fuels the unofficial economy… at an unacceptably high level”. Too true. When I’ve written about this in the past, I’ve tended to view the unofficial economy as only one of the negative effects of cash on our society (looking also at the overall social costs) but reading Peter’s paper has convinced me that the time is right for a real war on cash. The tax revenues lost to European nations are astronomical and the unfairness of cash, which distributes its costs unevenly toward the poor, is no longer tolerable. I have long advocated a robust response.

Yet more incontrovertible evidence that €100, €200 and especially €500 euro notes are a curse, and that if the European Central Bank (ECB) keeps on printing them then it should be prosecuted under conspiracy laws.

[From See how smart you are when the K-9s come]

I was recently sent a Bank of America Merrill Lynch Rates & Currencies Research Note by Athanasios Vamvakidis (dated 9th April 2013) entitled “Time to get rid of the €500 bill?”. Reading it, I see that my forward thinking policies on euro banknotes are gaining traction. In it, Athanasios says that 

Although the ECB has no plans to remove the €500 bill from circulation, we argue that it should do so. It will weaken the euro, supporting the economy. It will address concerns that the bill is primarily used to hide illegal income. More importantly, we propose a scheme in which the removal of the bill will be a tax on illegal income, allowing using the proceeds to address the periphery crisis.

Which brings us back to Peter’s paper. Why hasn’t cash usage been falling in the supposedly developed EU economies? Peter says directly that “several Commission interventions have inadvertently created a blockage to raising more tax revenue and improving global EU payment efficiencies”. In other words, “we’re from the government and we’re here to help” has had its usual and entirely expected consequences.

The “Merchant Indifference Test” (MIT) is at the heart of this, as I was reminded in a conversation at EPCA. At dinner, a couple of people were reminiscing about “Proton”, the 1990s accounted electronic purse scheme that had been launched in Belgium. As one of my dinner companions pointed out, you could show merchants all the spreadsheets you liked proving that the electronic purse was cheaper than cash, it didn’t matter: the merchants didn’t want electronic money, they wanted cash because they didn’t want to pay tax. Cash wasn’t 2% or 5% or 10% cheaper than cards, it was 50% cheaper than cards. This is not recognised in the MIT, which makes it pointless.

Today a study suggested that the Belgian Government loses 30 billion euro every year through tax evasion and fraud (here). This is a big concern to me as I pay my exceptionally high taxes in Belgium and know what a difference 30bn would make to the average tax bill.

[From Why prepaid could make 30bn EUR for the Belgian Government « in2payments]

Indeed. Furthermore, why the MIT should be used as input to regulation remains utterly opaque. Evidence was promised, but as Peter politely notes, when the study to produce this evidence did not deliver the results anticipated by the Commission after four years, it started work on another one (which is costing a couple of million euros). This is unlikely to deliver the concrete evidence that people like me would want to see. The cost of cash isn’t simply the cost of the merchants putting it in the till and banking it. What about the cost of robberies and policemen? The costs of tax evasion and other crime? These costs are so great, and the European economies are in so much trouble, that they can no longer be tolerated.

These are personal opinions and should not be misunderstood as representing the opinions of 
Consult Hyperion or any of its clients or suppliers


  1. There is so much wrong with this article that I don’t know where to begin.
    If you want to stop fraud and tax evasion then look first to the tax havens, the accounting firms and the mega-thieving money laundering banks.
    If you want to help the poor, then let them do ‘informal’ cash transactions.
    If you want to make the world a better place, then stop writing self-serving, misleading propaganda!

  2. One could argue that the other side of “tax evasion” is, in fact, a self-regulated “redistributed” economy.

    Say I earned (pay attention to the semantics there – as opposed to, say, “received”) £1m as a taxable profit. I can pay £500K in taxes only to see that money being wasted on another Millennium Dome, funeral of a private individual or an army of EC bureaucrats.

    Or I can “distribute” that money to fuel the real economy: spend it in shops, restaurants, hotels, car dealerships, etc. Think of quantitative easing that would be given to consumers and businesses, instead of the banks…

    “Tax evasion” could be viewed as means of removing the government’s inefficiency in managing the country’s economy. If 50% tax made our lives 50% better, most people would pay it. Instead, the tax system is based not on “we need X much money to do Y”, but on “let’s milk that cow even harder because it’s producing too much milk”.

    Is the ability to earn/make money a punishable curse?.. Shouldn’t the people who are fuelling the real economy be rewarded instead of being “fined”?.. I am not talking about drug dealers here, but say about restaurant owners who works 12-16 hours a day, seven days a week.

    Another similar logic: if I buy an expensive car with a big engine (contributing to the real economy instead of keeping money in the bank), I spend a lot of my already-taxed (!) money on petrol. Petrol is a high-tax product. Shouldn’t I be getting tax credits?.. If we all stopped driving, smoking and drinking and kept all that money in the bank, how would that impact the government’s coffers?..

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